In 1970, the sultanate had only 10 kilometres of paved roads. Today, it boasts extensive highways, modern seaports, industrial free zones and fast-growing service and financial sectors.

Much of this can be attributed to the modernising zeal of Sultan Qaboos, who has made the extension of social services, including the provision of schools, hospitals, water and electricity, a priority in his 43-year rule. Annual project spending averaged about $7bn in the decade to 2010 and has steadily increased since. Little of this investment would be possible, however, without the presence of oil.

Oil has been the mainstay of the Omani economy since production began in the 1960s. While output peaked more than a decade ago, state company Petroleum Development Oman (PDO) has fought with some success to restore export levels using enhanced oil recovery techniques and venturing into new areas such as heavy crude extraction.

Oman also boasts considerable proven reserves of natural gas, about 0.5 per cent of the world total, which have been used to develop energy-intensive industries such as aluminium smelting, the ‘frozen gas’ that several Gulf states produce to monetise their hydrocarbon wealth. Much of the remaining resource is locked in scattered fields that are hard to access and harder still to develop commercially, but new technology and the assistance of international oil companies will help Oman stretch out its reserves for some years to come.

Like Bahrain, the other Gulf producer that has suffered the onset of ‘peak oil’, the Omani government has been working hard to diversify its economy. It aims to raise the non-oil sector’s share of gross domestic product (GDP) to 81 per cent by 2020, with the private sector contributing 91 per cent of economic output by then. Industry, information technology, tourism, healthcare, fisheries and higher education are some of the areas targeted for investment.

Trade is another important part of this plan. A maritime trading power in centuries past, Oman still stands to benefit from its location. Not only does it sit at the head of the Strait of Hormuz, the choke-point through which 20 per cent of the world’s traded oil passes every day into the Indian Ocean, but it also lies on the East-West cargo route between Europe and Asia. While its facilities are unlikely to compete head-on with the scale and integrated infrastructure of ports such as Jebel Ali in Dubai, Oman hopes to shave off some of the seaborne traffic that currently passes into the Gulf. 

To this end, the government has invested heavily in facilities at the deepwater port of Salalah in the south, which has become one of the main transhipment hubs in the region and home to a thriving free zone. The port handled 3.6 million 20-foot equivalent units in 2012 and is ranked sixth globally for transhipments by the JOC Group, an international transport intelligence provider. Foreign direct investment in the hub, which also benefits from a free-trade agreement between Oman and the US, was estimated at $3.5bn in 2012.

Other projects in the offing include a $10bn refinery and petrochemicals complex in Duqm, in the central coastal region of Oman. Somewhat incongruously, the industrial town is also earmarked for the development of tourist infrastructure.

Tourism continues to be one of the sultanate’s main growth industries, with revenue up by more than 15 per cent in the first four months of 2013. Instability in other parts of the Middle East, notably in Syria and Egypt, have helped to divert tourist traffic to the country.

The recovery in oil output and higher energy prices have enabled the economy to achieve solid growth in the past few years. The International Monetary Fund forecasts GDP growth to be 4.2 per cent in 2013, a slight slow-down from 5 per cent the previous year and 4.5 per cent in 2011.

The government has prepared an expansionary budget for 2013 of $33.5bn, a 29 per cent increase on the previous year. This envisages a small deficit of $4.4bn, but with the government budgeting on an average oil price of $85 a barrel, well below world market prices, it can expect to enjoy a small but comfortable surplus.

The benign outlook for the economy led ratings agency Standard & Poor’s (S&P) to reaffirm Oman’s A credit rating in June, citing strong fiscal and external surpluses. Both S&P and Moody’s, which rates the sultanate A1, maintain a stable outlook.

Oman has been transformed over the past few decades into one of the more developed societies in the region