A Very Special Recession

Falling revenues force Persian Gulf states to curb their spending

For most of the past decade, the money flowed like oil from the local gushers. All told, nearly $1 trillion poured into the sparsely populated, energy-rich Arab states along the Persian Gulf.* Now that stream has dwindled sharply. This year the region will take in only about $60 billion in oil revenues, down one-third from 1982 and only about one-half the level of two years ago.

Along with the fall in oil prices, the region's economy has been hit hard by the three-year-old war of attrition between Iran and Iraq. That conflict could...