Business

Why the current oil boom for Arab states may be their last

September 19, 2022
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The Gulf States experienced an oil boom in the 1970s and 1980s, and then another in the early 2000s. But shifting attitudes towards energy use mean such cycles may no longer be sustainable, and Gulf countries need to be prepared, experts say.

“This is certainly the beginning of the end for oil wealth at these sustained levels,” said Karen Young, senior fellow at the Middle East Institute in Washington.

“Today’s boom is different in that it’s more than an oil crisis,” Young said. “It’s a big shift in the structure of how we meet global energy needs.”

Middle East energy exporters are expected to rake in $1.3 trillion in hydrocarbon revenues over four years as a result of the current boom, according to the International Monetary Fund. Experts have warned against squandering it, arguing that Gulf states need to protect themselves from swings in oil prices by using windfall to diversify their economies from their reliance on oil wealth.
During previous oil booms, the Gulf States were seen as squandering their wealth on wasteful and inefficient investments, construction and arms purchases, and handouts to the citizens. These booms were followed by downturns as oil prices cooled as nations continued to depend on hydrocarbons for their revenues.

“Often construction projects are started and then abandoned when the oil money runs out,” said Ellen Wald, a nonresident senior fellow at the Atlantic Council in Washington, DC. “Because they have to spend so much, there’s often not much oversight and traditionally there’s a lot of corruption.”

According to Omar Al-Ubaydli, research director at Bahrain-based think tank Derasat, there has also traditionally been a strong emphasis on increasing public sector hiring and public sector salaries through bonuses or salary increases.

A May 2022 World Bank report stressed that the wealth gained by the Gulf states in the wake of the pandemic and post-Ukrainian war must be invested in the bloc’s “economic and environmental transition”.

The focus on investing in the energy transition is crucial as many parts of the world accelerate the transition to renewable energy, the report said.

The Ukraine war has impacted the Middle East in four ways
The Gulf States seem to be working on diversification. Since the end of the last oil boom in 2014, four of the six Gulf countries have introduced VAT, and the UAE has gone further and introduced a corporate tax. None of the Gulf States have an income tax. Saudi Arabia has invested in non-oil sectors like tourism, but experts question the sector’s ability to offset oil revenues. The kingdom earns around a billion dollars a day from oil at current prices.

Gulf countries have resisted the notion that hydrocarbons could be phased out as a primary energy source as environmentally conscious nations move to alternative sources. Oil is and will continue to be critical to the global economy, they say.

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Critics counter that it is in the interest of oil exporters to push this narrative, but oil states have pointed to a surge in crude oil demand that has coincided with the lifting of Covid-19 restrictions around the world.

The Paris-based International Energy Agency said last week that oil demand will rise sharply next year, buoyed by a resumption of work in China and global travel.

The United Arab Emirates, one of the world’s largest oil exporters, has warned that a too rapid transition away from hydrocarbons could cause an economic crisis.

“Policies aimed at phasing out hydrocarbons too early, without adequate viable alternatives, are self-defeating,” Sultan Al Jaber, the UAE’s special envoy on climate change, wrote in an August statement. “They will undermine energy security, undermine economic stability and leave less income for investments in the energy transition,” he added.

Young of the Middle East Institute said even if economies turned away from oil as an energy source, there would still be demand for oil-based products such as petrochemicals and materials for plastics.

However, experts say the Gulf states are realizing that even if demand for oil persists, such price spikes may not occur again on the same scale or with the same frequency.

“There is a palpable sense that this is a temporary boom and that this could represent the last sustained rise in oil prices,” Al-Ubaydli said. “Governments and people alike believe this is an opportunity that must be seized fully, rather than wasted on short-sighted decision-making.”

