With COVID-19 disrupting the entire world’s system, the oil prices have also plunged to their lowest as the auto-vehicle movement was restricted to prevent getting affected by the virus. Although with commerce resuming, the price has escalated a bit.
But lately, it seems that the world’s economies are moving away from fossil fuels. With the increasing demand for cleaner energy sources, oil prices seem to stay cheap in the future too. Because of this, the Middle East and North Africa seem to be more affected.
Arab leaders knew that sky-high oil prices would not last forever. Four years ago, Muhammad bin Salman, the then ruler of Saudi Arabia, came up with a plan called “Vision 2030” that aimed to change his oil-dependent economy. But only in 2020, oil revenues in the Middle East and North Africa, which produces more of the black stuff than any other region, fell from over $1trn in 2012 to $575bn in 2019, says the IMF.
The kingdom hoped an at least partial compensation for the decline in oil revenue with its increase in religious and leisure tourism. But the holy city of Mecca has been closed to foreigners since February, allowing at most 1000 pilgrims for their annual Haj, compared to the 2.6m pilgrims in previous years.
In a final attempt to bring some economic balance, Saudi Arabia has suspended a cost-of-living allowance for state workers, hiked up their petrol prices, and tripled its sales tax. This increased public anger as the taxes falls heavily on the poor, especially with a job halt and growing unemployment due to the pandemic. In Iraq, officials enraged by pay cuts are protesting against the political system. In Algeria, income per person has significantly reduced, and so, protesters are coming out on the streets.
The pain of this problem is felt by non-oil producers, too, as they have long relied on their oily neighbors for employment. Oil has uplifted unproductive economies, invited unwelcome foreign interference, etc. If prompt reforms are made, more dynamic economies and representative governments can be made rather than a disastrous end of an era.
The pain of non-oil producers:
Lebanon is currently not an oil producer. Its economic crisis, with more than 13% shrink in GDP this year, comes from an inflated financial sector and the unraveling of a post-civil-war economic order too reliant on services. Remittances from energy-rich states are a lifeline for the entire region. The money sent by foreign workers back home flourishes their homelands’ economies. As oil revenue falls, so too will remittances. There will be fewer jobs with smaller pay packages for foreigners.
With fewer opportunities in the oil-producing states, many graduates may no longer emigrate. Many international students do not wish to go back to their homelands since those places cannot provide a good life. But, emirates like Dubai and Qatar offer not just well-paying jobs but first-class services and relatively honest governance.
Businesses will be hurt as well as oil producers are big markets for other Arab countries.
The tourism industry will take a hit as wealthy tourists might not want to visit the middle east anymore. These tourists stay longer and spend more money at restaurants, cafés, and malls hence generating revenue, and it will be tough to replace them.
Ultimately, the Middle East less central to the world’s energy supplies will be the Middle East less important to America, increasing their exploitation chances.
NO BACKUP PLAN:
If you ask young Arabs where they would like to live, they are most likely to choose Dubai. Despite its faults, Dubai (and its neighbors) offers honest police, well-paved roads, and uninterrupted electricity, which is unusual.
“Dubai was always the escape,” stated one woman. “Now it’s like we’re trapped, with no backup plan.” As Lebanon’s economy crashes, emigration ideas are making rounds. But since there are few jobs in the Gulf, young people across the region have the same fears.
The end of the oil age could bring change. But it will bring pain first.