- The Washington Times - Friday, August 26, 2005

DUBAI, United Arab Emirates — The September 11, 2001, terrorist attacks are increasingly viewed in the oil-rich Arab countries of the Persian Gulf as the catalyst for an economic boom when Arabs divested from America and reinvested at home.

Arab investors pulled tens of billions of dollars out of the United States. They were angered by perceived American hostility toward Arabs. They worried their assets would be frozen by U.S. counter-terrorism measures. And U.S. markets happened to be plummeting while economies in the Persian Gulf were on the upswing, buoyed by rising oil prices.

The results have been spectacular.

Since late 2001, economies in the six Gulf Cooperation Council countries — Bahrain, United Arab Emirates, Kuwait, Oman, Qatar and Saudi Arabia — have soared, with stock markets up a collective 400 percent. The Standard & Poor’s 500 rose 24 percent over that period.

Most of the credit for the wealth is due to the near-tripling of oil prices since 2001 to current levels of more than $67 a barrel.

“It’s just been an exceptional period, the likes of which the region hasn’t seen in 20 years,” said Simon Williams, a Middle East analyst with the Economist Intelligence Unit in London.

Gulf oil revenue is expected to reach almost $300 billion this year, up from just $61 billion in 1998.

In Saudi Arabia, gross domestic product rose 37 percent between 2001 and last year. In the Emirates, GDP jumped almost 50 percent. In contrast, the U.S. economy rose 16 percent.

The boom is changing the face of Persian Gulf states. Building cranes line the horizon in the Emirates, Qatar and Bahrain. New highways are slicing across once-empty desert, and hives of imported laborers are erecting hospitals, universities and entire districts of shimmering high-rise apartment towers — even artificial islands covered in luxury villas.

The changes are most visible in Dubai, which in the past four years has become one of the world’s fastest-growing cities. Dubai has $20 billion in residential and commercial building projects under way or announced, said Daniel Hanna, chief economist at Standard Chartered Bank in Dubai.

Prices on luxury properties have tripled or quadrupled since foreigners were given permission to buy here in 2002.

Investors and economists say the jump in oil revenue is the biggest factor for the boom, but the shift in strategy that led Gulf Arabs to divert funds from U.S. investments to home markets laid the groundwork.

Before September 11, World Bank figures show Middle Eastern oil exporting countries were plowing as much as $25 billion a year into U.S. investments. For the three years of 2001-03, the figure reached $1.2 billion.

“We found an alternative asset class in our own back yard that is performing substantially better,” said Walid Shihabie, head of research at Shuaa Capital in Dubai.

Gulf investors feared their assets would be seized by U.S. courts probing capital flows for links to the terrorists, he said. Saudi Arabia was the birthplace of 15 of the 19 September 11 terrorists; two others came from the Emirates.

Mr. Shihabie and others cited anger at U.S.-led wars and Middle East policy, and general hostility toward Arabs as another reason for the financial exodus.

There also were more fundamental reasons Arab investors fled America, Mr. Hanna said. Many lost money in the bursting of the dot-com bubble. Others lost faith in U.S. regulators after accounting scandals at Enron, WorldCom and elsewhere.

“I lost about $200,000 in the U.S. market,” said Mohammed al-Ghussein, a Dubai private investor. “So I took it back to the Gulf and I made the money back.”

Investments pulled out of America were redirected into stocks and real estate in the Persian Gulf and the Middle East, laying the foundation for a boom that accelerated as the price of oil shot up. Oil money is bankrolling more than $100 billion in construction in the Persian Gulf this year alone, according to the Institute of International Finance in Washington.

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