In the time of the British Empire it was usually known as the Persian Gulf. Now the Arabs call it the Arabian Gulf and the Iranians still call it the Persian Gulf. But the Portuguese in the 16th century knew it as the Sea of Qateef, after what was then the chief trading town there (now a suburb of Dammam). Its modern importance is that it borders the countries with a huge amount of oil: Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Oman, Iraq and Iran. This area is thus of world strategic interest, though less so than in 1973 because of the increased production of non-Gulf oil.

In the next decade (2005 onwards) its importance will increase again as the other sources of oil are used up unless there is a big development of alternatives to oil such as solar energy, which could also be produced in the Gulf area.

The Gulf area is dominated by Saudi Arabia, much the largest and richest power. The Iranians would like to dominate. However, they differ in language and religion and so are regarded by many Arabs as enemies, and by the rulers as a threat. The Arabs have formed a Gulf Cooperation Council, which may be mainly a vehicle for exerting Saudi power, as most of the members are very small. It consists of: Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman.

The Iranian religion of ShiÕism has adherents in many of the Gulf states, especially the oil provinces of Saudi Arabia, Bahrain.

There are proposals that the Gulf Cooperation Council may adopt a common currency, using the experience of European Central Bank in setting up the euro. It may be linked to the euro, rather than the US dollar.

The military strength of the Arabs is probably much smaller than appears from the money they spend on arms. The Yemen stands outside this system. Oman also has more differences. Several of the smallest states have United States bases on their soil as part of their alliance in the Iraq war.

Iran may be the strongest power at present, and is believed to be developing nuclear weapons, perhaps with the cooperation of Pakistan and North Korea.

Arabian frontier of British Raj