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Oman - Introduction

According to various studies, at current production Oman is set to run out of oil by around the year 2030. Oman needs approximately $55 per barrel of oil just to pay public sector salaries.

The Sultanate of Oman is a hereditary monarchy with a population of 3.3 million, including approximately one million nonnationals [other sources report a population of 2.7 million, including approximately 816,000 nonnationals]. Since 1970, when Sultan Qabus ibn Said Al Said assumed power, the sultanate has moved from a poor underdeveloped country toward a modern nation state. Indexes of development measuring per capita gross national product, infant mortality, literacy rates, and availability of social services validate the government's claim that its policies have effected positive change. Although the government's administrative structure expanded to accommodate public services, change in the political system has been slow. Oman remains a conservative monarchy, with the sultan relying on the support of a traditional political elite comprising the Al Said ruling family, established merchant families, and, to a lesser extent, tribal shaykhs.

Until the commercial production and export of oil in 1967, Oman's budget was exclusively dependent on religious taxes (zakat), customs duties, and British loans and subsidies. The bulk of this revenue served as a mechanism through which the sultan could co-opt his traditional allies among the merchant families and tribal shaykhs. By transferring income from the state treasury, the sultan was able to draw in influential segments of Omani society and ensure continuance of Al Said rule. Post-1970 economic developments were in part constructed on these antecedents.

Income distribution remained a principal mechanism for ensuring political stability, but the network involved a state administrative structure rather than the more direct and personal individual-ruler relationship. Also, the system expanded to incorporate the average Omani through the creation of a public sector. The net effect has been the establishment of a salaried middle class whose economic interests are closely tied with the government.

Since the development of the country's infrastructure in the 1970s, national development plans have given priority to reducing dependency on oil exports and encouraging income-generating projects in non-oil sectors (diversification), promoting private-sector investment, and effecting a wider geographical distribution of investments to correct regional imbalances. Such a wider distribution is intended to narrow the gap in the standard of living in different regions, develop existing areas of population, and discourage migration to densely populated urban centers, such as Muscat (also seen as Masqat), the capital. Equally important are the national goals to develop local human resources, to increase indigenous participation in the private sector, and to improve government management and organization.

Constraints on the government in implementing its economic diversification program include the limited growth potential of alternative sectors, such as agriculture, fishing, and industry. Constraints also include the limited involvement of the private sector in businesses other than trade, the low-skilled labor force, the limited water resources, and the inability of government ministries to manage and expand services. Sultan Qabus ibn Said, therefore, faced different challenges in 1993 than those he confronted when he assumed power in 1970 through a palace coup d'etat. Then, the rebellion of tribes in the southern Dhofar (also seen as Zufar) region and the exploitation of the country's oil reserves had taken precedence.

Although Oman enjoys a high degree of internal stability, regional tensions in the aftermath of the 1980-88 Iran-Iraq war, 1990-91 Persian Gulf war, and Operations Enduring Freedom and Iraqi Freedom continue to necessitate large defense expenditures. In 2006, Oman spent roughly $3.84 billion for defense and national security--over 33% of its public expenditures. Oman maintains a small but professional and effective military, supplied mainly with British equipment in addition to items from the United States, France, and other countries. British officers, on loan or on contract to the Sultanate, help staff the armed forces, although a program of "Omanization" has steadily increased the proportion of Omani officers over the past several years.



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