Oil Boom and Free Ride Over, Arabs Are Forced to Watch Their Dollars : Rich Nations Return to 'a More Realistic Role in the World'

Times Staff Writer

Gold leads into gold, then into restlessness, and finally into crushing misery.

--Kahlil Gibran (1883-1931),

Lebanese philosopher

On a June morning 53 years ago, a driller's bit pierced a layer of blue shale, and the earth gave a mighty rumble. For a brief moment this entire island in the Persian Gulf seemed to shake, as though foreboding some terrible happening.

Then from the depths there erupted a gush of thick liquid that shot skyward. When the earth steadied, it became clear that Standard of California had found oil--the first strike in the Persian Gulf or Arabian Peninsula.

Mohammed Khajah, an elderly millionaire whose family interests range from supermarkets to air-conditioner assembly plants, remembers that first strike with a certain sense of amusement now. "We didn't think it was any big event at the time," he recalled. "What we needed was water, not oil. We didn't even have any cars on Bahrain then."

But to the Persian Gulf region, oil was to become what coal had been to Europe in the Industrial Revolution. It was to transform a society, challenge a people's values, divide classes and nations on the basis of wealth, and lead to breathtaking growth and development. Life was to become a free ride, with everyone holding a blank check.

$8.7 Billion a Day

Between 1973 and 1979, the price of a 42-gallon barrel of oil exploded, from less than $3 to as much as $39. With daily production of 32 million barrels, the 13 countries of OPEC--the Organization of Petroleum Exporting Countries, six of which are Arab--were earning $8.7 billion a day, $262 billion a month in 1979. The price they set was the price they got, and governments here made development plans on the assumption that the roll they were on would last forever.

Saudi Arabia poured $550 billion into development projects; for the last seven years, it has built and opened a new school every three weeks. Bahrain became a banking center that rivaled Hong Kong in regional importance. Kuwait, where the average family owns 4.5 cars, turned the desert into gleaming cities with industrial works and shopping malls.

The car phone and the private telex became symbols of a new entrepreneurial civilization that, economically at least, moved from the 18th Century to the 20th in a single leap.

"We became the rich poor; we had money but not skills," Bahrain Minister of Development Yousef Shirawi observed. "However, the Arabians are very honorable people. We accepted the influx of power that came with the petrodollars with humility, and we are accepting its shrinkage today with a lot of grace."

Indeed, there is almost a sense of relief that the oil era is in its twilight. The demand for petroleum has slackened, and prices and production have fallen. OPEC's last meeting ended in disarray, with its members unable to decide on how to shore up the price of oil or the organization's share of the world market.

For the first time, the oil-rich Arabs are having to watch their dollars, if not their cents. But for whatever excesses the boom brought, for however much the young came to expect maximum return for minimum work, the Arabs probably handled their windfall with as much wisdom and serious national planning as any developing region has ever seen.

'More Realistic Role

"The fact that these states are returning to a more realistic role in the world is, I think, basically healthy--for us and for them," said William B. Quandt, an expert on Saudi Arabia at the Brookings Institution in Washington.

"Obviously there are painful adjustments to make, but they seem to have handled the first stage with comparative ease. Also you have to keep in mind that the story isn't over. It's not as if these countries had gone from riches to rags. By Third World standards, they are doing pretty well."

The boom ended--Saudi Arabia's annual income has plunged from $98 billion to $36 billion in three years--because the world started stockpiling oil, conserving and buying elsewhere.

The director general of the Oxford Energy Institute, Robert Mabro, predicts that oil demand will continue to be weak, and that the Arab countries will not again enjoy the earnings of the 1975-80 period until around the turn of the century.

OPEC production has declined by 40% since 1979, while non-OPEC production has increased by nearly 25%. OPEC's share of the U.S. consumption has fallen from 34% to 13% since 1977.

At the same time, according to John F. Bookout, chairman of the American Petroleum Institute, Americans are using energy 23% more efficiently than they did a decade ago. An example: U.S. cars averaged 13.1 miles per gallon in 1974, 17.3 in 1984.

Scandalous Proportions

Unlike the people of other Third World regions, the Arabs have not tried to blame their ill fortune on external factors. They have quietly taken events in stride, slashing development budgets, cutting back on social expenditures, even changing personal spending habits that in some cases had grown to scandalous proportions.

"I used to give away 10 or 15 BMWs a year to friends," a Kuwaiti businessman said. "Now I've stopped that, and rather than buy my wife a new car, I've given her the '84 Cadillac."

But the lavish spending of the Kuwaitis, the Saudis and a handful of others obscures an important fact: Most Arabs are poor. The majority eke out a meager existence as farmers and are fortunate to own a donkey. For millions, life is lived much as it was centuries ago, and the thought of boundless wealth is simply irrelevant to the hardships and drudgery of each day.

In Egypt, the per capita income is only $560. In Yemen, only 12% of the population can read and write.

In Morocco and Tunisia, a slight increase in the price of bread led to riots that threatened to topple the governments. In Algiers, the seaside capital of Algeria, thousands demonstrated recently to protest the slum-like quality of housing.

