Oil and the region's striking growth story

26 April 2017

The Middle East’s economic transformation means those born in the region this year will have opportunities that were unimaginable 60 years ago

March 1957, the month MEED was founded, still lives in the memory of some, but is as remote to the overwhelming majority in the Middle East as Queen Victoria is to citizens of what was once the British Empire.

The population of the region then was less than 100 million and most made a living, as their ancestors did, in farms, villages and small towns. More than 1 million were nomads. The majority were poor and illiterate. Those that survived birth and infancy lived for no more than 60 years. Diseases unknown in much of Europe for a generation still killed thousands every year. There was still slavery in Arabia.

Longer lives

Today, some 440 million people live in the Middle East, mostly in cities and towns. Extreme deprivation still exists, but in pockets. Only in Syria and Yemen, both blighted by conflict, is average life expectancy below 71 years.

More than 100 million are unable to read, but illiteracy in the young has been largely eliminated. Diseases of affluence – obesity and diabetes – have become a greater threat than the illnesses that were ending lives 60 years ago.

In 1957, Cairo and Tehran were the only Middle East cities with more than 1 million people. Today, at least 10 million live in both places and 30 cities have more than 1 million inhabitants.

The transformation has been wrought principally by the extraordinary rise in the region’s income from exporting oil and gas.

In 1957, Middle East oil production was less than 4 million barrels a day (b/d). It had been flowing in Iran for almost half a century and for more than 20 years in Iraq, Saudi Arabia, Kuwait and Qatar. Oil in commercial quantities had been discovered the previous year in Algeria, but was still to be found in Libya, then a kingdom, Oman and what is now the UAE. Saudi Arabia had huge proven reserves, but the kingdom produced little more than 1 million b/d in 1957. It was less than that in both Iran and Iraq.

 Saudi Arabia GDP

Saudi Arabia GDP

In 2016, Middle East countries produced about 27 million b/d, almost one-third of the world total.

In March 1957, oil sold for about $2 a barrel, equivalent to less than $16 at today’s prices. World output totalled just 17.7 million b/d and 40 per cent of that was produced and used in the US. Now it is about 97 million b/d and less than 10 per cent comes from the US, which is still the world’s largest oil consumer.

Foreign control

This year, Middle East nations will produce oil and gas worth almost $400bn, about 40 times more in real terms than they did in 1957. Nevertheless, the oil produced that year was starting to change the region. Governments of oil-exporting nations had money to spend, although not enough went where it should have and too much was taken by oil company shareholders.

That was because most Middle East oil fields were controlled by foreign oil companies in long-term concessions. About 90 per cent of world oil in 1957 was produced by seven firms: BP, Royal Dutch Shell, Gulf Oil, Exxon, Mobil, Chevron and Texaco. They dominated the region’s oil industry too.

Today, national oil companies owned by the state are the masters. Opec, created in 1960 and inspired by Middle East oil exporters, accounts for a third of total output.

Oil and the region's striking growth story

Oil and the region’s striking growth story

Big oil’s dominance reflected the fact that most Middle East countries had either just recently secured independence or were still controlled by foreigners. Morocco and Tunisia became independent in 1956. Algeria in 1957 was part of metropolitan France and had 1 million French settlers, most of whom left following its break with France five years later. Technically self-governing, Libya was effectively a British protectorate as were Jordan, Bahrain, Kuwait, Qatar, Oman and what is now the UAE. Iraq, independent since 1932, was still guided by Whitehall. The regime of the Shah of Iran had been saved by the UK and the US in 1953. Only Egypt, Syria, Lebanon, Saudi Arabia and Yemen had largely unqualified national sovereignty when MEED was founded.

There are still foreign troops across the Middle East, but they are there by invite. Middle East governments are influenced by foreign powers, but not controlled by them as the majority were in 1957.

As national self-determination spread in the subsequent decade, programmes to accelerate development and end foreign economic hegemony were launched across the region. For most, this entailed promoting local industrial production to displace imports and create jobs. Less has been achieved than was hoped 60 years ago, but the progress is undeniable. Qatar is now the world’s largest liquefied natural gas producer and Saudi Arabia is the world’s biggest manufacturer of base petrochemicals. Every Middle East nation has a significant manufacturing sector. In 1957, they had practically none.

Modern service industries have emerged. Middle East seaports and airports are among the busiest in the world. Tens of millions visit the region annually, with more than 6 million alone expected to travel to Saudi Arabia for Hajj and Umra this year. It was less than 1 million in 1957. Millions from the Middle East travel across the world, most for jobs and education as previous generations have done, but a growing number do it purely for fun. The proportion that could be called middle class is approaching the region’s total population in 1957.

Tragically, up to 10 million are refugees from war and failed states. That figure too has never been higher.

Living standards

The benefits that oil and economic development have delivered far outweigh the past and present impact of conflict and fear. Most Middle East nations are middle-income economies and the six member states of the GCC have living standards approaching that in advanced countries. Poverty still remains. But economic growth, investment in infrastructure and new communications technologies are delivering a quality of life to hundreds of millions that only a tiny, privileged elite enjoyed in 1957.

Youth unemployment in places is greater than 40 per cent

Involuntary unemployment, as it is understood in advanced economies, was confined in 1957 to the cities where most wage workers lived. The majority made a subsistence living on the land, where idleness was unsustainable.

Migration to towns and cities made possible the distribution of the education and health services that have changed Middle East societies. But it has also led to the rise of joblessness across the region. Youth unemployment in places is greater than 40 per cent and this is probably the biggest unsolved economic problem faced today.

Immeasurable wealth has been lost in wars with Israel and violent revolutions in Iraq, Libya, Iran and Yemen since 1957. Iraq has been at war with its neighbours and itself almost continuously since 1980. And civil conflict has scarred almost half the region’s Arab and Muslim nations at some point in the past 60 years.

Economic divide

The difference between rich and poor within and between Middle East countries is greater than it was in 1957. Some of the world’s wealthiest people live in the region. Giant financial institutions, including state-owned sovereign wealth funds and the biggest sharia-compliant banks on Earth, invest billions of dollars of the Middle East’s savings in property and stock markets in the US, Europe and booming Asian economies. Yet tens of millions do not have reliable access to clean water and safe sanitation.

It is a perversity that would have perplexed the idealists struggling in 1957 to end foreign exploitation. But the overwhelming majority are immeasurably healthier and wealthier than their counterparts six decades ago.

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