Why the current oil boom may be the last of the Arab states


The Gulf states experienced oil booms in the 1970s and 1980s, and another in the early 2000s. But changing attitudes towards energy consumption mean that such cycles are no longer sustainable, and experts say the Gulf states must prepare for it.

“This is definitely the beginning of the end of oil wealth at this sustained level,” said Karen Young, senior fellow at the Washington-based Near East Institute.

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

Energy exporters in the Middle East are expected to gain $1.3 trillion in hydrocarbon revenues over four years as a result of the current boom, the International Monetary Fund said. Experts have warned against the waste, arguing that Gulf states need to protect themselves from oil price fluctuations by harnessing the wind to diversify their economies away from dependence on oil wealth.
During previous oil booms, the Gulf states squandered their wealth on wasteful and ineffective investments, building billboards and buying weapons, as well as handouts to their citizens. These booms were followed by downturns when oil prices cooled as nations relied on hydrocarbons for revenue.

“Often construction projects get started and are abandoned when the oil money runs out,” said Ellen Wald, a non-resident fellow at the Atlantic Council in Washington, DC. “Because they have so much to spend, there is often not much oversight and traditionally there has been a lot of corruption.”

According to Omar Al-Ubaydli, director of research at the Bahrain-based Derasat think tank, there has also traditionally been a heavy emphasis on public sector procurement and public sector wage increases through bonuses or raises.

A May 2022 report by the World Bank stressed that the wealth gained by Gulf countries after the pandemic and the war in Ukraine should be invested in the bloc’s “economic and environmental transition”.

A focus on investing in the energy transition is critical as many parts of the world accelerate the transition to renewable energy, the report says.

The Gulf states seem to be working on diversification. Since the last oil boom ended in 2014, four of the six Gulf states have introduced value added tax and the UAE has gone further by introducing a corporate income tax. None of the Gulf states have an income tax. Saudi Arabia is investing in non-oil sectors such as tourism, but experts question the sector’s ability to offset oil revenues. The kingdom earns about a billion dollars a day from oil at today’s prices.

Gulf states have pushed back against the idea that hydrocarbons could be phased out as a major energy source as environmentally conscious nations move to alternative sources. Oil is and will be essential for the world economy, they say.

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

The Paris-based International Energy Agency said last week that oil demand will grow significantly next year, driven by work in China and global travel.

The United Arab Emirates, one of the world’s leading oil exporters, has warned that too fast a transition away from hydrocarbons could lead to an economic crisis.

“Policies that aim to divest from hydrocarbons too soon, without adequate viable alternatives, are self-defeating,” Sultan Al Jaber, the UAE’s special envoy for climate change, wrote in an August opinion piece. “They will weaken the energy security, they will destroy the economic stability and they will leave less income to invest in the energy transition”, he added.

The Middle East Institute’s Young said that if economies moved away from oil as an energy source, they would continue to demand oil-based products such as petrochemicals and materials for plastics.

However, experts say the Gulf states realize that while oil remains in demand, these increases in its price may not happen again at the same level or frequency.

“There is a possibility that the boom is transitory and the recent increase in the price of oil may be permanent,” said Al-Ubaydli. “Governments and people believe that this is an opportunity that should be taken as a whole, rather than removed from myopic decision-making.”

digestion

Iranian woman dies after falling into coma while under moral police custody

A 22-year-old Iranian woman died earlier this week after being arrested by Iran’s moral police, Iran’s semi-official website Etemad Online reported, citing her uncle. The woman’s death sparked outrage on social media platforms and prompted reactions from local and Western authorities.
  • Background: On Tuesday evening, Mahsa Amini and her family, traveling from Iran’s Kurdistan region to visit relatives in the capital Tehran, were stopped by a patrol of the morality police — a unit that enforces a strict dress code for women. According to IranWire, human rights activists who have spoken to the family say that the police caught Amini and put him in a police vehicle. On Thursday, Tehran police said Amini had suffered a “heart attack”. Iranian authorities said on Saturday that an autopsy had been carried out and that the results would be released after expert examination.
  • Why it matters: The incident sparked outrage around the world, with many using the hashtag #MahsaAmini in English and Farsi on social media to protest Iran’s moral police and the assault on women over the country’s strict hijab rules. It also follows Tehran’s recent social media protests against “National Hijab and Chastity Day”.

Erdogan wants Turkey to join the Shanghai Cooperation Organization

President Recep Tayyip Erdogan said he aimed to join Turkey’s NATO member Shanghai Cooperation Organization (SCO), Reuters reported, citing Turkish channel NTV and other media on Saturday. He was speaking to reporters after attending the SCO summit in Uzbekistan. “Our relations with these countries will be taken to a very different position with this step,” Erdogan said. Asked if he meant membership in the SCO, he said, “of course, that’s the goal.”

  • Background: Turkey is currently an interlocutor of the SCO, an economic, political and security group that includes 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 war in Ukraine polarizes global politics. NATO member Turkey has maintained good relations with Russia through the war, refusing to join its Western allies in punishing the country.

Pictures show the Iranian leader at the event amid reports his health has deteriorated

Images and a video posted on Iranian government websites and state media showed the country’s Supreme Leader Seyyed Ali Khamenei sitting in a mosque in Tehran participating in the Arbaeen mourning ceremony, the end of the 40-day period to mourn the killing of a Prophet. Mohammed’s grandchildren, following reports of the ayatollah’s deteriorating health.

  • Background: The New York Times reported Friday that Khamenei had canceled all public appearances last week because he had become “gravely ill” and was being observed by a medical team. Citing four anonymous people familiar with his health, the NYT said Khamenei was on bed rest last week after undergoing surgery for an intestinal obstruction.
  • Why does it matter?: Khamenei has been Iran’s leader for the past three decades and is one of the longest-serving rulers in the Middle East. It is not clear who may succeed the leader, but it is expected that in the event of his death, the Assembly of Experts will meet to discuss his successor.

What to see

Queen Rania of Jordan talks to CNN’s Becky Anderson about the advice given to her by the late British Queen Elizabeth II, which she says remains with her to this day.

Watch the interview here:

Around the region

Ines Laklalech of Morocco tees off the 7th hole during the first day of the Aramco Team Series London, June 16, 2022 in St Albans, England.
Budding 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 on Saturday.

The 24-year-old from Casablanca defeated English golfer Meghan MacLaren in a play-off on Saturday and said her Ladies Open de France victory would be something she would remember “for the rest of my life” as she celebrated her historic victory. In Deauville next to her husband, Ali, who is her caddy.

“It’s amazing,” Laklalech said, according to the Ladies European Tour website. “It’s special to hear. I have no words to describe it.”

He added that “Morocco is doing a great job to promote golf” and “having a Moroccan winning on a major tour will be huge for the country and 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 slam final when she reached the semifinals of Wimbledon and the US Open this year.

Author: Aimee Lewis

Photo of the day

Environmental volunteers build a pyramid made of plastic waste collected in the Nile River, "On World Cleaning Day"  In Egypt's Giza area, near the capital Cairo, on Saturday.