In the United States, the Sept. 11, 2001, attacks are seen as the catalyst for a period of fear, war and economic worry. But in the oil-rich...
DUBAI, United Arab Emirates — In the United States, the Sept. 11, 2001, attacks are seen as the catalyst for a period of fear, war and economic worry.
But in the oil-rich countries of the Persian Gulf, Sept. 11 is increasingly viewed as the event that kicked off a galloping economy, 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. counterterror measures. And U.S. markets happened to be plummeting while economies in the Gulf were on the upswing, buoyed by rising oil prices.
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The results are 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. Over the same period, the Standard & Poor’s 500 rose 24 percent.
Most of the credit for the wealth influx is due to the near-tripling of oil prices since 2001 to 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 revenues are 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. By contrast, the U.S. economy rose 16 percent during the same period.
The boom is changing the face of 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 currently has $20 billion in residential and commercial building projects either 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 gained permission to buy in 2002.
Investors and economists say the jump in oil revenues 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 9/11, World Bank figures show, Middle Eastern oil-exporting countries were plowing as much as $25 billion a year into U.S. investments. In 2001-03, the figure only 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 Dubai-based Shuaa Capital.
Gulf investors also feared their assets would be seized by U.S. courts investigating capital flows for links to Sept. 11 terrorists.
Saudi Arabia was the birthplace of 15 of the 19 terrorists; two others came from the Emirates.
“Capital is a coward,” Shihabie said. “There was more risk after 9/11. People were worried about their assets being frozen because they were from the Gulf.”
Shihabie and others cited anger at U.S.-led wars and Middle East policy, and general hostility toward Arabs as another reason for the exodus.
“The Americans shot themselves in the foot by being so harsh,” said Beshr Bakheet, owner of Bakheet Financial Advisers in Riyadh, Saudi Arabia. “Do you want to put your money in a country that is involved in wars all over the globe? Not only Saudis, but a lot of people aren’t comfortable with this.”
There also are more fundamental reasons Arab investors fled America, Hanna said. Many lost money when the dot-com bubble burst.
Others lost faith in U.S. regulators after accounting scandals at Enron, WorldCom and elsewhere, Hanna said.
“I lost about $200,000 in the U.S. market,” said Mohammed al-Ghussein, a Dubai-based 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 Gulf and the wider Middle East, laying the ground for a boom that accelerated as the price of oil shot skyward.
Oil money is bankrolling more than $100 billion in construction in the Gulf this year alone, according to the Washington, D.C.-based Institute of International Finance.
Meanwhile, Arab money began returning to U.S. markets that were recovering by 2004, and after it became clear asset seizures weren’t a problem. World Bank figures show Arab investment in the U.S. last year returned to previous levels, which doesn’t reflect the huge increases in revenue from the oil boom.
Shihabie said anger at U.S. policy in the Mideast continues to limit Arab investments that, during previous oil booms, flowed liberally into U.S. stocks and government bonds.
The aftermath of Sept. 11 has seen other changes in relations between Gulf Arabs and the United States.
The World Bank study shows that few Gulf Arabs, once considered the most pro-American, vacation in America anymore.
Instead, Kuwaitis, Emiratis, Saudis and others are visiting Middle East destinations like Cairo, Beirut and Damascus.
Gulf Arabs are also less likely to send their children to U.S. universities — at least to their U.S. campuses — due to tougher immigration procedures as well as worries about hostility in America.
But the preference for American-style education remains strong, and several U.S. universities are opening satellite campuses in the Gulf.
Harvard University is constructing a medical school in Dubai.
Georgetown University is building a satellite campus in Qatar, alongside those already there: Cornell Medical School, Carnegie-Mellon University, Texas A&M and Virginia Commonwealth University.
“What you’re seeing now is Gulf Arabs not only keeping their money closer to home, but they’re keeping their kids closer to home,” Hanna said.