Arabia, Western Economic Expansion in

From the fifteenth century onward, the Arabian Peninsula has attracted significant foreign interest. Its location between large empires first made it a strategic trade route; later, in the twentieth century, the discovery of oil also made the region an important source of wealth. The significance of oil to industrialized countries in the early- and mid-twentieth century turned the Arabian Peninsula, and even the states surrounding it, into an area of vital importance and thus subjected the region to a great deal of foreign influence. Early on, industrial companies in the West were the only available sources of the technical and mechanical expertise necessary to tap the immense oil reserves; agreements with Western companies, however, led to the companies' increased political influence, to economic ties to Western governments, and to dependence on Western military support. Oil and the connections it brought to Western states have proven to be both a blessing and a curse for the states of the Arabian Peninsula. Oil revenues have allowed countries to develop basic state infrastructure, improve educational opportunities for citizens, and provide healthcare and other services to their populations. At the same time, disagreements over the question of how much Western influence should be allowed in the region have increased tensions within the populations of the Arabian Peninsula.

THE RISE OF EUROPEAN INFLUENCE

The Arabian Peninsula, a landmass situated between Europe, Africa, and Asia, has served as an important commercial hub from as early as the sixth century. Since that time, Arabia acted as a principal center for trade between the Middle East, Africa, China, and Europe. Many of the most luxurious goods in the world passed through the hands of Gulf merchants before reaching their final destinations. The regions within the peninsula produced valuable products as well: Coffee traveled outward from what is now Yemen, and from the eastern coast of Arabia came valuable pearls of the highest quality. Transit trade generated some of the largest revenues in the Arabian Peninsula. Arabian merchants and tribal leaders collected taxes in exchange for safe travel and provided economic services to those traveling through.

In 1498, however, Vasco da Gama discovered the water route around Africa, which subsequently allowed European businessmen to circumvent the expense of traveling through the Ottoman and Persian empires, thus diminishing the Arabian Peninsula's significance as trade center. This development coincided with a commercial revolution in Europe, which gave rise to a mercantilist system and brought European merchants to the forefront of the world economy. The combination of improved travel and increased wealth aided in Europe's expanding economic influence outside of Europe, most notably in India. From the sixteenth century onward, the primary value of Arabia in the eyes of European merchants became its proximity to Indian trading routes.

Beginning in the early sixteenth century, the Portuguese, Dutch, and French each made forays into the Arabian Peninsula. The Portuguese came first, conquering the south and east coasts of the peninsula in order to monopolize trade routes from India. They were quickly forced out by the Safavid Empire in 1602 with the help of the British, who then chartered their East India Company and established a stake in securing the region for themselves. The French and Dutch India Companies soon followed. The subsequent two hundred years were characterized by struggles between the Safavids, Europeans, and local Arab rulers for control over the Arabian coastlands and seas.

The most important contest between the Arabs and Europeans arose out of competition for trade between the British and the Qasimi tribes located in what is now the United Arab Emirates (UAE). The Qawasim (the plural of Qasimi) maintained an extensive fleet of approximately nine hundred ships, which they used for trade and warfare. Throughout the eighteenth century, they maintained important trade connections in the Persian Gulf. As the British East India Company expanded into the north and west of the subcontinent, however, it attempted to extend British power into the Gulf region, bringing it into direct contact with Qasimi traders. War broke out between the two naval powers and continued to rage until 1809, when the British succeeded in occupying Ras al-Khaimeh and severely damaged the Qasimi's maritime strength. This was followed by a similar British expedition to Ras al-Khaimeh in 1820 that obliterated what remained of the Qasimi navy.

As a result of their defeat, the tribes of the southern and eastern Arabian coasts became inextricably linked to the British, both politically and economically. The tribal leaders along the Gulf Coast of Arabia signed a series of treaties with the British in 1820 and 1861. The first treaties were General Treaties of Peace, which established peace between the leading sheikhs of Ras al-Khaimeh, Sharjah, Ajman, Umm al-Qaiwain, Abu Dhabi, Dubai, and Bahrain. Between 1835 and 1853 some of these Gulf States signed peace treaties under British auspices to prevent disruptive warring amongst themselves; after 1853 this peace was made permanent by the Perpetual Maritime Treaty. Bahrain joined the trucial agreement in 1861. From the mid-nineteenth century until the final British withdrawal from the region in 1971, these tribal kingdoms came to be known collectively as the Trucial States.

The port city of Aden, located on the southwestern tip of the peninsula, also came under an indirect form of British rule after the British captured it in 1839. Aden's significance to British security and trade in India increased when the Suez Canal opened thirty years later. In 1937 Aden became the only crown colony on the peninsula, and its status as such lasted until 1944.

