The past half-decade has proven to be very good for oil exporting states, as the price of oil soared from under USD $30 a barrel in most of 2003 to well over $100 in 2008. With world demand for energy strong and energy prices rising, government coffers in the Arab Gulf countries have benefited in a spectacular way. Kuwait is a case in point, as official revenues during the past fiscal year almost trebled from their 2003/4 level, mostly thanks to oil.
Kuwait government revenue for fiscal years 2003/4 and 2007/8 (USD b)

From oil
Non-oil revenue
Oil as % of total

Source: calculated from Kuwaiti Ministry of Finance “Final Accounts 2007/8”
The bad news is that these numbers viewed in isolation suggest that Kuwait remains a classic rentier state, living on natural resources alone and unwilling or unable to diversify, reform, democratize, or otherwise change for the better. If anything, the emirate should be wallowing deeper in autocracy as state dependence on oil rises. Yet the politics of the country belie this.
Iranian economist Hossein Mahdavy introduced the rentier state concept in 1970 and others, notably Giacomo Luciani, elaborated and applied it to the emerging Arab Gulf States. Applying the notion of a rentier state implied that democratization in the region was iffy at best. This analysis is based on the observation that the vast amounts raised by oil-rich governments have little to do with taxation, being instead unearned revenue from the extraction of a natural resource. So long as states have sufficient amounts of such income, rentier state theory suggests that they may have little reason to democratize, reform, or otherwise evolve.
Does the present Kuwaiti example contradict this theory? While Kuwait is a rentier state where petroleum accounts for over 90 percent of government income, its politics are atypical of rentierism. Lively parliamentary elections give rise to a collection of disparate political actors; May 2008 elections produced a 70 percent turnout, colossal compared to turnout in some Western democracies. With different interests and ideologies increasingly independent of the ruling family, the country undergoes open debate about institutions. Parliament requests ministerial testimonies about possible corruption. The country’s ruler interferes more as a caretaker than a tyrant, to allow for a modicum of open democratic politics according to constitutional rules.
It is true that Kuwait still has a long way to go on the path towards democracy. Unfettered political activities are proscribed by a strong executive; civil society organizations depend on the clemency of state agencies to operate; and the ruling family is still the final arbiter of elite politics.  Nevertheless, traditional democratic development may be possible in the Kuwaiti rentier state because of competing economic and social elites who benefit from the country’s drive towards modernization, but have different points of view concerning it. Pressure on the Kuwait system may gradually produce better representation and participation, for example in terms of gender, where the last parliamentary poll failed to elect any women, even though they made up 55 percent of the electorate. While unruly and sometimes embarrassing, Kuwait’s experience offers an example of what could be a future model for politics in a rentier state.
One factor that impedes democracy in the Middle East is the lack of government dependence on citizen support, the state instead relying on oil revenues directly, as in the Gulf Cooperation Council countries, or indirectly in the case of such economies as Jordan. The political implication of this concept is that because such states do not ultimately rely for survival on domestic taxation, they are under no obligation to allow for political freedom and so can limit independent political activity that may affect social stability. However, the vast amounts of money in Kuwait and the other Arab Gulf exporters help underpin stability and so make resorting to repression less necessary. In such situations, democratic practices can and do develop.
So should the theory of the rentier state be revisited? The idea of rentierism clearly has applications even to non-oil economies; for example, Jordan has been viewed as a quasi-rentier state because of its indirect dependence on oil revenues as has Egypt because of its dependence on tourism. However, as the last five years have shown, as far as the GCC states are concerned, the old equation of oil wealth with anti-democratic rentierism may need to be refined and updated.
Riad al Khouri, co-founder and principal of KryosAdvisors, is Senior Fellow of the William Davidson Institute at the University of Michigan, Ann Arbor.