Analysis: Gulf booming again

Saudi princes now have something to smile about

By Middle East correspondent Frank Gardner

The good times are back again - or so it seems for the Arab Gulf states where much of the world's oil is produced.

With the oil price soaring above $30 a barrel and the pumps going nearly at full capacity, Gulf coffers are overflowing with unforeseen wealth.

Countries like Kuwait and Saudi Arabia depend largely on oil for income, so they experience something of a bonanza when prices are high.

The price of oil is at a 10-year high

There is no outward sign of change on the prosperous streets of Gulf capitals.

But behind the scenes, in the air-conditioned offices of government ministries, higher oil prices are making a difference.

Two years ago the Gulf was in crisis.

Cheap oil prices meant governments could no longer offer guaranteed civil service jobs to school leavers, as they had come to expect.

Economists predicted a social crisis. Now the pressure is off - at least for a while.

Tempting choices

As it often takes several months for oil price changes to feed through to the economy, planners are still debating on how to spend this financial windfall.

Billions spent on defence, but security remains a concern

For Saudi Arabia, a rich country saddled with foreign debts and budget deficits, an obvious answer would be to try and balance the books.

But increased oil revenues can also tempt Gulf governments to spend more on arms.

Last week Saudi Arabia announced an arms deal with the United States worth nearly $3bn.

And as more unexpected cash flows in from oil sales the estimated 7,000 Saudi princes are likely to demand an ever-bigger share.

Many economists worry that high oil prices will simply bring a return to the lavish unplanned expenditure which proved so damaging to the economy in the past.