The end of the oil era in the Arab world is imminent

It appears that the end of the oil era in the Arab world is imminent due to the economic turmoil the world is currently experiencing and everyone in the region will soon feel the pain of this transformation.

This is what was stated in a report by The Economist magazine, Great Britain, which states that the upward path of the balance sheets of the oil-dependent Arab countries has stopped. Algeria, for example, needs the price of Brent crude (an international oil index) to rise to $ 157 per barrel, while the Sultanate of Oman is priced at $ 87 and no Arab oil producing country – except of Qatar – can check its balance sheets at the current selling price of around $ 40 a barrel.

The Corona epidemic crisis has gone so far as to complicate matters further as oil prices have dropped to record levels, forcing Arab countries to take drastic steps. The Algerian government announced last May that it would cut spending in half, while Iraq – one of the largest oil producers in the world – intends to do so by cutting government salaries and the Sultanate of Oman is struggling to get loans after it credit rating agencies have lowered its sovereign rating and changed their view from stable to negative, and the deficit in Kuwait could reach 40% of GDP, the highest level in the world.

Turbulence in the oil market

The Economist says that the world’s economies are increasingly moving away from fossil fuels, and supply is soaring and the competitiveness of clean energy sources increases, indicating that oil will remain cheap for the foreseeable future.

He adds that the current turbulence in the oil markets is not just a passing cloud, but rather an indication of what the future will look like as the world has entered a new phase of lower prices, in which Middle Eastern countries and North Africa will be the hardest hit.

Expectations this year were that Arab countries would raise around $ 300 billion from oil sales, a figure that is not enough to cover their expenses, but since last March things have turned upside down and Arab governments are forced to cut back. expenses, increased taxes and loans, and many of them have been exhausted. – At the forefront is Saudi Arabia, its monetary reserves destined to finance reforms.

And last February, before the outbreak of the emerging Corona virus crisis, the International Monetary Fund expected the Gulf Cooperation Council countries to exhaust all their $ 2 trillion reserves by 2034.

The effects of the current crisis will also extend to neighboring non-oil-producing (European) Arab countries.

Non-producing countries concerned

The magazine pointed out that the effects of the current crisis will also extend to neighboring non-oil-producing Arab countries, which have long relied on their neighbors to hire their citizens, and the value of remittances for some of them amounts to around the 10% of their GDP.

He cited an example in Lebanon, whose low oil price crisis in the Gulf has exacerbated the severity of the economic crisis it is experiencing, while the crisis in Egypt and Jordan – of which around 3% and 5% (respectively) of the their citizens work in the Gulf countries – it will cause a significant drop in the value of remittances. .

The crisis will also lead – according to the magazine – to the reversal of the social contract in countries that have long relied on immigration to export their unemployment crisis. For example, 35,000 university students graduate annually in Lebanon, and the local economy employs only 5,000, while most of them are forced to look for work abroad. And particularly in the Gulf.

In Egypt, successive governments provided unskilled labor to the Gulf countries, where more than a fifth of Egyptian immigrants to Saudi Arabia, for example, were “illiterate” in the 1980s – according to the magazine – but today the situation has changed.

Businesses in Arab countries, in turn, will be affected by the decline in demand from Gulf countries, and the absence of Gulf tourists will tangibly impact tourism sector revenues in countries that depend primarily on Gulf tourism, such as Egypt and Lebanon, as tourists from Saudi Arabia, the United Arab Emirates and Kuwait make up nearly a third of their tourist income.

The absence of Gulf tourists will affect the tourism sector in countries that depend primarily on Gulf tourism (Al Jazeera)

External interventions

On the other hand, the Economist believes that the Middle East, less central to the world’s energy supply, will be less important to US policy, and Russia may try to fill the void the US retreat will leave in the region, but the Moscow’s regional interests are limited, such as its determination to preserve its Mediterranean port in the region. Tartous in Syria does not want – or perhaps cannot – extend the influence of its security umbrella in the Arabian Peninsula.

On the other hand, China has remained free from interference in the region’s politics and has committed to look after its economic interests only by concluding, for example, construction contracts in Algeria, participating in the management of Egyptian ports or concluding a wide range of various agreements with Gulf partners.

However, with Arab countries’ growing poverty, the nature of their relationship with China may change, as has happened with Iran, as US sanctions prompted Tehran to discuss a long-term investment deal with Beijing, according to the which Chinese companies will be able to invest in different and varied sectors such as ports and communications.

This “strategic partnership” – as I have described – makes some observers fear that it will pave the way for China to control the infrastructure it is building in Iran, as it has done in Asian and African countries.

The magazine believes that the decline in oil revenues in Arab countries may push them to adopt this partnership model with Beijing, which will complicate its relations with Washington.

And he concludes that young people in the region have the same concerns because of the current economic crisis – i.e. immigration in search of solutions – as Egypt appears to be a country that is collapsing under its weight, and Jordan is experiencing a permanent economic crisis, while the series of frustrations continues in Tunisia despite being the starting point of a revolution that has spread throughout the region. To be sure, the “end of the oil age” may bring change, but it will bring pain first.