The abstract

Iranian woman dies after falling into a coma in morality police custody

A 22-year-old Iranian woman died after being arrested by Iran’s morality police earlier this week, Iran’s semi-official website Etemad Online reported, citing her uncle. The woman’s death sparked outrage on social media platforms and sparked reactions from local and western officials.
  • background: On Tuesday evening, Mahsa Amini and her family, who had traveled from Iran’s Kurdistan region to visit relatives in the capital Tehran, were stopped by a patrol from the Morality Police – a unit that enforces strict dress codes for women. According to IranWire, human rights activists who spoke to the family say police grabbed Amini and forced her into a police vehicle. On Thursday, Tehran police said Amini had suffered a “heart attack.” Iranian officials said Saturday that an autopsy had been performed and that the results would be released after expert review.
  • Why it matters: The incident sparked global outrage, with many using the hashtag #MahsaAmini in English and Farsi on social media to protest Iran’s moral police and the aggression faced by women over the country’s strict hijab rules. It also follows recent social media protests in Tehran against “National Hijab and Chastity Day”.
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Erdogan wants Turkey to join the Shanghai Cooperation Organization

President Recep Tayyip Erdogan said he is seeking Shanghai Cooperation Organization (SCO) membership for NATO member Turkey, Reuters reported, citing Turkish broadcaster NTV and other media on Saturday. He spoke to reporters after attending the SCO summit in Uzbekistan. “This step will put our relations with these countries in a completely different position,” Erdogan said. When asked if he meant membership in the SCO, he said: “Of course that is the goal.”

  • background: Turkey is currently a dialogue partner of the SCO, an economic, political and security grouping whose members are China, Russia, India, Pakistan, Iran, Kyrgyzstan, Tajikistan, Kazakhstan and Uzbekistan.
  • Why it matters: Joining the SCO would bring Ankara closer to Russia and China as the Ukraine war is polarizing world politics. NATO member Turkey has maintained good relations with Russia throughout the war and has refrained from joining its western allies in sanctioning the country.

Images show the Iranian leader at an event amid reports of deteriorating health

Pictures and video released on Iran’s government websites and state-run media showed the country’s Supreme Leader Ayatollah Seyyed Ali Khamenei sitting in a Tehran mosque and attending the Arbaeen mourning ceremony, marking the end of a 40-year anniversary -day period in which to mourn the assassination of one of the prophets, Muhammad’s grandson, a day after reports of the ayatollah’s deteriorating health.

  • background: The New York Times reported Friday that Khamenei canceled all public appearances last week after falling “seriously ill” and being monitored by a medical team. Citing four anonymous people familiar with his medical condition, the NYT said Khamenei is on bed rest after undergoing surgery for a bowel obstruction sometime last week.
  • Why it matters: Khamenei has been the leader of Iran for three decades and one of the longest-serving rulers in the Middle East. It remains unclear who might succeed the leader, but it is expected that in the event of his death, the Assembly of Experts will convene to consider his successor.
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Something to see

Queen Rania of Jordan speaks to CNN’s Becky Anderson about the advice she was given by Britain’s late Queen Elizabeth II, and says it remains with her to this day.

Watch the interview here:

Around the region

Ines Laklalech of Morocco tees off from the 7th hole during day one of the Aramco Team Series London on June 16, 2022 in St Albans, England.
Rookie professional golfer Ines Laklalech became the first Arab and first North African woman to win a Ladies European Tour title when she won the Lacoste Ladies Open de France tournament on Saturday.

The 24-year-old Casablanca native defeated England golfer Meghan MacLaren in a play-off on Saturday and said her win at the Ladies Open de France will be something she will remember “for the rest of my life” when she celebrated her historic victory in Deauville alongside her husband Ali, who is also her caddy.

“It feels great,” said Laklalech, the Ladies European Tour website reported. “It’s something special to hear. I have no words to describe it.”

She added that “Morocco is doing a great job of promoting golf” and that “if a Moroccan wins on a major tour, it will be huge for the country and for the Arab world in general”.

Laklalech also said she is a big fan of Tunisian tennis star Ons Jabeur, who became the first African woman to play in a Grand Slam final as she reached both the Wimbledon and US Open finals this year.

By Aimee Lewis

picture of the Day

Environmentalists build a pyramid out of plastic waste collected in the Nile River as part of a pollution awareness event on World Cleanup Day. on Saturday in the Egyptian area of ​​Giza near the capital Cairo.



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