A new power is taking its place in the world economy. After the disruptive emergence of China and India as key players with a decisive role in shaping global economic events, the Middle East is joining the race to challenge the dominance of the industrial West.

The region has long held sway over world economic developments, of course, by virtue of its control over more than 40 per cent of known oil reserves. But in the past, it has been as much a prisoner of the oil market’s fortunes as the West, its prosperity and progress swinging wildly from boom to bust with fluctuations in the price of crude.

Now, at last, this may be changing. Over the past half-decade, led by the six states of the Gulf Cooperation Council (GCC) – Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Oman and Bahrain – the Middle East has enjoyed its fastest prolonged expansion for almost 30 years.

This sustained boom appears to have transformed radically the region’s economic prospects, opening the way not just for it to enjoy a protracted period of rising prosperity but also for it to exert a more potent influence over global conditions.

Oil, unsurprisingly, has remained the key driving force, as the surge in prices from about $24 a barrel in 2002 to record levels that have breached the watershed of $90 a barrel has catalysed very rapid growth.

However, while past booms have foundered as the cost of crude retreated in the face of global downturns, many expert observers, including the International Monetary Fund, believe that this time around the Middle East could succeed in sustaining the good times – perhaps even in the face of some decline in oil prices. For now, the IMF concluded in its twice-yearly World Economic Outlook this month, oil prices are likely to remain near present highs for some time.

There is, anyway, no question over the strength of the oil boom across the Middle East over the past five years. Last year, the region enjoyed robust growth in GDP of a heady 5.6 per cent, on IMF figures – far above the lacklustre 3.5 per cent average pace seen from 1990 to 2002. This year, the Middle East’s economy is forecast to expand still faster, by 5.9 per cent, with this rapid pace of growth projected to persist through 2008. Growth is being stoked by strong increases in domestic private credit and foreign capital inflows, as well as buoyant government spending from oil revenues, the IMF noted. Since 2002, the region’s strong economic showing has lifted its average incomes per head by a startling 75 per cent. While these figures clearly mask big disparities between and within countries, the region’s good fortune has been fairly widely shared, with rapid growth and oil revenues unleashing strong government spending and investment as well as pent-up consumer demand, with spillover benefits to nonoil states in the region and to poorer segments of its population. Sharply rising incomes have also triggered property and stock market booms, although share prices succumbed to a sharp correction last year.

The benign impact of the Middle East’s new oil windfall is being felt well beyond its borders, helping to bolster global growth at a time when the fallout from the US housing market slump and the global credit squeeze is fuelling fears over the threat of recession in America and of a painful downturn across the developed world.

As crude revenues have soared, the oil states have “recycled” their petrodollars back to the West, flexing bulked-up financial muscle with huge investments in the United States and Europe, as well as boosting their imports of Western consumer goods. Over this year and last, the Institute of International Finance has estimated that Gulf states will snap up $450 billion (£220 billion) in foreign assets.

The big question is: can these good times last?

There is no doubting the region’s potential. With annual GDP of $735 billion, the economy of the GCC states alone is already comparable to Australia’s in scale. With huge demand for energy potentially handing the Gulf a $5 trillion windfall over the next 25 years, Goldman Sachs projects that its economy could be comparable in size and prosperity to present-day France by 2050.

Such rosy scenarios emphasise the great expectations that the Middle East could fulfil. Yet daunting obstacles remain.

First, and most obviously, the Middle East remains blighted by political turmoil, regional conflicts and terrorism.

Secondly, there are persistent doubts over the readiness of the region’s governments to pursue economic reforms. Economies across the Middle East continue to be fettered by weak institutions; bloated public sectors that crowd out private sector dynamism;, corruption and inflexible product, labour and capital markets hamstrung by self-serving bureaucracies.

Still, over the past few years, the World Economic Forum’s recent report on the region’s competitiveness found that many Arab states have begun to make substantial headway with reforms. Goldman Sachs concluded, too, that the GCC states were among the best performers in its rankings for improving growth environments, with a new emphasis on diversification and deregulation.

Yet the scale of the task facing the region is clear from the critical gauge of unemployment, which stood at 12.5 per cent in 2005. The World Bank estimates that 100 million new jobs are needed across the Middle East by 2020 to absorb rapid population growth and cut joblessness to tolerable levels. This is vital not merely economically, but for security: without such progress, a huge pool of young unemployed males will provide a seedbed for instability and extremism.

In the past, oil booms in the Middle East have been blamed for a so-called “natural resource curse”, with colossal oil revenues fomenting corruption and waste, while allowing governments to sidestep reform. This time round, however, there is a new mood of hope that, even if oil price drops back, the curse may at last be broken, allowing the desert to bloom. Such optimism will be put to the test in the rest of the decade.

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