Persian Gulf Nations’ Bulging Coffers Bring ’Wrenching Transformation’

Youssef Ibrahim, a risk consultant and the former Middle East correspondent for the New York Times, discusses the flood of money lining Persian Gulf coffers.

June 03, 2008

To help readers better understand the nuances of foreign policy, CFR staff writers and Consulting Editor Bernard Gwertzman conduct in-depth interviews with a wide range of international experts, as well as newsmakers.

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Youssef Ibrahim, a risk consultant and the former Middle East correspondent for the New York Times, says Gulf nations are trying to adapt to the flood of money pouring into their coffers. Some, like Saudi Arabia , are building new "economic cities" but have a problem finding enough workers. Others, like Abu Dhabi in the United Arab Emirates, have permitted moderations in their society to accommodate the outside world. Ibrahim says Qatar, which recently helped broker a settlement of the Lebanese crisis, moves between different worlds, hosting the al-Jazeera media network and also the U.S. Central Command.

With the price of oil and natural gas out of sight, the countries in the Persian Gulf are obviously taking in billions of dollars. How are they using this money? What are these societies like these days?

I think they are going through another wrenching transformation because the amount of money is extraordinary. When you think that a country like the United Arab Emirates [which includes Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-Khaimah, Sharjah, and Umm al-Quwain], and specifically Abu Dhabi, is sitting on the largest sovereign fund in history, something approaching almost $800 billion—it’s a country of just 5.5 million people, of whom only 1.5 million are UAE citizens. You can see the dimension of the imbalance that results from this, and the cultural impact of it.

So what do you do with so much money when you already have a lot of money? The quickest decision we are seeing, of course, is an explosion of real estate because it’s the easiest and most accessible way of parking some wealth. Islands are being built in the middle of the Persian Gulf, and resorts are being put there. Some of it doesn’t really make sense in terms of economics. What’s the point of building a ski resort within a shopping mall in Dubai where the temperature in the summer reaches 120 and 130? Money has got to be parked some place. Another place to use money is to start buying in the Western economies. Saudis, for instance, have bought significant shares of Apple Corporation, of strategic outlets, banks, Merrill Lynch, Morgan, Citibank. So we are watching the second phase of how to digest an enormous excess of money.

The Saudis are building what they call "economic cities," aren’t they?

Yes, they are. They keep coming up with new frontier projects. And in fact, the problem with this—although it’s an opportunity also—is: Where are they going to get the labor from? As usual, the labor, of course, is being imported to Saudi Arabia. It is a country of 22 million with an expatriate labor force of 8 million. That’s a substantial amount of people really doing much of the work. So that problem hasn’t been resolved. The problem that these societies have, which is becoming accentuated now, is: How do you translate the money into evolving the society itself, since the barricades to evolving the society continue to encompass an enormous amount of tradition and social inhibition? For example, women really cannot work in Saudi Arabia. Expatriates have huge restrictions on their lifestyles, where they can be, what they can do, et cetera. And these problems of managing growth internally are only becoming more serious.

But just across the border from Saudi Arabia is Qatar, and there women drive; it’s a quite different society, isn’t it?

And so is Kuwait, and the United Arab Emirates. Qatar is sitting on the largest natural gas reserve after Russia, so it’s going to be incredibly rich forever. And the problem remains how to translate this wealth inside the society. But its main problem is its relatively small size. Qatar, for example, lately, is reaching for a political role that is much, much bigger than its regional weight. Recently, it arranged what appears to be a settlement to the Lebanese crisis. And basically that was done through distributing an awful lot of money, perhaps as much as, according to the reports I have heard, $300 to $400 million to all the participants to agree.

You mean the different parties? Such as Hezbollah?

