The GCC economies would be a little affected by recent dip in oil prices. However they could benefit a lot in long-term only if they do way with subsidies and go for economic diversification and bring greater efficiencies, says an economist.
Dr Mohammed Abdul Rehman Al Asoomi, an independent economist, however, ruled out heavy cuts in development expenditures.
“Current oil market developments and their impact on the GCC countries,” Al Asoomi said the UAE, KSA, Kuwait and Qatar would have no negative impact due to lower oil prices, which means lower revenues...”. The symposium was organised by the Emirates Centre for Strategic Studies and Research.
“They might slash unnecessary expenditures like Kuwait announced recently,” the economist said.
However, capital expenditures on the economic development projects that can spur growth will continue, he said.
The GCC nations may have budget deficits, which they can manage, he viewed. However, the oil price fluctuations which were observed after June through this year would continue till the first quarter of 2016, Al Asoomi said.
Oil price started to drop in mid June from $112 a barrel to $52 in January. In March they reversed to $61 a barrel.
“Everything on economic front in the GCC region is not normal, since oil prices plunged, but we have to live with it,” said Dr Mohammed Khuder Al Shatti, manager at the office of CEO of Kuwait Petroleum Corporation.
However, on the positive side, no doubt the low oil prices have brought a new thinking in the region that it has to reduce dependent on oil and gas and must go for massive economic diversification, reduce unnecessary expenditures and do away with subsidies, in order to make economies efficient and financially prudent.
The region is in better position financially as it accumulated bumper revenues from 2010-2014, Dr Al-Shatti said, which will offset any negative impact.
Since Kuwait Petroleum Corporation targets to boost its output to 4 million barrels a day in 2030, so all announced expansions would continue without any review.
The oil-rich country is working on renewable energy plans in order to phase-out the use of fossil fuels in energy generation and boosting the energy mix to 15 per cent from solar and other forms of energy in 2030.
Dr. Jean-Francois Seznec, professor of McDonough School of Business, Georgetown University, said that the KSA, wants bigger market share to control the market, which it can only if Russia cuts output. Other players in the business including OPEC would not do.
KSA has over $1 trillion in financial resources, which will give it enough strength to survive for 5-6 years of low oil prices, if it had to, he said. However, on the contrary, Russia is stuck with many problems. It is facing severe impact of economic sanctions for its involvement in neighbouring Ukraine and oil and gas industry needs technology update and expansions to continue at present production levels, which is not possible under present circumstances, so the Kingdom of Saudi Arabia will force Russia to cut its output by up to 500,000 barrels a day from its current production output of 10.3 million barrels a day.
At $60 or so a barrel prices levels, Russia can continue for another two years at best, he said, adding after that it has to give in to Saudi Arab’s tactics and agree on production cuts, which will be met by KSA.
The professor predicted that in this scenario, oil prices are likely to go back up to the targeted level of $80 a barrel in two years, to suit KSA.