The Middle East in a post oil era

By: Editor In Chief
    
Thu 11 February,2016

Oil-extraction
How will the low price of oil hit the GCC economies




Filed Under: Oil & Gas

As oil prices continue to wallow at lows not seen for more than decade, petroleum exporting countries in the Middle East are looking to reform their economies so that they can weather the shock of far lower oil revenues – and prepare for a future after fossil fuels.

Saudi Arabia, the de facto leader of oil producing group OPEC, has been largely blamed for the continued fall in prices given the group's decision not to cut production amid a glut in supply as part of a strategy to pressure non-OPEC rivals who have higher production costs.

Untitled-1

The policy has hurt producers closer to home though. Six Gulf oil-producing countries (Saudi Arabia, Kuwait, Bahrain, Oman, Qatar and the United Arab Emirates) are planning on introducing a sales tax for the first time amid the drop in prices and as they see budget surpluses turn into deficits as oil revenues drop. In addition, countries like the UAE have removed long-standing fuel subsidies.

While the lower oil price has undoubtedly brought pain to the Middle East's economic powerhouses, others see the new era of low oil prices as an opportunity.

Generational change, with 60 per crnt of the population under the age of 30, is placing strain on traditional political structures.

The revenues from energy resources are not sufficient to sustain the current political-economic bargain in the medium to long term - three of the six GCC countries need oil at $100 per barrel in order to balance their budgets, and, crucially, these 'break-even' prices are rising as population growth adds to public-sector wage and subsidy bills.

 Addressing the growing expectations of Gulf populations- - both citizens and non-indigenous residents - and providing greater opportunities for them to take part in designing their future should be "core elements of the region's security.

Curbing fiscal spending will be a pressing concern in the next five to ten years, and the need to diversify away from oil will require long-term transformations of the economy and education system.

Kuwait wants to diversify its economy away from oil, attract more investment, speed up the sale of state firms and ease land ownership rules to prepare for the post-oil era, a top government body said.

The major Opec oil producer wants to control spending amid rising inflation in the next five years, the country's top planning council said in a 2009-2014 policy strategy plan, according to a copy obtained by Reuters.

oil and gas

The Gulf state wants to emulate the success of neighbours Dubai and Bahrain, which have become regional financial centres and popular tourist destinations, but setting up a non-oil economy is still in the early stages.

Speaking at a panel discussing economic reforms in the Middle East at WEF last January, fellow Gulf Cooperation Council (GCC) minister Anas Khalid Al Saleh, who is deputy prime minister, finance minister and acting oil minister of Kuwait, said reforms were needed with or without a backdrop of lower oil prices.

"We must not tie reforms with the oil prices," he cautioned. "Everybody agrees that there is no choice but to take the necessary steps for the sustainability of growth. It's not something we can wait for anymore, not just because oil prices have dropped but for many reasons."

On the same panel, which was hosted by Al Arabiya news network, the chief executive of Bahrain's Economic Development Board laid out the challenges facing the Middle East but said they could present an opportunity for transformation.

"The region is facing numerous challenges, oil prices declined by 70 percent and there's pressure on the fiscal budgets of all the regional economies. You layer on top of that the demographic challenge and the youth unemployment that we see – which is north of 30 percent – and lastly, the security challenge," Khalid Al Rumaihi said.

He said Bahrain and its neighbors could, and were, embracing fiscal and economic diversity and investing in more infrastructures in their countries. "We need innovation in our economies…and we have to look at how we allow innovation in our economy," he said.

Preparing for the "post-oil era" is an absolute must for all GCC states, the report warns, especially as many natural resources that the region has relied on for the past half century are predicted to run dry within the lifetime of children born today.

All GCC states have long-term plans envisaging a transition to a post-oil economy, developing a mix of energy-intensive and knowledge-based industries, employing more nationals in the private sector, and considering the introduction of taxation.




LEADERSHIP AND ENTREPRENEURSHIP

EVENTS & CONFERENCES

NETWORKING
Related Posts
Power Women of Arabia Debate
The Dubai Business Women Council will host The Power Women of Arabia Debate in collaboration with LEADERS Middle East magazine. http://www.powerwomen.me This Power Debate, to be held on the 28th of ...
READ MORE
ULF HÜTTMEYER APPOINTED AS ETIHAD AIRWAYS SVP FINANCE EQUITY PARTNERS
Etihad Airways, the national airline of the United Arab Emirates, has announced Ulf Hüttmeyer as its Senior Vice President Finance Equity Partners, effective 1 April 2015. Mr Hüttmeyer, 41, joins the ...
READ MORE
UK AMBASSADOR MR. PHILIP PARHAM VISITS THE BRITISH UNIVERSITY IN DUBAI
The British Ambassador to the UAE, Philip Parham and representatives from the British Embassy visited The British University in Dubai’s campus at Dubai International Academic City on February 19th. He ...
READ MORE
Khalaf Ahmad Al Habtoor Discusses Egypt Investments with the National Bank of Egypt
The Chairman of the Al Habtoor Group, Khalaf Ahmad Al Habtoor welcomed Tarek M. El-Ghazaly to his office on Al Wasl Road on Wednesday March 11, 2015. El-Ghazaly is the ...
READ MORE
INSEAD Inspires Next Generation of Emirati Business Leaders with ‘Summer @ INSEAD’
Encouraging the future generation of business leaders in the UAE, INSEAD has launched the first business programme created specifically for high-achieving Emirati students in Abu Dhabi. The Summer@INSEAD programme which ...
READ MORE
An interview with President James Michel
  James Alix Michel is the third President of the Republic of Seychelles, having been elected to OFFICE in July 2006 and re-elected for a second term in May 2011. A ...
READ MORE
BMW Group boosts Middle East sales by 6% during first half year
Middle East sales for the BMW Group continue to go from strength-to-strength, with the company posting a 6% increase across the region for the first half of this year, a ...
READ MORE
Oil dip not to hit GCC economies
The GCC economies would be a little affected by recent dip in oil prices. However they could benefit a lot in long-term only if they do way with subsidies and ...
READ MORE
Sheikh Ahmed chairs Expo 2020 meeting
Sheikh Ahmed bin Saeed Al Maktoum, Expo 2020 Dubai Higher Committee Chairman, President of Dubai Civil Aviation Authority and Chairman and Chief Executive of Emirates airline and Group,  on Wednesday ...
READ MORE
AIR SEYCHELLES, ETIHAD AIRWAYS AND CAISSA TOURISTIC TEAM UP ON ADDITIONAL FLIGHTS TO SEYCHELLES FOR CHINESE NEW YEAR
Air Seychelles, the national airline of the Republic of Seychelles and Etihad Airways, the national airline of the United Arab Emirates, in association with Caissa Touristic, one of China’s largest ...
READ MORE
Power Women of Arabia Debate
ULF HÜTTMEYER APPOINTED AS ETIHAD AIRWAYS SVP FINANCE
UK AMBASSADOR MR. PHILIP PARHAM VISITS THE BRITISH
Khalaf Ahmad Al Habtoor Discusses Egypt Investments with
INSEAD Inspires Next Generation of Emirati Business Leaders
An interview with President James Michel
BMW Group boosts Middle East sales by 6%
Oil dip not to hit GCC economies
Sheikh Ahmed chairs Expo 2020 meeting
AIR SEYCHELLES, ETIHAD AIRWAYS AND CAISSA TOURISTIC TEAM