Over the course of the second half of the nineteenth century, the British further involved themselves in Gulf affairs. They helped settle a family dispute in Zanzibar that resulted in Oman's separation from that state and made Oman almost entirely dependent upon Great Britain for economic survival. In order to avoid coming under Ottoman domination at the end of the nineteenth and early twentieth centuries, Kuwait and Qatar joined the British Trucial System as well; the British, then, had gained significant influence over the eastern Arabian Peninsula.

The western and interior regions of the Arabian Peninsula, however, remained outside of Western purview until the British supported Sharif Husayn of the Hijaz in his Arab Revolt against the Ottomans in 1915. Husayn failed to garner widespread Arab support following the war and proved incapable of defending his position on the west coast of Arabia against the rising power of the Wahhabi movement led by Abd al-Aziz ibn Sa'ud in the peninsula's interior. In 1924 Sa'ud and the Wahhabis defeated Husayn. Three years later, the newest government in Arabia signed the Treaty of Jiddah with the British, which recognized the Sa'ud family as the ruler of the Hijaz and the expansive Nejd plateau and affirmed Great Britain's sovereignty in the Gulf.

OIL AND ARABIA

Prior to the discovery of oil in the region, the Arabian economy was quite diversified. Coastal towns and oases that received enough rainfall produced a variety of fruits, vegetables, and cereals; tribes along caravan routes continued to provide goods and services to traveling merchants, or dealt in animal husbandry. The Saudi government also continued to collect substantial revenue from pilgrims traveling to the Hijaz, while fishing, trade, and the pearling industry sustained the states along the Persian Gulf and Indian Ocean.

The collapse of the world economy after 1929, however, had a heavy impact on Arabian economies. Saudi Arabia's currency, which was linked to the British pound in 1931, suffered as a result of the devaluation of the pound. The depression also limited the demand for luxury goods, which nearly devastated the pearling industry in the Gulf; this was further compounded by a concurrent shift in world preference to Japanese cultured pearls. By the early 1930s the only economy not enduring the full effects of the world economic crisis was that of Aden, which managed to buoy its economy through considerable sales of sea salt to the British Empire. The economic historians Roger Owen and Sevket Pamuk noted that in 1937 Aden supplied half of the Empire's demand for that product.

British, American, and Japanese companies mitigated some of the economic pressure in the region, however, when they began expressing interest in oil exploration in several of the Gulf States and Saudi Arabia. With the exception of Kuwait, oil concessions were signed between the individual rulers of the states and one of two companies: Standard Oil Company of California (SOCAL) and the Iraq Petroleum Company (IPC). The Anglo-Persian Oil Company and Gulf Oil made arrangements with the ruling family in Kuwait. These larger companies then each established regional companies within each of the Arab states. SOCAL in Bahrain formed the Bahrain Petrol Company, for example, and SOCAL's branch in Saudi Arabia became the Arabian American Oil Company (ARAMCO). The IPC formed Petroleum Development Qatar and Petroleum Development Trucial Coast on the Gulf Coast.

The first concessions to oil companies were made in Bahrain in 1930, followed by concessions in Saudi Arabia in 1933, Kuwait in 1934, Qatar in 1935, and Oman in 1937, as well as in four of the smaller Trucial States in 1938 and 1939. Oil concessions took the same general form throughout the region. They provided the ruler with an immediate sum of money as prepayment of initial royalties, an annual fee until oil was discovered, and subsequent royalty payments for the duration of the concessionary agreement; in exchange, the company received exclusive exploratory and extraction-related rights. These arrangements were intended to remain in effect for lengthy periods of time, sometimes up to seventy-five years, as was the case in Kuwait and Qatar.

The bulk of the large oil discoveries in the region came at the end of the 1930s, just on the verge of World War II. As a result, Saudi Arabia was the only country to develop oil extraction facilities before the war, and it was able to collect large revenues by 1939. Kuwait began to reap the benefits of its oil deposits in the late 1940s and early 1950s, and Qatar began exporting oil in 1949; Abu Dhabi, Dubai, Ras al-Khaimeh, and Oman had a later start, only beginning to export oil in the 1960s. The presence of oil raised the level of the Arabian Peninsula's significance in Western eyes, particularly for the United States. In the 1940s the U.S. government began providing Saudi Arabia with economic subsidies, which continued to grow throughout the decade. By 1945 the United States had applied pressure upon Great Britain to reduce their subsidies to Saudi Arabia by half. When the British government withdrew from its last bases in the Trucial States in 1971, the United States became a hegemonic political influence, which it remains at the start of the twenty-first century.

