The proposed paper offers a differentiated analysis of the social, economic and urban development that the Sultanate of Oman has accomplished in the course of oil modernization over the last 40 years. The aim is to focus on the societal and political context behind the modest yet visionary (i.e. “sustainable”) transformation process Oman has undergone, and to examine the Sultanate’s way of meeting the ideals and values of modernization (in its western understanding) without denying its own traditional values, practices and lifestyles. For this, Oman is widely recognized as being moderate in its pursuit of development goals relative to most of the other GCC countries. Yet, the country is also tackling urgent socio-political, economic and urban challenges that have emerged from global interactions, particularly in the capital area of Muscat and against the background of the dynamics of international migration to the Gulf. Muscat represents a longstanding cosmopolitan place due to its historical significance as an important hub in the Indian Ocean sea trade; it is still the countries’ nodal point for its main economic activities. Hence, Muscat hosts the majority of the foreign labor force of the Sultanate. However, intensifying efforts to replace foreign labor with nationals in the process of ‘omanization’ has caused tensions, which has forced the consideration of current challenges such as social heterogeneity, integration, the “right to the city”, the production of space and society etc. from different as well as critical angles. The paper presents results of the authors’ own in-depth empirical research activities which have been conducted in Oman since 2009. Methodologically, the research data are of a qualitative empirical nature, reflecting different perspectives of nationals and non-nationals living in Oman.