The oil sector of the Persian Gulf could lose $2 trillion

a Universal desire to mitigate the effects of climate change and to encourage the use of renewable energy sources threatens huge amounts of resources, which the oil producers in the Persian Gulf due to the oil accumulated in the last decade.

Less than a decade and a half, six members of the cooperation Council of Gulf countries — Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE — are faced with the fact that their total wealth is $2 trillion will be destroyed if they will not accelerate fiscal reform and will not increase its non-oil revenues and non-oil share in their countries to be ready to the world, which will reach peak oil demand.

In a report last week, the IMF said that the members of the cooperation Council of the Gulf countries urgently need more deep reforms in the economy, income and ways of spending in order to preserve net financial wealth for the next 20 years, when world demand for oil will reach its peak.

the Threat to the oil riches of the Middle East

According to the IMF, at the current pace of fiscal reforms, income and expenses condition six oil-producing countries of $2 trillion will be depleted by 2034.

Fundamental changes in the oil markets with increased attention to climate issues and potential taxes on carbon emissions create a huge problem for GCC countries. Together they produce more than one-fifth of the world’s oil supply.

Some countries in the region have already started reforms, including reducing subsidies on fuel and water, or set for citizens of other countries of the market price of gasoline compared to subsidized prices for citizens.

However, the current reforms in the GCC will not be enough, said the IMF. Simple economic diversification from oil — elusive goal. It will not stop the decline in the wealth of major oil producers in the middle East. According to the Fund, the GCC countries need to increase their non-oil revenues.

But then an even higher non-oil incomerevenues may not be sufficient — the government will be forced to reduce States to reduce public spending, said the IMF.

“it is possible rationalization of other expenditure categories, including the reform of major public services in the region, reducing government spending on wages too high by international standards. In addition to strengthening public finances, these reforms will also reduce the distortions in the labour market and will contribute to the development of the private sector”, — noted in the Fund.

But the Middle East is difficult to get rid of dependence on oil.

Oil States in the middle East started to carry out some reforms after the fall of oil prices in 2014-2015, when most state budgets have had a deficit, as income from oil is the main source of income and government spending to support the economy — has been halved.

the Largest producer in the region and the world’s largest oil exporter, Saudi Arabia, is experiencing a huge shortage within 5 years after the fall of oil prices. The Kingdom is the plan of the Vision 2030 to diversify the economy from oil, including financing the proceeds from the IPO Saudi Aramco, however, the Kingdom has sought to attract foreign direct investment.

Thus, it continues to make big bets to to block the future demand for its oil through joint ventures in key oil market in Asia. Aramco continues to enter into transactions for processing in China and India, seeking global leadership in the field of processing and marketing.

According to OPEC, the oil & gas sector of Saudi Arabia accounts for about 50% of its GDP and about 70% of export revenues.

in Other words, oil is half the economy of Saudi Arabia. And implemented a plan of Vision 2030 or not, the Kingdom will be difficult to get rid of dependence on oil, even if it tries etabout what to do.

However, before the Saudis is the problem: without oil, Saudi Arabia loses key leverage in regional and international politics. This is a huge oil reserves of the Kingdom who pay for lavish lifestyle of the House of Saud, the family, ruling an absolute monarchy is the only country in the world that bears the name of their rulers.

UAE, along with Saudi Arabia and Kuwait are not so dependent on oil. Only 30% of the UAE economy directly based on production of oil and gas. Abu Dhabi is the Emirate most dependent on oil demand and oil prices, and Dubai is one of the best tourist destinations that get by just fine without oil reserves.

According to the IMF, Kuwait has a huge sovereign wealth Fund, which will help to cope with full depletion of the wealth from now until 2052.

But Kuwait is highly dependent on oil. According to OPEC, the oil and gas sector accounts for about 40% of its GDP and a whopping 92% of export revenues.

“Care economy from oil depends entirely on the emergence of dynamic non-oil sector, which will create jobs for a growing workforce,” reads the IMF report last month.

Oman, and Bahrain from the GCC (but not members of OPEC) the most vulnerable producers to the expected peak demand for oil. Qatar — thanks to its huge natural gas reserves and the expected growth in global demand of gas can be relieved from the financial pressure which will be experienced by its neighbours in the next 20 years.

the Dilemma of climate change

the Efforts to combat climate change has affected the largest oil company in the middle East — Saudi Aramco and the National oil company of Abu Dhabi (ADNOC). Aramco now speaks openly about climate change, presenting research to reduce emissions, and ADNOC is proud to be among the five companies with the lowest greenhouse gas emissions in the oil and gas industry.

ironia that because of its geographical position, the oil producers in the middle East to a greater extent will affect climate change in the coming years than oil producers in the North.

Jim Krane, Wallace Wilson, staff Rice University’s Baker Institute, noted that the oil producers in the Gulf of Mexico “will receive the greatest benefit from the reduction in current stocks of carbon in the atmosphere and related costs of adaptation”.

“the Oil countries of the Persian Gulf should treat climate change with more anxiety than the Northern oil producers, such as Russia, Canada and Norway, which will be a weaker short-term damage — or even benefit from climate warming,” wrote crane.

the IMF said last week that “countries-oil exporters may have to prepare for a post-oil future, sooner than they thought.”