Quotes of the Day

Today's accumulation of riches in the Gulf is the stuff of dreams. Soaring profits from oil and natural gas are driving the region's wealth into the stratosphere. Henry Azzam, who heads Deutsche Bank's Middle East operations from a sleek suite of offices in the Dubai International Financial Center, is relishing this historic windfall. "We're becoming the epicenter of the global economy," he marvels. But Azzam has his worries. He sees the recent fighting in Lebanon, for instance, as a proxy war between the U.S. and Iran that could lead to an American military strike on Iran, Dubai's neighbor: "Political and military problems could destabilize the whole region."

The Great Oil Bonanza of the early 21st century is helping to transform former backwaters like Dubai, Abu Dhabi, Qatar and Bahrain into glittering hubs for business, travel and culture. Still, there are plenty of threats that could spoil this party. For a start, there are the wildcard geopolitical risks that can never be ruled out in a region plagued by instability. In one nightmare scenario, Tehran would respond to a U.S. strike on Iran's nuclear program by lobbing missiles at cities in Gulf states like Qatar that are closely allied with Washington; in another, a terrorist group such as al-Qaeda would target Dubai, scaring off the tourists and white-collar expats helping to drive its heady growth.

These and other potential risks were among the topics of discussion in a May 20 debate in Sharm el-Sheikh, Egypt, on the subject of what could derail the Gulf boom. The session was co-hosted by TIME and the World Economic Forum on the Middle East. For all of the panelists, political stability was a fundamental concern. Citing the war in Iraq, the turmoil in Lebanon and the failure to achieve peace in Israel, Mohammed Shafik Gabr, chairman of Egypt's Artoc Group for Investment & Development, warned that "things are not getting any better" in the broader region.

Another panelist, Saad al-Barrak, deputy chairman and group CEO of Kuwait-based mobile-phone operator Zain, argued that the greater political challenge may be internal, with Gulf countries making poor progress toward democratic reform. While the region has built key "hardware" such as roads, schools and skyscrapers, al-Barrak said it has yet to develop the "software" required to fulfil its potential — an efficient legal system, regulatory transparency and free elections. "That is what creates sustainability," said al-Barrak. "That anchors the future." He also criticized the Gulf's bloated public sector, joking that Kuwait has so many government employees that it's "one of the three remaining socialist states in the world, along with Cuba and North Korea."

Likewise, Nasser al-Shaikh, chairman of Amlak Finance, the largest publicly owned Islamic finance firm in the United Arab Emirates, spoke of the need to unlock the Gulf's human potential by improving education and training, and luring more skilled workers from overseas. The region's ambitions are vast — from the new economic cities being planned in Saudi Arabia to the huge construction projects rising up in Dubai to the renewable energy research being funded in Abu Dhabi. "But can we attract the talent to execute the projects we have in mind?" asked al-Shaikh.

In the meantime, there are more immediate economic minefields to navigate. Inflation, for example, is surging in cities like Doha and Dubai, driving up the price of everything from food to office space. Nobody is hurt more than the Gulf's millions of ill-paid migrant workers, and this exacerbates the danger of growing labor unrest. One measure that Gulf countries are considering to dampen inflation: a dismantling of the peg that ties their currencies to the beleaguered U.S. dollar.

Another key to sustaining the boom is to diversify the Gulf's economy so it's not so narrowly dependent on high energy prices. In the U.A.E., for example, as much as 40% of the country's GDP comes from the production of oil and natural gas. Of course, it's hard to find people these days who think the price of oil is set to plunge, but a deep recession in the developed world — led by the gas-guzzling U.S. — could lessen demand and drive the price down more sharply than many expect.

Still, the wealth already amassed in these bounteous days for energy exporters should provide a cushion for years to come. Amid this euphoria, few seem to fret about the other seemingly glaring risk to the Gulf — the possibility that property speculation in cities like Dubai might lead to a bust. Mohamed Bin Ali Alabbar, chairman of Emaar, the region's leading property developer, says Dubai still has plenty of room to grow as a services center for the Gulf and its 200 million people: "The region is expanding, Dubai is too small, and so more needs to be done." For now, at least, such bullishness reigns supreme.

• SCOTT MACLEOD/SHARM EL-SHEIKH
• Skyscrapers and profits soar in the Gulf, fueled by record energy prices. Can anything stop this boom?