Two key issues are worrying Western policy makers. One is the credit crunch, which began with loose loans to US house buyers. This has sent financial behemoths such as Citibank and Merrill Lynch scrambling to secure cash where they can – and one of the few reliable sources are sovereign wealth funds from Singapore, China and the Gulf. These funds have been able to extract a high price for their support.

The other issue is the oil price, which climbed above $100 a barrel for the first time on 2 January. Energy-consuming nations such as the US are uncomfortable with this, but for oil-producing nations it means massive inflows of capital, which they can use to improve their infrastructure and diversify their economies.

While there are still difficulties for the Gulf, particularly rising costs and a skills shortage for major construction projects, oil revenues should ensure these can be overcome.

Diplomatically, there are also reasons for hope. The US presidential election in November will mean a new White House resident with fresh political capital to spend on resolving issues in the region.

Despite President George Bush’s poor track record, progress has been made on some of the biggest issues in recent months. The Annapolis Summit, while setting itself wildly optimistic deadlines, has at least opened a fresh dialogue over the Palestinian issue. A US intelligence report in December that Iran is no longer developing nuclear weapons calmed the rhetoric between Tehran and Washington.

If everything falls into place, 2008 could be as significant a year for the Middle East as 1979, when the Iranian revolution and high oil prices threw the region into economic and diplomatic disarray. This time around, however, the reverse could happen.