Publication
Omar Shaban Ismail · QudsNet · 2020
Omar Shaban argues that the fading golden age of oil will transform the internal structures of Arab oil-exporting states, especially in the Gulf, and diminish their regional and international influence. He cites a fall in Middle Eastern oil-export revenues from $1 trillion in 2012 to $575 billion in 2017, with a further drop expected to $300 billion in 2020, alongside trends such as the EU producing 40% of its electricity from wind and solar and forecasts that oil and gas will account for less than 50% of global energy by 2040. He contends that public spending expanded on the assumption of lasting oil prosperity, even though countries such as Saudi Arabia, Kuwait, Iraq, and the UAE need oil prices between $58 and $73 per barrel to sustain current budgets while prices have fallen below $50. He also warns that falling revenues will reduce Gulf demand for expatriate labor, harming remittance-dependent economies including Egypt, Lebanon, Jordan, and Palestine, and calls for serious strategic planning based on austerity, revenue diversification, and domestic industrialization.
Omar Shaban, December 2020: The fading oil age will weaken Gulf stability and influence, requiring austerity and diversification.
The enormous oil revenues of the Arab states that export it, especially the Gulf states, played an important role in shaping the structure of their societies, bringing forth a new value system, and defining the contours of geopolitics in the Middle East in particular and the world in general. This is because the activities of human civilization—transportation, heating, industry, aviation, tourism, and others—have depended on oil as a primary source of energy. The discovery of oil brought about a fundamental change in the structure of the societies that enjoyed immense wealth, in both the form and substance of their social relations and value concepts, and in creating a culture and patterns of luxury consumption in an unprecedented way. These states, which became fabulously wealthy, were able to create a welfare and luxury state, enabling them to buy the satisfaction of their peoples through lavish spending and extreme extravagance. These states were also able to assume an important and highly influential external role through their possession of enormous resources to spend on promoting their policies and interventions, in peace and war, in poor countries and regions. Oil revenues were thus employed as financial and economic tools for political, security, and cultural purposes in the recipient states and regions. As a result, the oil-exporting states acquired an important and influential position in Arab, regional, and international politics in confronting the traditional Arab capitals such as Cairo, Damascus, Baghdad, and Beirut. But it has become certain that the golden age of oil is on its way to decline and disappearance, which will sharply affect the structure of the oil-exporting societies and their place in international politics. It will also have a major impact on the state of internal stability and on the relationship of the ruling authorities with their peoples.
A sharp decline in revenues:- The total revenues of the oil-exporting Middle Eastern states in 2012 amounted to one trillion dollars. These revenues declined by about half over the following three years, reaching $575 billion in 2017. Oil revenues are expected to continue declining this year, 2020, to reach only $300 billion (The Economist). Russia Today also published statements issued by the Russian Ministry of Energy indicating that the share of oil and gas in the global energy balance will decline to less than 50% by 2040. A report issued in July 2020 by Ember, the organization specialized in tracking the development of alternative energy production, also stated that 27 European Union countries succeeded in producing 40% of their electricity needs through alternative energy represented by wind and solar power. The decline in oil revenues is attributed to many reasons, foremost among them the shift of advanced countries toward environmentally friendly renewable energy sources (wind, sun, and seas) to confront pollution and climate change.
Inflating levels of spending amid a sharp decline in revenues:- The oil-exporting states relied, in determining the size of the budget and allocating funds for development and service programs, on the expected value of revenues from oil sales. Oil revenues thus became the most important source for financing general operational and development expenditures. Indeed, these states expanded spending far beyond the level of revenues in the expectation that this would continue for many decades. For example, Saudi Arabia must sell a barrel of oil at $73, Kuwait at $62, Iraq at $58, and the UAE at $65 in order for these states to obtain sufficient returns to meet the levels of spending followed since the years of oil prosperity. But the price of a barrel of oil in recent years has fallen to less than $50, after reaching around $100 in certain years. The decline in oil and gas revenues in the last decade has caused a chronic deficit in their budgets. Some of these states have therefore resorted to borrowing and selling public assets and companies as quick means of financing the deficit. But the downward curve in the price of a barrel of oil has been much faster than the ability of these states to reduce spending levels, pursue a policy of diversifying revenue sources, and implement austerity policies.
Effects on the states benefiting from remittances from their sons:- The sharp and continuous decline in oil revenues will reduce the ability of the oil-exporting states to attract and continue employing expatriate labor, as these states will be compelled to nationalize jobs in order to reduce the public spending bill, retain hard currency, and stimulate domestic consumption. Labor-exporting countries will be negatively, directly, and sharply affected by the decline in oil sale revenues. These countries include Egypt, where 3% of its citizens work in the Gulf states, Lebanon and Jordan with 5%, and Palestine with 9%, while their remittances constitute a basic source for the economy in their countries. The annual value of remittances to Middle Eastern countries from their sons working abroad is estimated at $62 billion. Egypt ranks first with $28 billion in 2019, Morocco $8 billion, Lebanon $7 billion, and Jordan $5 billion.
A decline in intervention and influence at the regional and international levels:- The decline in oil revenues will reduce the ability of the oil-exporting states to continue meeting the consumption patterns of their peoples that spread during the time of prosperity. In the face of declining oil revenues, some states have adopted new policies, including imposing taxes on consumption and luxury goods, implementing austerity policies, and others. This may have repercussions for the state of stability these countries have enjoyed; therefore, an increase in expressions of anger and dissatisfaction is not unlikely among peoples who did not previously see democracy as an important demand amid the prosperity they enjoyed. Externally, these states will not be able, as was the case in the past, to provide sufficient resources to spend on promoting their policies and their humanitarian, political, and security interventions in other countries and regions. Some Arab Gulf states have done well to begin adopting austerity policies, diversifying revenue sources, and localizing industries domestically. The era of oil prosperity is on its way to disappearing, and it is therefore necessary to develop serious strategic plans to confront the repercussions of this.
Topic: International Economy — Text © QudsNet — archived here with attribution to the source. — Original source