Figure 1.--This photograph was taken at a desert well south of Kuwait City (May 1949). We see images like these which show that Kuwait has been backward and poor for centuries, but when you talk to the Arabs all you get is blame the Jews and the West for their problems. There is not an inkling of thought that there is something wrong with their society. And this is not what we hear from the fundamentalists, but from moderate, educated Arabs.

Modern Kuwait located just south of Iraq and thus on the fringe of ancient Mesopotamia. was located very close to ancient Sumer, the craddle of civilzation. What is now Kuwaut was located south of the Tigris-Eurphrates and the important Sumerian cities, although Ur and Eridu were located very close to the borders of modern Kuwait. This must have affected the local economy, but we are not sure just how. There seem to have been trade links. This continued to be the case during the Islamic era. Kuwait provided a conecting point for caravans headed east toward the Levant and Egypt and west toward the Caliphate cities abd Persia. It was also a port for trade with areas to the south, including India and East Africa. Kuwait was a trade port and resting place for both desert caravans and Haj pilgrims on their way from Iraq and Persia to Hejaz. The area around Kuwait City seems to have been more fertile than is the case today. This trade began to decline with the European maritime expansion and the establishment of sea route links with the East. Along with the rest of the Arab world, the Kuwait economy declined. This did not change until the modern era and the discovery of oil in Kuwait. The Emir of Kuwait granted an oil concession to the Kuwait Oil Company (KOC) (1934). KOC was jointly owned by the Anglo-Persian Oil Company (the future British Petroleum Company--BP) and the american Gulf Oil Corporation. The Kuwaiti Government nationalized KOC (1976). Kuwait then seized control over onshore production in the Divided Zone between Kuwait and Saudi Arabia (1977). KOC produces in the Divuded Zone jointly with Texaco. And by the purchase of Getty Oil Company, acquired the Saudi Arabian onshore concession in the Divided Zone (1984). Kuwait is believe to have some 10 percent of the world's oil reserves which explains why Saddam Hussein wanted it and invaded Kuwait (1990). Among other natters, the Iraqi invasion adversely affected the country's oil diversification efforts. Oil and gas dominates the country's economy, accounting for nearly half of Kuwait's GDP and nerly all (95 percent of both export revenues and government income). The oil resource is so great and the population so small that here has been little incentive or need to diversify the economy. And a deadlock between parliament and governmenthas prevented any consensus on economic reforms. Kuwait inagurated a free-trade zone (1999). As a result of the oil income, Kuwait has a well-developed banking system. The National Bank of Kuwait is the most important bank in the country and one of the largest in the Arab world. It is not clear how permanent the 2014-15 drop in oil prices is going to be and just how it will affect Kuwait. A substantial revision of peal oil calculations, however, must inevitably affect a country so dependent on oil. High oil revenues have until now made it possible for policymakers to avoid making the tough choices needed to liberalize the economy, such as privatizing inefficent state-owned enterprises. There is also a problem with rising protectionism.

Chronology

Modern Kuwait located just south of Iraq and thus on the fringe of ancient Mesopotamia. was located very close to ancient Sumer, the craddle of civilzation. What is now Kuwaut was located south of the Tigris-Eurphrates and the important Sumerian cities, although Ur and Eridu were located very close to the borders of modern Kuwait. This must have affected the local economy, but we are not sure just how. There seem to have been trade links. This continued to be the case during the Islamic era. Kuwait provided a conecting point for caravans headed east toward the Levant and Egypt and west toward the Caliphate cities abd Persia. It was also a port for trade with areas to the south, including India and East Africa. Kuwait was a trade port and resting place for both desert caravans and Haj pilgrims on their way from Iraq and Persia to Hejaz. The area around Kuwait City seems to have been more fertile than is the case today. This trade began to decline with the European maritime expansion and the establishment of sea route links with the East. Along with the rest of the A rab world, the Kuwait economy declined. This did not change until the modern era and the discovery of oil in Kuwait. The Emir of Kuwait granted an oil concession to the Kuwait Oil Company (KOC) (1934). KOC was jointly owned by the Anglo-Persian Oil Company (the future British Petroleum Company--BP) and the american Gulf Oil Corporation. The Kuwaiti Government nationalized KOC (1976). Kuwait then seized control over onshore production in the Divided Zone between Kuwait and Saudi Arabia (1977). KOC produces in the Divuded Zone jointly with Texaco. And by the purchase of Getty Oil Company, acquired the Saudi Arabian onshore concession in the Divided Zone (1984). Kuwait is believe to have some 10 percent of the world's oil reserves which explains why Saddam Hussein wanted it and invaded Kuwait (1990).

Economic Sectors

Kuwaiut today basically has only ine economic sectors--petroleum. Among other matters, the Iraqi invasion adversely affected the country's oil diversification efforts. Oil and gas dominates the country's economy, accounting for nearly half of Kuwait's GDP and nerly all (95 percent of both export revenues and government income). The oil resource is so great and the population so small that until recently here has been little incentive or need to diversify the economy. And a deadlock between parliament and governmenthas prevented any consensus on economic reforms. Kuwait inagurated a free-trade zone (1999). As a result of the oil income, Kuwait has a well-developed banking system. The National Bank of Kuwait is the most important bank in the country and one of the largest in the Arab world. It is not, however, really a nother sector. It uis totallydependent on the oil income.

Social Contract

Kuwait and the other Gulf states and Saudi Arabia are not democracies. Rather than move toward democracy, the monarchies have established a social contract. They will retain control of the country, but they will guarantee jobs and a decent life style. With oil over $100 a barrel and peak oil looming, there seemed no limt to petroleum based prosperity. The 2014-15 drop in oil prices and continued low prices has fundamentally changed the economic situation. It is not clear how long low prices are going to persist and just how it will affect Kuwait. A substantial revision of peak oil calculations, however, must inevitably affect a country so dependent on oil. High oil revenues have until now made it possible for policymakers to avoid making the tough choices needed to liberalize the economy, such as privatizing inefficent state-owned enterprises. There is also a problem with rising protectionism. The 2014-15 drop in oil oprices has significantkly affected the revenue if all the Gulf states and Saudi Arabia. As a result, all the state employment now eats a substantial portion of Government revenue. The public payroll is swollen by jobs that are essentially welfare. In many cases rhrhere is nmot even any workl to perform. Most of these employees actually have nothing to do. The oil industry is not a labior intensive industry. One press report reveals, "Show up, swipe in. The routine is familiar to office workers everywhere. In Kuwait, it proved too much to ask. The government was trying to trim a wage bill that eats up more than half its budget -- an outlandish share even by Gulf standards. Last year, it required public employees to swipe their fingers on a biometric reader every morning. The following quarter, about 5,000 quit. Many of them rarely, if ever, turned up, and were worried they’d get caught under the new rule, according to Khalifa Hamada, the undersecretary at Kuwait’s Finance Ministry." [Fattah] The wage bill in Kuwait is substanial, but with a small population and huge oil revenue is not yet in a critical situation. Saudi Arabia is in a much mire difficult situation. incom

Sources

Fattah, Zainab. "A ghost army of workers is paid to do nothing in the Gulf," Bloomberg (June 19, 2018).

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Created: 5:18 AM 11/27/2015
Last updated: 8:05 PM 6/23/2018