Oil in Economic & Political Development of the Middle East

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It is fair to say, that for many years oil was one of the most important factors, affecting the government’s policy and economical state of a country. In defining their home and foreign policy, the leading states, as well as the developing economies, take into account the influence of energy and oil factor.

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The tremendous value of energy commodities in the world policy strains relations between the leading countries, as well as causes overt and hidden confrontment between them. The situation is worsened by the fact, that world oil and gas reserves are constrained, non-renewable, and unevenly distributed.

Oil is the most widely used energy product in the world economy, though the majority of oil-consuming countries, either have no their own oil deposits, or own oil fields with reduced output. Oil is considered to be the most cross-functional form of the energy reserves trade.

A great influence of the oil factor on the international relations between the countries may be explained by the following reasons. First of all, all the countries of the world are interested in their energy security. Hence the emergence of the long-term unions, which determine the situation in the key oil-mining regions.

Secondly, the oil business is one of the most profitable types of business activity. For instance, the oil-pool development in Livia has made this formerly backward country a heavy hitter on the international scene.

Thirdly, the oil industry is international by nature. This fact gives rise to the extra-large corporations. These global companies operate across the boundaries of the sovereign states, regardless of the political discord in them. Moreover, the largest oil companies lead negotiations with national governments and reach arrangements with them on equal terms.

Countries of the Middle East hold a specific place in the world oil trade. The Middle East is a source of one of the worlds most valuable energy sources, such as oil (Milton-Edwards 2011). The explored and confirmed reserves of the oil in this region amount to approximately 56-60 percent of the world’s resources (Halliday 2005). Among the largest manufacturers and exporters of oil are Saudi Arabia, Iran, Iraq, Kuwait, UAE, and Qatar. The following important peculiarities of this region may be distinguished: a large income of petrodollars, which has significantly increased the paying capacity of these countries, and thus has increased the requests for technology and consumer imports, in accordance with the state plans of economic and social development; the imperfection of many elements of the local social structures; the ability of the countries of this region to regulate the export of the oil on the world market, in order to increase their currency receipts.

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The presence of the richest oil deposits was the main condition, which had predetermined the quick involvement of the economy of these states into the world economy in the second half of the 20 century. The development of this process was taking place throughout the whole period, during which the large industrial design of the oil deposits in the countries of the Middle East was carried out by the western petroleum monopolies. The role of Arabian countries in the field development, in the oil production and sales, has been changed during the different stages of its development. The enforcement of the Arabian influence on the oil revenue distribution on the world market and on its dynamic is connected with the OPEC (Organization of Petroleum-Exporting Countries) activity. The seventies are characterized by the jump of the free market price, and by the passing into the ownership to the countries of this region, who have nationalized all the natural resources on their territory, practically all the oil deposits. The high oil price fixation, instead of the monopolistically low prices, sustained by the western companies during the post-war period, caused the inflow of exchange earnings into the Middle East economy and led to the implement the drop-in replacement.

The influence of the oil factor caused significant alterations not only in the economy of the countries of this region but also in the oil-importing countries and in the relations between these partners of the world oil industry. The Persian Gulf region was twice in the center of the energy crises, which shocked the world in the seventies. The incomes of oil monarchs are so high, that their private fortune has surpassed the wealth of western financial magnates. Now, the petrostates are one of the largest capital exporters of the world, and their governors have merged with the world financial oligarchy. These processes are reflected on the sociocultural level, where the intention of the Arab states to the formation of the independent model of economic development may be observed (Owen 2007).

Of course, poor countries are also affected by the oil factor, but to a less degree than those, which have vast deposits of oil at their disposal. Before the oil-pool development, Middle Earth was considered to be a poor region. Gause (1994, p.44) described it as the region ‘forbidding ecologically and deprived economically, with very limited agricultural and pastoral economies and a small but locally important caravan trade’. The situation was changed in the first part of the 20th century when the rich deposits of oil had been found. Now the economy of the region, which originally had been rural, reorganized into a rentier economy. Schwarz (2008, p.604) determined rents as ‘the income derived from the gift of nature and are usually understood to be income accrued from the export of natural resources, especially oil and gas’.

The share of the oil revenues determines the rapid growth of the macroeconomic indicators and the GDP of these states. Within the GDP, the state spending of these countries was increased. The eighties were the peak of the economic upswing of the states of this region. This period is characterized by the beginning of the renewal of the economy of the whole region. The rapid development of the infrastructure, the construction of the high-technology building, the development of tourism, as well as the improvement of citizens living conditions were observed.

This tendency for the high revenues and high GPP of the oil-rich countries is still actual. For example, from 1981 until the present time the GDP of OAE is higher than that of the United Kingdom.

It is possible to say, that the oil factor had a positive effect on the economy of the countries of the Middle Earth. Within the infrastructure development, the improvement of the health care, the countries of the region became attractive for business and tourists.

Nevertheless, the great part of the researches, because of the weak production sector as well as the certain political problems, share the opinion that rapid growth of economic indexes is short term, and will not provide stable development of the economy in the future. The factors, which make them think so are the lack of democracy, corruption, the absence of the necessary reforms, and others. One of the researches Jreisat (2006, p.415) says that ‘the detrimental dependency on a single commodity serves as an obstacle for the successful long term economic development and prosperity.

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The main specific feature of all rich countries may be illustrated by the principle ‘no representation without taxation (Yousef 2004). Thus, the government, obtaining huge incomes from the oil sale, undertakes their citizens, or even exempts them from the taxes at all, at the same time providing the population with high living standards. Instead, the government does not need to account for the division of incomes to their citizens. In practice, the citizens are incapacitated to demand accountability from the government.

Many researchers consider such a tendency to be a stagnation in the political system of these countries. At the same time, it must be admitted, that the majority of the citizens of these counties, find such state of affairs to be acceptable for them. It may be explained by the national and religious peculiarities of this region, and by the impossibility of the political system of the Islamic states to follow the western pattern.

It can be concluded, that the structure of the economy-oriented on the oil sail, which is adherent to the majority of the countries of this region, leads to the high dependence on the oil market environment. The governments of these countries realize the presence of the deficiency in the outside investment, and the necessity of the new market outlet search.

References

Gause, G 1994, Oil Monarchies: Domestic and Security Challenges in the Arab Gulf States, Council on Foreign Relations Press, New York.

Halliday, F 2005, The Middle East in International Relations: Power, Politics, and Ideology (The Contemporary Middle East), Cambridge University Press, Cambridge.

Jreisat, J 2006, ‘The Arab World: Reform or Stalemate’, Journal of Asian and African Studies, vol. 41, no 5/6, pp. 411–437

Milton-Edwards, B 2011, Contemporary Politics in the Middle East, Polity, Oxford.

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Owen, R 2004,State, Power and Politics in the Making of the Modern Middle East, Routledge, London.

Schwarz, R 2008, ‘The political economy of state-formation in the Arab Middle East: Rentier states, economic reform, and democratization’, Review of International Political Economy, vol. 15, no. 4, pp. 599-621.

Yousef, T 2004, ‘Development, Growth and Policy Reform in the Middle East and North Africa since 1950’, Journal of Economic Perspectives, vol. 18, no, pp. 91–116

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BusinessEssay. 2022. "Oil in Economic & Political Development of the Middle East." January 14, 2022. https://business-essay.com/oil-in-economic-and-amp-political-development-of-the-middle-east/.

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