84UNNATURALLY COOLrent windfalls of 1973 and 1979. At the time, there was a sense that
resources were in surplus. If natural gas that was going to waste could
be captured and provided at cost, why shouldn’t it be? Given the circum-
stances of the era, these attitudes were reasonable. But these early deci-
sions about energy investment had ramifications that extended far into
the future. Even if attitudes toward energy evolve, existing structures
can undermine the effects of new policy.
The subsidies that helped pull Gulf populations out of poverty in the
1970s should have been rolled back— or at least indexed to inflation—
long ago. Early undervaluation of these resources persisted, despite a
sea change in the understanding of their value. The current generation
now faces the consequences of inefficient demand habits, construction
methods, and capital equipment. In other words, natural resources are
“too cheap for the good of future generations,” to borrow from the Amer-
ican economist Harold Hotelling’s still relevant 1931 argument, and “in
consequence of their excessive cheapness they are being produced and
consumed wastefully.”^30
What looked like sensible development in the 1970s nowadays looks
like waste: natural capital squandered with little or no remuneration. But
it isn’t just waste that Gulf policy makers must contend with. Petroleum
exports form the bedrock of the region’s political economies. Hydrocar-
bons help ruling families buy political support domestically and also
provide regimes with economic viability, through export revenues. For
the system to continue functioning, resource revenues from abroad must
not be displaced by resource demand from inside the country. Without
reform, the old rentier system could unravel. Five of these monarchies
face an increasingly acute conflict between sustaining exports and main-
taining subsidies on electricity, desalinated water, and fuels. Increasing
production of oil and gas cannot solve the problem. While some states—
Kuwait, the UAE, and Saudi Arabia— may be able to undergo the huge
investment required to increase production capacity, rulers cannot jus-
tify those investments if the output is given away domestically.
Converging pressures have forced regimes to contemplate the one
action that they have resisted for so long: cutting subsidies.