Belatedly, Gulf states are realizing that a financial revolution is required - involving governments, regulatory authorities and banks - if the region is to be competitive in a market-driven global economy. There are signs of a readiness to create a regional capital market and to examine the size and role of Arab banks in a world increasingly dominated by massively capitalized financial institutions.
The traditional approach of protected trading markets and closed financial markets is becoming unsustainable because of the revolution in international business. The most recent General Agreement on Tariffs and Trade (Gatt) settlement dealt a blow to those bodies, including the European Union and the Gulf Cooperation Council (GCC), that wanted to establish protected markets. Local bankers say that if the Gulf states wish to diversify their economies away from oil by selling downstream products and industrial goods, they will eventually have to offer reciprocal access to products imported from Europe, the US and Asia.
The GCC states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE) are no longer capital exporters. The first phase of the region's financial evolution in the late 1970s involved the recycling of petrodollars by international banks; in the next decade this process was increasingly taken over by Arab financial institutions.