When the Arab Spring erupted in 2011, rulers in the Middle East and North Africa took numerous measures to quell the popular discontent that was boiling over. Shrewd leaders understood that institutions needed to act as valves to release pent-up political pressure. In Oman, a country with strong Arab traditions and moderate attitudes, Sultan Qaboos introduced a string of measures to address public grievances, including a minimum-wage hike and stepped-up efforts to create jobs.¹ The sultan also permitted Islamic banking in the country for the first time.

In line with Oman’s moderate attitudes, Islamic banking had not previously been allowed in the country. In the view of the recently deceased Qaboos, the father of modern Oman, Sharia-style banking could foster exclusion and extremism. Not allowing Islamic banking at all, nonetheless, is unusual for a country with a majority Muslim population. The Quran explicitly forbids basic practices of conventional banking, such as charging interest.

In 1994 and again in 2005, the Omani government had suppressed rebellious plots, arresting 430 members of fundamentalist parties and seizing caches of illegal weapons. A major motivation for these parties was to promote Islamist ideals and, among other things, demand Islamic banking.² At the time, Oman was the only country in the Gulf Cooperation Council (GCC), and the only country in the world with a Muslim majority, that did not allow Islamic banking.

However, the disruptions of 1994 and 2005 were relatively small and thus rapidly quashed. It was not until the much larger and more widespread Arab Spring uprisings in 2011 that the sultan was forced to take notice. As an immediate response to the protests, he asked for a list of concerns to be presented to the government. The demands of the protesters centered on concerns that particularly troubled the large youth population of Oman: educational development and job creation. The sultan also addressed the social/religious discontent caused by the ban on Islamic banking. By the end of 2012, there was a royal decree allowing Islamic banking, and the Central Bank consequently introduced a new regulatory framework.

OIL RELIANCE AND UNEMPLOYMENT

Located at the mouth of the Persian Gulf and sharing borders with the United Arab Emirates (UAE), Saudi Arabia and Yemen, Oman is known for solid relationships with the West and for “neutral” foreign policies. With a rapidly growing population of 4.6 million, the country is made up of about 43 percent expats employed at all levels of private and public enterprise. Qaboos came to power in 1970 amid a longstanding civil war. Under his leadership, social and political order was re-established, and Oman was transformed from a simple fishing and trading backwater into a prosperous modern nation. Economic development has been strong — Oman’s GDP has more than doubled in the last decade.