The recent IMF report on Middle East countries highlighted the dilemma of forecasting business in a volatile environment like the one addressed in the report.
In addition to GCC countries, the report covered Iraq, Iran, Libya, Lebanon, Syria and going as far as Turkey, Pakistan and Afghanistan.
In addition to the challenge of handling both oil exporter states like those of the GCC and importing ones like Pakistan, the fluctuation in the oil market is not making the job easier. And all projections for economic growth or contraction simply landed off mark.
The report’s authors were frank to paint this picture amid their attempt to make sense out of continuously changing environments.
Although the authors expected the oil prices to remain balanced next year, they cautioned against rising geopolitical risks. These risks, according to their calculations, will affect supplies by around 2 million barrels per day (bpd) either way, or 2 percent of global distribution.
Accordingly, the report concluded that there is a chance of one to three that oil prices will stay above $112 or below $87 up to the middle of next year.
The bottom line for all this is the security situation mainly in Iraq and Libya, where the oil industry though managed to endure the deteriorating security conditions, but their plans for increasing production have been curtailed at best.
The good example is what is happening in Iraq. Operations against the Islamic State have simply a shutdown of the activities in the north while the focus remains on exports through the south.
The output, however, managed to stay close to 2.9 million bpd with exports touching 2.4 million bpd. But expansion plans that were originally expecting an upgrade in production to 5.6 million bpd by 2019 faced a significant blow.
Still, relatively, the only stable spot is the GCC region, which has the ability to withstand any oil price shock. Some, however, speak about price war, given their financial resources and low production costs.
Also, the GCC remains the only region where high spending on mega projects continued unabated — mainly in Saudi Arabia, the UAE and Qatar. These projects create more demand for skilled manpower and financial and consultancy services.
But the current geopolitical situation, which is expected to worsen before it gets better, poses a serious question about the GCC’s future and for how long it will continue its approach of coordination between member states.
The Kingdom had called for a Gulf union during a GCC summit in Riyadh, but that proposal was kept pending. That was understood in normal times where the luxury of waiting could be tolerated or to satisfy the need to answer whatever questions and worries.
After all the GCC was formed out of geopolitical worries more than three decades ago and as a way to avoid the expected spillover of the Iraq-Iran war that lasted eight years.
In fact, that move had protected the GCC not only from the nearby Iraq-Iran war, but from the ongoing one in Lebanon and across the Red Sea in the Horn of Africa, notably Somalia and in Afghanistan.
Though nothing much has been achieved as far furthering Custodian of the Two Holy Mosques King Abdullah’s call for a GCC union despite growing threats. But a concrete proposal to upgrade the GCC military command into a strong force is being mooted and discussed seriously, though something concrete is yet to be produced.
However, the area that will and should see more coordination is the oil arena, where Saudi Arabia, Kuwait and the UAE can play a significant role given their high production capacity as well as Qatar with its mammoth gas reserves that makes it a world player in the gas business.
Unlike the previous dramatic drop in oil prices back in the 1980s this time the oversupply is created to a large extent by the US shale oil.
Whether this shale oil bonanza will sustain or not remains to be seen. But the important point is that the new hydraulic fracturing technology and horizontal drilling are making the difference these days. The ability to drill in deep waters is also boosting new supplies from unthinkable sources. This situation is quite different from the pressures created in the past by supplies originating from high-cost conventional oil produced in the North Sea and Alaska. These kind of challenges need to be tackled with a united approach.
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