Why the current oil boom for Arab states might be the last?

The Gulf countries experienced an oil boom in the 1970s and 1980s, then another in the early 2000s. But changing attitudes to energy consumption mean that such cycles may no longer be sustainable and Gulf countries must be prepared for them. , experts say.

“This is certainly the beginning of the end of oil wealth at this sustained level,” said Karen Young, senior researcher at Columbia’s Center on Global Energy Policy.

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

Middle Eastern energy exporters are expected to bring in $1.3 trillion in hydrocarbon revenues over four years as a result of the current boom, according to the International Monetary Fund. Experts have warned them not to waste it, arguing that Gulf states should protect themselves from oil price fluctuations by using the windfall to diversify their economies away from their reliance on oil wealth.
During past oil booms, the Gulf States were seen as lavishing their wealth on wasteful and inefficient investments, building sprees and buying weapons, as well as giving alms to citizens. Those booms were followed by downturns as oil prices cooled as nations continued to rely on hydrocarbons for their revenues.

“Often construction projects are started and then halted when oil money runs out,” said Ellen Wald, a nonresident senior fellow with the Atlantic Council in Washington, DC. “Because they have so much to spend, there is often not much oversight and there has been a lot of corruption historically.”

According to Omar Al-Ubaydli, director of research at Bahrain-based think tank Derasat, there has also traditionally been a strong emphasis on increasing public sector hires and public sector salaries through bonuses or raises.

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

The focus on investment in the energy transition is crucial as many parts of the world accelerate their transition to renewable energy, the report said.

Four ways the war in Ukraine affected the Middle East
Gulf states seem to be working on diversification. Since the last oil boom that ended in 2014, four of the six Gulf states have introduced value-added taxes and the UAE has gone further by introducing a corporate income tax. None of the Gulf States has an income tax. Saudi Arabia has invested in non-oil sectors such as tourism, but experts question that sector’s ability to offset oil revenues. The kingdom makes about $1 billion a day in oil at current prices.

Gulf states have resisted the idea that hydrocarbons could be phased out as a primary energy source as environmentally conscious countries shift to alternative sources. Oil is and will remain crucial to the global economy, they say.

Critics say it is in the interest of oil exporters to push that narrative, but oil states have pointed to the surge in crude oil demand that has 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 strongly next year, spurred by a resumption of work in China and global travel.

The United Arab Emirates, one of the world’s largest oil exporters, has warned that too rapid a transition of hydrocarbons could trigger an economic crisis.

“Policies aimed at shedding hydrocarbons too quickly, without adequate viable alternatives, are self-defeating,” Sultan Al Jaber, the UAE’s special envoy on climate change, wrote in an August op-ed. “They will undermine energy security, erode economic stability and leave less revenue to invest in the energy transition,” he added.

Young of Columbia’s Center on Global Energy Policy said that even if economies moved away from oil as an energy source, there would still be demand for oil-based products such as petrochemicals and plastics materials.

Still, experts say Gulf states are realizing that, even if oil demand is still there, such price hikes may not happen again to the same degree or frequency.

“There is a palpable sense that this is a passing boom, and that this could be the last sustained increase in oil prices,” Al-Ubaydli said. “The governments and the people believe that this is an opportunity that should be used to the full, rather than wasted by short-sighted decision-making.”

the summary

Iranian woman dies after falling into coma while in vice in custody

A 22-year-old Iranian woman died after being arrested by Iran’s vice squad earlier this week, Iran’s semi-official website Etemad Online reported, citing her uncle. The woman’s death sparked outrage on social media platforms, prompting reactions from local and Western officials.
  • Background: On Tuesday evening, Mahsa Amini and her family, who had traveled from Iran’s Kurdistan region to visit relatives in the capital Tehran, were stopped by a vice squad – a unit that imposes strict dress codes on women. According to IranWire, human rights activists who spoke to the family say police grabbed Amini and forced her into a police vehicle. On Thursday, Tehran police said Amini had suffered a “heart attack.” Iranian officials said on Saturday an autopsy had been performed and the results would be made public after an investigation by experts.
  • Why it matters: The incident sparked global outrage, with many using the hashtag #MahsaAmini in English and Farsi on social media to protest Iran’s morality police and the aggression faced by women regarding the country’s strict hijab rules. It also follows recent protests on social media in Tehran against the “National Day of Hijab and Chastity”.

Erdogan wants Turkey to join Shanghai Cooperation Organization

President Recep Tayyip Erdogan said he was targeting membership of the Shanghai Cooperation Organization (SCO) for NATO member Turkey, Reuters reported on Saturday, citing Turkish broadcaster NTV and other media outlets. He spoke to reporters after attending the SCO summit in Uzbekistan. “Our relations with these countries will be in a very different position with this move,” Erdogan said. When asked if he meant membership in the SCO, he said, “Sure, that’s the goal.”

  • Background: Turkey is currently a dialogue partner of the SCO, an economic, political and security group whose members are 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 during the war and has refrained from joining its Western allies in sanctioning the country.

Images show Iran’s leader at the event amid reports of deteriorating health

Photos and a video published on Iranian government websites and state media show the country’s supreme leader, Ayatollah Seyyed Ali Khamenei, sitting in a mosque in Tehran, attending Arbaeen’s mourning ceremony, end of a 40-day period to mourn the murder of one of the Prophet Muhammad’s grandsons, a day later reports of the ayatollah’s deteriorating health.

  • Background: The New York Times reported Friday that Khamenei canceled all public appearances last week after he became “seriously ill” and was under the observation of a team of doctors. Citing four anonymous people familiar with his health, the NYT said Khamenei was on bed rest after undergoing surgery for a bowel obstruction sometime last week.
  • Why it matters: Khamenei has been the leader of Iran for the past three decades and is one of the longest-serving rulers in the Middle East. It remains unclear who will succeed the leader, but it is expected that upon his death, the Assembly of Experts will meet to discuss his successor.

what to watch

Queen Rania of Jordan speaks to Becky Anderson of CNN about the advice given to her by the late British Queen Elizabeth II and says it sticks with her to this day.

Watch the interview here:

Around the region

Ines Laklalech of Morocco tee off from the 7th hole during day one of the Aramco Team Series London on June 16, 2022 in St Albans, England.
Beginning professional golfer Ines Laklalech became the first Arab and the first North African woman to win a Ladies European Tour title when she won the Lacoste Ladies Open de France tournament on Saturday.

The 24-year-old Casablanca native defeated England golfer Meghan MacLaren in a play-off on Saturday and said her win at the Ladies Open de France would be something she would remember “for the rest of my life,” as she continues her historic victory fourth. in Deauville alongside her husband, Ali, who is also her caddy.

“It feels great,” said Laklalech, the Ladies European Tour website reported. “It’s special to hear it. I have no words to describe this.”

She added that “Morocco is doing a great job promoting golf” and that “winning a Moroccan on a major tour will be huge for the country and for 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 grand slam final when she reached both the Wimbledon and US Open finals this year.

By Aimee Lewis

Photo of the day

Environmental volunteers build a pyramid made from plastic waste collected from the Nile River as part of an event to raise awareness about pollution "World Cleanup Day"  in the Egyptian part of Giza, near the capital, Cairo, on Saturday.

This article has been updated to correct Karen Young’s designation.

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