Economic Development in the Persian Gulf (Saudi and Iran) Essay

Economic Development in the Persian Gulf (Saudi and Iran) - Essay Example It also proposes strategies that should be adopted by both the countries so as to pave way for economic growth. Saudi Arabia and Iran are the two remarkable producers of oil in the region but have failed to utilize this wealth of natural resources towards economic development of the country. It is a tragedy of oil-based economies that they fail to reap the benefits of this rich and valuable resource. There may be several reasons behind this fact viz. extreme reliance on oil export for revenue generation and political instability etc. Regional instability is also one of the major phenomena that strike the oil rich countries in the Persian Gulf region. The fear of neighboring rivalries and potential threats keep these countries engrossed in spending thriftlessly on defense and military buildup, which has been on an ever increasing trend in the Persian Gulf region. Billion and Khatib also say that "the economy and politics of oil-dependent states are also affected by their propensity to spend more on defense" (113). Ever since the Iranian revolution, Saudi Arabia has considered Iran as a severe threat to its political structure. Consequently, both the countries, in particular Saudi Arabian government allocates heavy budget to arms accumulation and military buildup rather than on economic development. Saudi Arabia happens to ... er producer, a fourth of the world's known reserves lie beneath its soil; the reserves of Russia, Nigeria, and Alaska together do not match the desert kingdom's" (23). Despite that, the country's economic growth and stability seems to be deteriorating in the recent times. Like most of the oil-based economies, the country's economic condition is bound to improve with a rise in oil price and decline with a fall in oil price. The economy of Saudi Arabia has moved drastically over the past two decades with the movements in oil price. The rich Arab country is now falling short of enough funds to finance its major public and welfare expenditures mostly because of the events that took place over the last few decades. Saudi government had to bear extraordinary expenses during the Gulf War at officially disclosed $55 billion and then due to provision of financial support to Iraq during the Iran invasion amounting to $26 billion. Furthermore, the fluctuations in price of oil over the last 20 years from $40 per barrel in 1981 to below $20 per barrel until the late 90s have affected the cash flowing in the country. Saudi government has also failed to stabilize its expenditures based on oil prices despite its ever increasing reliance on oil to finance these expenses. Because of this reliance on oil, the oil price crisis in 1998 profoundly affected the Saudi economy and increased the level of domestic and internati onal debt leading to a financial crisis (Gause 82-83) The Saudi economy is under the serious threat of unemployment due to inability of the government to provide employment to an increasing number of educated youth. Public sector of the economy is already confronting with high salaries burdening the fiscal budget whereas the private sector is more willing to employ