The story of the Persian Gulf monarchies is a Horatio Alger tale writ large. Over the past half-century, oil has transformed the six once-destitute sheikhdoms into some of the wealthiest places on earth.
Supergiant oil fields discovered between the 1930s and the 1970s, such as Kuwait’s Burgan and Saudi Arabia’s Ghawar, provided an ideal source of energy for the free world. It was easy oil, pooled in boundless reservoirs that could geyser into action with the prick of a drill bit. Even better, there was virtually no regional demand for that oil. Gulf populations were tiny and their economies undeveloped.
Over the years, the monarchies’ steady stewardship kept markets supplied with sufficient energy to fuel the world during a period of unprecedented economic and population growth. Back home, the ruling families harvested the proceeds to improve the lives of their people, who had, until then, lived in nearly primeval deprivation, with little access to electricity, clean water, medicine, or education. Ruling sheikhs made their subjects wealthy and complacent; oil production was a virtuous cycle.
That old story is beginning to change. The Gulf monarchies have developed a growing taste for their chief export, which, if left unaddressed, could undermine both of their long-held roles: as global suppliers and as stable polities in an otherwise fractious Middle East. For the rest of the world, meanwhile, the potential loss of a key Gulf asset—spare oil production—foreshadows a period of greater market volatility and uncertainty.
DRILLING FOR DISCOUNTS
It took an astonishing increase in demand to get to this point. Energy consumption in these six exporting countries, just a rounding error on global demand a few decades ago, has grown by eight percent annually since 1972, compared to two percent for the world. Together, four of the six monarchies (Kuwait, Qatar, Saudi Arabia, and the United Arab Emirates) have less than one percent of the world’s population, but account for more than five percent of global oil consumption. Saudi Arabia,
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