Even with the rapid influx of wealth, however, the Arab states were not yet capable of providing the necessary infrastructure to support the large engineering projects and great number of employees that oil extraction projects required. In the case of Saudi Arabia, ARAMCO undertook the building of roads, hospitals, schools, and other basic public services as well as irrigation projects to provide food. These activities bound some of the most basic elements of everyday life to the oil companies.

Control over oil production and oil prices remained in the hands of Western oil companies throughout the 1930s and well into the 1960s. In the 1950s the British, American, and Anglo-Dutch oil companies produced around 90 percent of the world's oil outside of the Soviet Bloc. The predominance of Western oil companies in the region elicited criticism from other Arab states in the Middle East that was inspired by the radical anti-Western ideologies of the 1960s. In response to this pressure, several of the states in the Gulf established national oil companies, such as the Kuwait National Petroleum Company and the Saudi General Petroleum and Mineral Organization. These new companies loosened some of the hold that American and British companies in particular maintained over oil production, but Western-based companies maintained firm holds on the majority of the oil production.

They also regulated oil prices internally rather than by following market forces. From 1951 through 1971 these companies paid a fixed price, between $1.75 and $1.80 per barrel, to the rulers in Saudi Arabia and the Gulf. In the 1970s, however, the oil-producing companies were able to gain some control over oil prices through their membership in the Organization of Petroleum Exporting Companies (OPEC). OPEC had been established in 1960 as a multinational organization designed to coordinate oil production and prices especially through the setting of production quotas, though it did not become an important player in the oil market until the 1970s. Kuwait, Saudi Arabia, Qatar, and the United Arab Emirates (formed in 1971 from the lesser Trucial States) all joined the organization. Arab membership in the organization had some extreme consequences for the world oil market in the 1970s. The Arab-Israeli War in 1973 led Arab oil-producing companies to boycott sales to Western countries that had supported Israel during the war, causing oil prices to rise to more than $11 per barrel. The revolution in Iran produced similar consequences, and oil prices rose to $32 per barrel. Since that time oil prices have remained relatively stable, with the exception of price increases caused by the two American wars against Iraq in 1990 and 2003.

WESTERN INFLUENCE AND ITS CONSEQUENCES

In spite of its oil wealth, the Arabian Peninsula remains heavily dependent on Western powers for its economic and defense needs. The states in the Gulf and Saudi Arabia have been unable to institute effective defenses alone, forcing them to rely on British, and later, American governments for their military needs. The states in the Arabian Peninsula have, at times, spent more than 10 percent of their GDP (Gross Domestic Product) on military equipment and bases. Their attempts to build up defenses have also been supplemented with an increasing number of permanently stationed foreign troops numbering between the thousands and tens of thousands. American troops used military facilities in Bahrain following the Iran-Iraq war, and maintained air bases in Qatar, Oman, and the UAE. American military presence in Saudi Arabia and Kuwait has grown exponentially following the Desert Storm action in 1990 and the 2003 American invasion of Iraq. U.S. military involvement in the region has led to domestic instability in many of the states on the peninsula. Some of this can be attributed to resentment over American support for Israel. The two American wars in Iraq were also immensely unpopular and contributed to strained relations between some regional governments and the United States.

The states of the Arabian Peninsula are similarly reliant upon economic investment both in and from the West. Some experts have noted that 60 percent of Saudi Arabia's investments abroad are tied up in U.S. ventures. International economic development agencies, such as the United Nations Development Programme and the World Bank Organization, have also pushed the countries in the Arabian Peninsula to improve their governmental and business climates to bring in more foreign investments.

Attracting diverse foreign investments has been especially important for countries like the United Arab Emirates (UAE), which is due to run out of oil in the early part of the twenty-first century. Many of the new development projects in the region have remained linked to U.S. and Western businesses. Dubai, the second-largest emirate in the UAE has begun to develop economic strategies in technology-related fields in order to maintain economic growth following the depletion of its reserves. In 2000 the ruler launched the Dubai Internet City, a free-trade zone and e-commerce center that provides office buildings and inexpensive employees, as well as medical and education facilities. The project has succeeded in attracting large business clients, such as Microsoft, IBM, CISCO, and Canon, among others. Most of these companies are based out of the United States and Europe.

As economic and political relations between the West and the states in the Arabian Peninsula have increased, so has Western scrutiny of the region via the media. American movies and news coverage have raised questions in the West about the legitimacy of Arab governments in the Gulf region and about women's rights, among other topics, and have often presented skewed or exaggerated images of the Arab societies. Such representations, combined with the visible presence of Western economic, military, and even popular culture in the Arabian Peninsula, have generated resentment and frustration among Arab governments, which continue to balance their economic interests and social and cultural values with the West's increasing demands for reform.

see also British Colonialism, Middle East; Oil.

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