COVID Pandemic Gives Oil States a Preview

The Economist July 18th, 2020 pp9-10 Leaders | Oil and the Arab World “There will be pain” “Arab states can no longer afford to delay reform” Riyadh, Saudi Arabia

Since find a gusher in 1908 oil has transformed the Middle East eventually enriching “its ruling families” and transforming “the region’s economies”. Although, it is estimated, that peak demand for oil is years away “another big change is coming, as…the world adopt[s] cleaner sources of energy.” The recent pandemic has essentially provided an economic window into the financial future of these states as “the IMF reckons their economies will shrink by 7.3%.” And the world has a glut of oil in tank farms, strategic reserves and oil tankers floating around the world. The price of crude is at $40 but some countries can’t benefit at lower than $100. Meanwhile, many of these economies are living beyond their means and burning cash reserves. With the fall of oil secondary support industries are impacted as well.

These countries need to adapt to less revenue from oil. “…many Arab countries have plans to wean their economies off oil”…but they are “moving too slowly”. Cutbacks in “their bloated bureaucracies [often the state is the top employer] and pared back subsidies” will be necessary. The public “Anger is growing across the region”. “For the past century Arabs have been ruled by abusive leaders who hoarded the country’s wealth.” Given this history, now demanding concessions, raising the Value-Added-Tax for example, by citizens without real representation “is a recipe for continuing unrest and brutal suppression.”