The Middle East is not in the most suitable political situation these days. Iraq is in a mess, steps away from full-out civil war. Downtown Beirut is the scene of tense political rallies on a daily basis, and there are many impediments to greater political reforms. One might think that the region’s economic situation is similarly dire. But, that’s not the case. As reports indicate, the Middle East as a whole is enjoying a healthy economic standing. Last year, regional growth averaged an astounding 6 percent and the region made up one third of all resources spent on infrastructural development projects.

The situation toady is very different from the economic downturn of the 1980s or the 1990s. Politically speaking, the region also experienced political crises during the mentioned decades. Yet, the average annual growth of the region did not exceed more than 1 percent. Things have changed. Naturally, high global oil rates are an important dimension of this strong economic growth. Oil-rich Persian Gulf countries enjoyed an impressive 12 percent growth rate in the previous year. While political tensions over a number of important regional issues remain high, the region as a whole has managed to outpace the global economic growth rate.

Undoubtedly, some countries are doing better than others. The United Arab Emirates, with a booming tourism industry and oil riches, is certainly one of the brighter examples. The UAE’s nominal GDP, as put forth by its Ministry of Economy, was expected to reach around $162.6 billion in 2006, indicating a 23 percent increase over 2005 figures. The ministry also predicted a 24.9 percent growth in investment within the country, reaching $31.9 billion in the previous year. While the International Monetary Fund (IMF) puts non-oil real GDP growth at 11.5 percent, it puts the total figure for 2006 at a higher $176.8 billion. The outlook for 2007 is similarly bright. While the GDP growth rate is expected to drop to 8 percent, economists believe that will allow the economy to ward of any possibility of over-heating.

One important factor behind this auspicious economic situation is high oil prices that have remained historically high for the fourth year in a row. This has allowed for greater liquidity in the market and has provided oil-rich countries with a good reserve of hard currency which they have used to repay off national debt. Moreover, oil is the catalyst behind the UAE’s and the region’s economic drive. As David Butter, a chief energy analyst at the Economist Intelligence Unit, states, "the fundamental driver of the region’s growth will be the central importance of the Middle East to the global energy market." Moreover, economic diversification has released a larger portion of oil and gas surplus revenue to be invested in the region itself.

In a recent report, the investment bank Merril Lynch also indicated that sound investment is the key factor behind future growth in the region. The report sounded positive regarding investment of regional countries in infrastructure and consumer services. It pointed to the emergence of another regional investment boom and stated that "the good news is that this time around, there is more private sector investment and greater public sector restraint, which should make the spending growth more durable."

The large inflow of readily available petrodollars has also brought with it a number of negative impacts. Excess liquidity has pushed markets to never seen before limits that are both unsustainable and unlikely to hold. Both the UAE and Saudi market, the latter being the region’s biggest, crashed in the previous year. Another outcome has been high inflation rates. According to the Abu Dhabi Chamber of Commerce, inflation reached 20 percent in the UAE in 2006, one important factor being high property rates. Certainly, these are important factors for decision makers to take into account.

Moreover, high growth factors or GDP figures don’t necessarily disclose the distribution of wealth in Arab countries and might provide an incorrect vision of unblemished economic success. Sheikha Lubna Al Qasimi, UAE Minister for Economy and Planning warns that, "one in five Arabs still lives on less than $2 a day." She also mentioned that such figures are usually not associated with Arab countries and are more reflective of third-world countries. The UNDP’s Arab Human Development Report also makes the case that Arab countries have not fully managed to translate their oil riches into solid development and growth.

Another important regional dynamic is the relatively young emerging population and labor market capacity. Nearly 70 percent of the population in the Persian Gulf is under the age 30, and nearly 50 percent is under the age 20. There is a high unemployment rate as the population continues to grow at a rate of 2.5 percent a year which is the highest in the world. The total labor force is expected to increase from 104 million in 2000 to 146 million in 2010 and 185 million by 2020. Over the next two decades, the Arab world must create 100 million new jobs, more than the total number created in the region over the past 50 years.