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, now the Middle East, too, is finally joining the race to challenge the dominance of the West’s developed, industrial nations.

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

Now, at last, this may be changing. Since 2002, 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 three decades.

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

Oil, unsurprisingly, has remained the driving force, as the surge in prices from about $24 a barrel in 2002 to levels above $60 a barrel has catalysed a burst of very rapid growth. But a growing number of experts believe that, while past booms have foundered as the cost of crude retreated in the face of global downturns, this time the Middle East could succeed in sustaining the good times well into the future, perhaps even in the face of some decline in oil prices.

Analysts such as Edward Morse, of Lehman Brothers, argue that, this time, the Gulf states at least “could be on the verge of establishing a new economic order in the Middle East — one that might withstand even an eventual, severe cyclical downturn in petroleum prices”. That is a conclusion shared by the International Monetary Fund in its latest assessment of the region’s fortunes, released this week. Mohsin Kahn, the IMF’s director for the Middle East and Central Asia, argues: “Even if the oil price falls, the private sector looks set to sustain some of the development.”

There is, anyway, no question about the strength of the oil boom across the Middle East in the past five years. Last year the region enjoyed robust growth in GDP at a heady 6.5 per cent rate, far above the lacklustre 3.5 per cent average from 1990 to 2002, and the IMF forecasts a similar performance this year.

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 both between and within countries, the region’s good fortune has been fairly widely shared, with rapid growth and the flood of oil revenues unleashing very strong government spending and investment as well as pent-up consumer demand, with spillover benefits to non-oil states in the region, and to poorer segments of its population. Sharply rising incomes have also triggered real estate and stock market booms, although share prices succumbed to a sharp correction last year.

Nevertheless, Mr Morse argues that the interaction of positive economic developments “has had an extraordinary impact on the region”.

The benign impact of the Middle East’s new oil windfall is being felt well beyond its borders, too, helping to bolster global growth. As crude revenues have soared, the oil states have seen their current account surpluses swollen by petrodollars, with the surplus for the GCC states alone estimated by the Institute of International Finance (IIF) at some $227 billion (£115 billion) in 2006.

In turn, the region’s economies have “recycled” these funds, flexing their bulked-up financial muscle with huge investments and takeovers across the West, as well as boosting their imports of consumer goods from developed countries. Over this year and last, the IIF estimates that the Gulf states will snap up some $450 billion in foreign assets. Lehman Brothers notes that last year the GCC’s goods imports reached $196 billion, more than double their 2002 level.

The big question is: can these good times last? There is no doubting the region’s huge potential. In a recent analysis, Goldman Sachs noted that with annual GDPs of $735 billion, the GCC states’ economy alone is already comparable to Australia’s.

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