Oil Prices Dive as Saudi Arabia Takes Aim at Russian Production

How is the Gulf economy affected by the crisis of low oil prices to the lowest levels in 18 years 

Oil Prices Dive as Saudi Arabia Takes Aim at Russian Production

High spending puts the budgets of producing countries in a real dilemma .. Continued decline increases pressure on adults to reduce production to return the price to 50 dollars 

After oil prices lost during the month of March 2020, nearly 50% of their value, in the wake of the failure of OPEC and its oil producing allies outside the organization, led by Russia, or what is known as "OPEC Plus", in reaching a settlement on reducing global production rates Oil, which is to reduce production by 1.7 million barrels until the end of this month, which leads to the question about the impact of this decline in prices on the economy of the Gulf countries. 

The beginning of the crisis of the decline in the price of oil 

While Saudi Arabia was seeking to expand production cuts, Russia was seeking to keep the levels of reduction unchanged, but the lack of agreement on the levels of cuts, led eventually to a price war between the oil-exporting countries, specifically Saudi Arabia and Russia, in The parties concerned have endeavored to maintain their market shares at the expense of oil prices, and Saudi Arabia recently expressed its intention to increase its production of maximum capacity, in addition to offering huge discounts on official selling prices for the next month, April 2020. 

The repercussions of low oil on the Gulf states 

The turmoil in the global financial markets led to a decline in oil and commodity markets, as oil prices fell to nearly half compared to July 2007, and this decline is expected to continue in light of the decline in the economies of the major western countries, and this decline will inevitably lead to a crisis Broader financial with higher unemployment rates, which will put the producing countries in a real choice about the possibility of continuing to increase production rates in light of declining demand, and will push them to inevitably reduce production to save markets. 

Returning a little to the past, we find that this decline in oil prices is similar to the crisis of falling prices in August 1986, when the barrel fell to about 10 dollars per barrel, and the economies of the oil-rich countries of the Middle East reached a long state of stagnation, which affected negatively On Arab economies that depend only on oil. 

Many analysts and economic experts expect a major collapse in oil prices, thanks to the inelasticity of supply and demand, large changes in prices may be produced in response to small changes in the balance of supply and demand, in addition to the stagnation in Western economies associated with several years ago the value of investing in equipment that provides energy Worldwide, oil demand will continue to decline in the coming months, despite falling prices and continued growth in India and China. 

Despite the high expenditures and expectations of the continuing negative impact on the economies of the Arab producing countries, the size of the increase in oil revenues has led to these countries enjoy large surpluses, which can be relied upon to mitigate the effects of falling oil prices, but they will not be sufficient to prevent the economic downturn. 

The Kingdom of Saudi Arabia has a trade surplus of about 25% of GDP in the last four years, which it used to establish a large sovereign fund, and last year, Kuwait, Saudi Arabia and the United Arab Emirates together had more than $ 200 billion, but At a higher rate of expenditures, these surpluses will disappear in a year or two. 

For Iran, its surplus is more modest than the kingdom, as it amounts to about 10% of GDP, and this modest surplus of oil helped build a very small oil stabilization fund, equal to less than six months of imports, to facilitate expenditures in the medium term. 

For these countries, the pressure to reduce expenditures is already taking place, and therefore it is unlikely that the specter of an economic slowdown can be excluded by relying only on these external savings. In oil, but in the region as a whole, between 1983 and 1987, the GDP per capita decreased by 20% in Iran and 32% in the United Arab Emirates. As for Kuwait alone, it managed to keep the decline to less than 2%. 

The challenges facing the governments of these countries are now more difficult than those they faced after the end of the oil crisis in the eighties, and although the recent economic growth created a significant improvement in the standard of living and infrastructure, it did not generate enough job opportunities, especially for young people And, in the countries of the Gulf Cooperation Council, dual labor markets have created millions of job opportunities for foreign workers, but large sectors of the local youth face some challenges.