"I am lucky to have a place at all--some are much worse than this," said Raifa, a 70-year-old woman who sat on the floor of her one-room apartment in Cairo, heating a cup of tea on a portable gas burner. Her home has no running water or electricity and rents for the equivalent of 45 cents a month.

Super-Rich Fraternity

Only five of the 18 Arab countries--Saudi Arabia, Kuwait, Qatar, the United Arab Emirates and Libya--belong to the fraternity of super rich. For the others, the crush of economic problems is overwhelming: Unemployment and inflation are rampant, drought periodically devastates the farmland, the cities are overflowing as a result of a rural exodus, population is growing at a wildly out-of-control rate.

Egypt, for example, spends $10 million a day on to help feed its 46 million people, through subsidies and other programs; within a generation it will have 100 million to feed.

Except for Tunisia, none of the non-oil producers have taken serious steps to curb population growth. Nor have they been particularly successful in attracting foreign investment--which leaves them in them in the unenviable position of having growing populations and shrinking economies.

And because birth control is generally unacceptable to religious leaders, foreign creditors cannot say much to turn the tide without being accused of being hostile to Islam.

Unlike, say, Egypt and Morocco, the major oil producers have relatively small populations (Qatar has 250,000 inhabitants and a per capita income of $42,000). This has enabled them to ensure that virtually everyone enjoyed the amenities of a welfare-state existence in which there was usually no correlation between hard work and great prosperity.

Curiously, the oil-producing states have done no serious studies on the sociological impact of the oil era; it is almost as if no one wanted to know. But that impact surely goes far beyond the facade of glass and marble shopping centers.

A generation has been weaned on the notion that wealth and success have nothing to do with sweat and toil. Everything, from housing to university study abroad, was free. One had only to take from his country; one did not need to give. Everyone became an executive, but no one learned how to drive a nail or fix a faucet, and somewhere along the line an important step in the national development process was lost.

No Political Maturity

The windfall brought tremendous social change, but not political reform or political maturity. Saudi Arabia, for instance, has become increasingly introverted, its foreign policy based on checkbook diplomacy and fear.

"Everyone was bought off," an Egyptian scholar said. "The religious leaders were bought off with new mosques and huge sums poured into Islamic affairs. The middle class was bought off with all the perks of a welfare state, the military with an elitist, affluent status in society. But now they're trying to divide a smaller pie, and I think there are some dangers inherent to that if the high expectations of the past aren't met--as they no longer can be."

The impact of the oil money was felt beyond the borders of Saudi Arabia and the Persian Gulf region. Subsidies from the oil producers underwrote Iraq's war with Iran, the Palestine Liberation Organization's structure and the fragile economies of less fortunate Arab countries. Millions of Egyptians, Tunisians and Yemenis went off to work in foreign oil fields, and the billions of dollars they sent home changed the quality of life in their countries.

Money became a power almost as important as religion and family.

"It changed us, changed the Arab ways," a Tunisian college professor said. "People just think of themselves now. They want to get rich. That's all that matters to them."

At Al Azhar University in Cairo, the seat of Islamic studies, the most popular area of concentration today is not religion or Arabic studies but business.

The wealth has brought restlessness, as the philosopher Kahlil Gibran forecast. The Arabs speak of "the real oil boom" coming early in the next century, and if times are considered rough now, they are only relatively so. Saudi Arabia has built up reserves of $110 billion, much of it in U.S. Treasury notes; Kuwait earns nearly as much from its investments as it does from oil production, and it has $35 billion in its Fund for Future Generations, a special account set aside to ensure continuing income.

Pride, Frustration

When Arabs speak of the era now ending, their words reflect both pride and frustration--pride that they have survived the turbulence and frustration that so much remains to be done. A weariness grips the Arabs, and in their cry "Allahu Akbar" ("God is Great"), one hears an unspoken appeal for assurance that they have not strayed too far from the known road.

Abdul Thani, deputy director of Qatar's Industrial Development Technical Center, observed, "It's time for us to rethink our life styles, to remember who and what we are."

ARAB OIL STATISTICS Revenues -- in billions of dollars

1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 Algeria $1.0 $4.1 $4.1 $4.8 $4.8 $4.8 $4.8 NA* $10.6 $9.8 Kuwait 1.7 8.8 6.3 NA 7.3 8.8 16.7 18.4 15.9 9.6 Libya 2.2 6.4 6.4 NA 8.5 NA NA 22.2 15.4 12.2 Qatar .5 1.8 1.9 2.1 2.2 2.1 3.6 5.4 4.7 6.6 Saudi Arabia 4.3 30.6 27.2 34.2 40.1 34.5 58.0 98.0 88.7 56.0 United Arab .9 6.6 6.9 7.9 9.1 8.0 12.1 18.3 12.9 9.4 Emirates

1983 Algeria $9.0 Kuwait 10.8 Libya 9.8 Qatar 4.0 Saudi Arabia 36.0 United Arab 7.2 Emirates

Source: Central Intelligence Agency * Not available

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