Gulf must brace for long-term low oil price

Oman crude oil exported from the Middle East arrives at Zhoushan port in China. (Getty Images)
Updated 12 December 2018
0

Gulf must brace for long-term low oil price

  • Arab youth unemployment running at 30 percent
  • Trade wars expected to have regional fallout

DUBAI: Gulf states which depend heavily on energy exports for most of their revenues should brace for a long period of low oil prices and subdued economic growth, experts warned on Wednesday.
Signs of an "economic war" between the US and China, the world's largest economies, and an expected global economic slowdown starting next year will dampen demand for oil, the experts told a conference in Dubai.
"Oil prices will remain low for a long period," former Lebanese minister of economy and trade Nasser Saidi told the one-day Arab Strategy Forum.
A cooling of the global economy will reduce demand for oil, which coupled with rising competition from renewable energy sources and shale crude will lead to low oil prices, said Saidi, who is now a consultant.
"This will negatively impact growth in the whole (Arab) region ... The whole area will face a financial and economic crisis," he said.
The six member nations of the Gulf Cooperation Council (GCC) earn more than 80 percent of their revenues from energy.
The GCC states -- Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates -- have lost hundreds of billions of dollars in oil revenues since crude prices crashed in mid-2014.
Oil prices later rebounded after OPEC and non-OPEC producers reduced their production.
But they slid again when producers boosted output earlier this year to compensate for expected losses from Iran because of the re-imposition of US sanctions.
Oil prices have lost more than a quarter of their value compared with a four-year peak over $85 a barrel seen in October, with benchmark Brent crude trading at around $61 a barrel in London on Wednesday.
World Bank senior vice president Mahmoud Mohieldin warned that economic growth in the GCC region was still dependent on oil price movements.
"Now, we are at a time of uncertainty ... Growth in Gulf states is forecast at three percent next year ... but this could be revised," following the drop in oil prices, Mohieldin said.
He said that the unemployment rate among Arab youths is 30 percent and higher among females, adding that growth is not producing enough jobs.
OPEC and non-OPEC producers decided last week to cut production by 1.2 million barrels a day from January to shore up prices, which some analysts warned would hit economic growth.
"We think that the OPEC deal will have an overall negative impact on GDP (gross domestic product) growth in the Gulf over the coming quarters," London-based consultancy firm Capital Economics said last week.


Davos organizer WEF warns of growing risk of cyberattacks in Gulf

Updated 13 min 49 sec ago
0

Davos organizer WEF warns of growing risk of cyberattacks in Gulf

LONDON: The World Economic Forum (WEF) has warned of the growing possibility of cyberattacks in the Gulf — with Saudi Arabia, the UAE and Qatar particularly vulnerable.

Cyberattacks were ranked as the second most important risk — after an “energy shock” — in the three Gulf states, according to the WEF’s flagship Global Risks Report 2019.

The report was released ahead of the WEF’s annual forum in Davos, Switzerland, which starts on Tuesday.

In an interview with Arab News, John Drzik, president of global risk and digital at professional services firm Marsh & McLennan said: “The risk of cyberattacks on critical infrastructure such as power centers and water plants is moving up the agenda in the Middle East, and in the Gulf in particular.”

Drzik was speaking on the sidelines of a London summit where WEF unveiled the report, which was compiled in partnership with Marsh and Zurich Insurance.

“Cyberattacks are a growing concern as the regional economy becomes more sophisticated,” he said.

“Critical infrastructure means centers where disablement could affect an entire society — for instance an attack on an electric grid.”

Countries needed to “upgrade to reflect the change in the cyber risk environment,” he added.

The WEF report incorporated the results of a survey taken from about 1,000 experts and decision makers.

The top three risks for the Middle East and Africa as a whole were found to be an energy price shock, unemployment or underemployment, and terrorist attacks.

Worries about an oil price shock were said to be particularly pronounced in countries where government spending was rising, said WEF. This group includes Saudi Arabia, which the IMF estimated in May 2018 had seen its fiscal breakeven price for oil — that is, the price required to balance the national budget — rise to $88 a barrel, 26 percent above the IMF’s October 2017 estimate, and also higher than the country’s medium-term oil-price target of $70–$80.

But that disclosure needed to be balanced with the fact that risk of “fiscal crises” dropped sharply in the WEF survey rankings, from first position last year to fifth in 2018.

The report said: “Oil prices increased substantially between our 2017 and 2018 surveys, from around $50 to $75. This represents a significant fillip for the fiscal position of the region’s oil producers, with the IMF estimating that each $10 increase in oil prices should feed through to an improvement on the fiscal balance of 3 percentage points of GDP.”

At national level, this risk of “unemployment and underemployment” ranked highly in Bahrain, Egypt, Morocco, Oman and Tunisia.
“Unemployment is a pressing issue in the region, particularly for the rapidly expanding young population: Youth unemployment averages around 25 percent and is close to 50 percent in Oman,” said the report.

Other countries attaching high prominence to domestic and regional fractures in the survey were Tunisia, with “profound
social instability” ranked first, and Algeria, where respondents ranked “failure of regional and global governance” first.

Looking at the global picture, WEF warned that weakened international co-operation was damaging the collective will to confront key issues such as climate change and environmental degradation.