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
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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.


Crisis at India’s Jet worsens as it grounds planes, faces strike

The debt-laden carrier has delayed payments to banks, suppliers, pilots and lessors. (Reuters)
Updated 20 March 2019
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Crisis at India’s Jet worsens as it grounds planes, faces strike

  • More than 20,000 people are employed in the company
  • The company had to stop more than 50% of their aircraft due to insufficient funds

MUMBAI: India's Jet Airways was fighting multiple crises Wednesday after grounding six planes, leaving it with only a third of its fleet flying, while pilots have threatened to walk out and a major shareholder is reportedly looking to offload its huge stake.

The problems at India's number-two carrier come as other airlines struggle to turn a profit despite the sector rapidly expanding in the country over recent years.

Jet, which employs more than 20,000 people, is gasping under debts of more than $1 billion and has now been forced to ground a total of 78 of its 119 aircraft after failing to pay lenders and aircraft lessors.

In a statement late Tuesday announcing its latest grounding, the firm it said it was "actively engaging" with lenders to secure fresh liquidity and wanted to "minimise disruption".

But with hundreds of customers left stranded, Jet's social media accounts have been flooded with often suddenly stranded passengers demanding information, new flight tickets and refunds.

"@jetairways We book our flights in advance so that we save on travel cost and you are sending cancellation (message) now?", read one irate tweet on Wednesday.

"I have sent a DM (direct message) regarding my ticket details. Please respond!", said Sachin Deshpande, according to his Twitter profile a design engineer.

Another, Ankit Maloo, wrote: "Received an email for all together cancellation of flight days before departure without any prior intimation or communication over phone!"

The firm is also facing pressure from its many pilots who have not been paid on time, with unions threatening they will walk off the job if salaries do not arrive soon.

"Pilots will stop flying jet planes from 1st April 2019 if the company does not disburse due salaries and take concrete decisions," a spokesperson for the National Aviator's Guild, a pilots union, told AFP.

India's aviation regulator on Tuesday warned Jet Airways to ensure that staffers facing stress are not forced to operate flights.

Meanwhile, Bloomberg reported that Etihad Airways of the United Arab Emirates has offered to sell its 24 percent stake in Jet to State Bank of India (SBI).

A collapse would deal a blow to Prime Minister Narendra Modi's pragmatic pro-business reputation ahead of elections starting on April 11.

India's passenger numbers have rocketed six-fold over the past decade with its middle-class taking advantage of better connectivity and cheaper flights.

The country's aviation sector is projected to become the world's third-largest by 2025.

But like other carries, Mumbai-based Jet has been badly hit by fluctuating global crude prices, a weak rupee and fierce competition from budget rivals.

Alarm bells for Jet first rang in August when it failed to report its quarterly earnings or pay its staff, including pilots, on time. It then later reported a loss of $85 million.

In February, it secured a $1.19 billion bailout from lenders including SBI to bridge a funding gap, but the crisis has since deepened.

"Jet Airways is rapidly reaching a point of no return and running out of assets to keep itself afloat," Devesh Agarwal, editor of the Bangalore Aviation website, told AFP.

"The only solution is equity expansion by diluting its stakes but Jet is just trying to cut losses and running out of options," Agarwal said.

Shares in Jet Airways were down more than five percent on Wednesday.