Oil boom is spurring a new Middle East bonanza

Iraq in turmoil and the Israeli-Palestinian conflict festers, but the Middle East is now the second-fastest growing region in the world.

Only China and northeast Asia outperformed its stellar economic growth of 5.9 percent last year.

The world average was 3.2 percent.

"That fact may surprise many, given the regional geopolitical backdrop. A combination of high oil prices, low interest rates and robust domestic confidence delivered the best regional growth performance for almost a decade. These factors should continue to drive strong growth in 2004," says Daniel Hanna, Dubai-based economist at Standard Chartered.

An combination of high oil prices and high production volumes have underpinned Middle East growth.

Stock have clocked record years; the Kuwait exchange ended last year up 102 percent, followed by Egypt (88 percent) and Saudi Arabia (76 percent), largely on the back of oil-related industries.

Diversification away from oil remains the real challenge.

Last week the IMF held a closed-door two-day conference about the economic reform agenda, specifically the steady disengagement of the region from world trade.

Since the 1970s' oil crises the region's population has doubled, yet its share of global trade has fallen by 75 percent.

The IMF said its gathering in Washington focused on policies for "creating sufficient jobs given the burgeoning labor force in the region, and how to better manage the integration of the region into the global economy."

Even as oil prices drive growth, half of the region's population is under 21, and at 30 percent, youth unemployment is the highest in the world.

Bahrain's hosting of a Formula One grand prix and a construction boom in Dubai are signs of increasingly diversified economies. The Middle East is full of repatriated cash as wealthy Arab investors pour money into extravagant property schemes.

Concern about a possible bursting of the Dubai property bubble.