By Andrew Cunningham

THE PRICE OF OIL has nearly doubled since the beginning of the year, reaching the $70-$80 per barrel level necessary to ensure a return to vibrant economic activity in the six Gulf Co-operation Council states.

Stock indexes in Saudi Arabia and the United Arab Emirates - which account for two-thirds of GCC stock market capitalisation - have risen by about a third. Spreads on sovereign credit default swaps have been falling steadily.

Sheikh Mohammed bin Rashid Al Maktoum, Dubai’s ruler, said this week: “I am confident that the worst has passed, and that, as the global economy stabilises, Dubai today is well placed to exploit its inherent strength.” And over the summer, a Dun and Bradstreet business optimism survey in Saudi Arabia showed confidence increasing in all sectors, with nearly half of those questioned confirming plans to expand their businesses.

But it would be a mistake and a missed opportunity if the Gulf economies, having picked themselves off the floor, were to dust themselves off and walk on as if nothing had happened. In some respects, Gulf regulators and bankers have recognised the themes of financial sector reform that are finding resonance in the west. Central to these has been a desire to extend the scope of regulation and ensure clear lines of regulatory responsibility. Institutions such as hedge funds and rating agencies, which can have a significant impact on financial market activity, will be regulated more tightly, as will banks.

The strengthening of regulation has been an integral part of financial market development in the Gulf, and predates the recent crisis. In Bahrain, insurance and capital market activity was placed under the authority of the Bahrain Monetary Agency in 2002.

In Saudi Arabia, insurance regulation has been strengthened since being brought under the Saudi Arabian Monetary Agency (SAMA), while capital market activity, having first been subject to the SAMA’s scrutiny, has been spun off into a separate Capital Market Authority.

The UAE and Qatar are committed to improving co-ordinated regulation and to eliminating the opportunities for regulatory arbitrage that arise from the existence of financial centres with their own monitoring authority, in competition with national central banks.

Other areas of focus in the west have a lower resonance in the Gulf. The region’s financiers have yet to command the stratospheric bonuses of their counterparts in London and New York and, as a result, the issue of executive pay has not been a priority for reform.

But the Gulf has its own lessons to learn from the recent crisis - lessons that are particular to the region, its economic structure and current stage of development.

The region’s economies will continue to be driven by oil revenues, which will continue to rise and fall.

Gulf governments have to find a way to prevent high levels of liquidity from funding grandiose and speculative investment.

Unsustainable booms in real estate construction do not benefit the region’s long-term development. Instead, they provide a breeding ground for corruption, while the hangover of unsold and overpriced property takes years to dissolve. Instead, they provide a breeding ground for corruption, while the hangover of unsold and overpriced property takes years to dissolve.