Hezbollah, the Druze, Sunnis, the Hariri people [the supporters of the assassinated former Lebanese prime minister, Rafik Hariri]. But their driving purpose was the same driving purpose they had in establishing and creating al-Jazeera [the Arab media network] which has become, really, the main identification of Qatar. In other words, people know al-Jazeera more than they know it’s a Qatari-sponsored station. But al-Jazeera gives Qatar a political dimension that far transcends its actual size. The role it’s now playing is essentially in vying for influence against the big mother of the region, Saudi Arabia. And so the money is really translating into, now: How do we use it to promote our prestige? For example, look at Abu Dhabi. It has contracted to get the Guggenheim and the Louvre museums to open branches in Abu Dhabi. On the face of it, it doesn’t make much sense because the traditions and the sharia law in Islam ban images and statues, as you know. And here is this country spending $500 million to open branches of museums which do nothing but display pictures and statues.

Are the rules not followed in Abu Dhabi?

There are no rules. The rules are suspended here, twisted there, because there is no coherent system of absorbing all this. It is progress in many ways, but it is progress by standing in the dark. So you do this, and then you worry about it later. I mean, one question that comes up having lived there for many years and reported on it for even more: Where are you going to get the audience from? You establish museums of the quality of the Louvre because you have the money; you can buy the paintings, you can afford the money to create a flow of exhibitions. But how do you create a flow of visitors? Do you fly them over from Europe, or what? Because there simply are not enough people locally to appreciate art, to go to museum, to make this into a tradition. There are huge gaps. But their strategy is: We will fill the gaps later.

Are there tourists going to these countries now?

Yes, in Dubai there are enormous resorts and hotels that are being built up. And of course, what you do is you give tourist packages to people to fill up those hotels. So yes, some tourists are showing up. Germans, French, European tourists. And Russian tourists, of course, plenty of Russian tourists. There will always be a market for tourism if the price is right.

And there are beaches in some of these places.

There are beaches. And, again, here you come to the dichotomy, which is the natives, of course, would never go to such public beaches, because women are not supposed to put on swimming suits. But the natives are so rich they can afford their own private beaches or swimming pools. You’re creating a potpourri of living with Western values when you are deeply mired in contradictory Eastern values.

Going back to Qatar, there’s a big American military base there, right?

That’s another very interesting dichotomy. The American Central Command [CENTCOM] is based there. And I’ve been to it a couple of times. It’s a huge operation. It is, in fact, the most forward U.S. military presence in the region. And it is in a country where not very far from it is the headquarters of al-Jazeera.

It comes back to a simple thing we have seen so many times when we travel to Saudi Arabia and when we travel back from Saudi Arabia on the airplane. Going in, the phenomenon you see on the airplane is women and men coming in with blue jeans and jackets. And then when the pilot says, "We’re entering Saudi airspace," there’s this long line from the toilet, and what comes out are black tents—women wearing chadors—and suddenly the atmosphere in the cabin gets depressed. And on the other way around, coming out of Saudi Arabia it’s exactly the opposite. Black tents walk into the cabin, and the moment the plane leaves Saudi air space, the aura of perfume starts in the cabin. But it does take a toll to have this schizophrenic, one-leg-in-Western culture, one-leg-deeply-in-our-culture, and the result of it is, of course, we will see more and more of this because the money is now creating the instruments of modernity.

These countries are obviously aware that at some point, perhaps, the price is of oil is going to drop. But they’ve got money saved up now. They’ve got enough investment going, is that right?

Yes, that’s what the sovereign funds are. They are accumulated monies that they cannot spend fast enough. So they are being invested. And that leads to another debate. Since World War II it was Europeans, essentially, and then eventually Koreans and Japanese, who have been the biggest investors from overseas in the West. And basically, minus a few protests here and there—you remember when the Japanese tried to buy Rockefeller Center—it was fine. Essentially these countries share the strategic values of the West. One way or another, they were functioning democracies and there was no problem.

But now, you have all this money coming from countries that do not share the same values of democracy, women’s rights, equality, rule of the majority, and that is a problem. I mean, when the Abu Dhabi fund wants to buy Morgan Stanley, how do you feel about that? Or when they buy big shares of Citibank, how can you say it does not affect the biggest bank in the United States of America? Or course it does. And the next question is, all right, it affects it, that’s fine, there’s nothing wrong with them buying a share of it, but there could be plenty wrong if they have a political agenda dictated by their social agenda.