Can the Middle East’s authoritarian, welfare-state monarchies survive a low oil price? From Irina Slav at oilprice.com:
Gulf oil producers are finding it difficult to diversify their economies away from their biggest export revenue contributor, and it may take them at least a decade to make any progress on this. This is what Moody’s forecast in a recent report, as quoted by Reuters, noting that this reliance on oil revenues would be the “key credit constraint” for the six members of the Gulf Cooperation Council: Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
The forecast hardly comes as a surprise for anyone watching the region. The Gulf oil economies tried to diversify their economies amid the 2014 oil price crash, but they lacked the resources to do much precisely because of the oil price crash. To tackle the crisis, the governments of these countries had to introduce austerity measures and attempted some reforms, which were met by strong public opposition, hinting of the danger of destabilization if the reform push continued.
Now, the situation is even direr because of the unprecedented degree of demand destruction that the pandemic caused last year. This demand destruction led to a price collapse that forced the Gulf economies to borrow increasingly heavily.
Earlier this year, the International Monetary Fund issued a forecast that the revenues of oil producers in the Middle East and North Africa could see a slump of $270 billion by the end of 2020. The economies of the Gulf producers alone, a Fund official said at the time, could shrink by 7.6 percent in 2020.