Multinational financial institutions have been active in the states of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—since before the 1950s, but until recently few have identified the region as a growth opportunity. Its economic prospects paled beside those of other emerging markets such as China and India. Even today, the GCC’s population is only 35 million, and its share of global banking assets is less than 1 percent.

But now, high oil prices are fueling rapid economic growth in the region. More and more, foreign financial institutions are looking for ways to exploit the sizable investment opportunities the boom has created. Wealthy people in the GCC, who have relied on offshore banking to manage their assets, are investing more money within the region. GCC businesses riding the economic wave are demanding a wider range of financial services. In 2005 these factors helped to increase banking assets by 7 percent in Oman and by 20 percent in Qatar. And in Saudi Arabia, the region’s largest market, total mutual funds under management swelled from $10.2 billion in 2000 to $36.5 billion in 2005.

While regulations and unwritten barriers prevent foreign financial institutions from...