A global pandemic is generally enough to trigger a broad transformation with significant impact. A pandemic, an “Arab Spring”, a war in Europe, a climate crisis, and a shift in energy sources and consumptions make global change a certainty. That certainty becomes clear when looking at how each nation-state is maneuvering to secure space in the inside track before the finish line. When this takes place, throwing elbows and tripping racers, be it by accident or by design, to get to that safe and advantageous place is bound to happen. The increased number of armed conflicts is evidence of this trend. Violence is likely to increase taking humanity to the edge of abyss given their possession of the most lethal weapons of mass destruction. It is possible that the current conflicts will raise awareness about the danger of escalation and lead to the emergence of a more equitable world order that could replace the dominance of the single nation-state or bloc of nation-states. To help us understand the present and predict the future, here is a look at how some analysists are seeing the events that are changing the world and the direction in which the world is marching. The views are representative of Western societies priorities and preferences and a reaction to them; we will try to present insight that go beyond this framework in coming essays.
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“The Economist” magazine said in a report about the surprising oil resources that give the Gulf countries a chance to show off, as Dubai wants jobs in its imaginary future world “metavirus” and Saudi Arabia is building a city in the desert.
The report began by talking about the city of NEOM, which presents a step towards the future and an image of the Kingdom’s attempts to diversify its economy away from oil. This city, which was chosen on a spot in northwest Saudi Arabia not far from the Gulf of Aqaba, will offer robots to do manual work, beaches decorated with glass stones, and a fleet of drones that form a satellite. And the last whim is to build the tallest building in the shape of a skyscraper but sprawling on the ground and a self-sustaining ecosystem stretching over 100 miles. It is estimated that the project will cost about 500 billion dollars.
The financial surplus of the Gulf states this year will be more than $400 billion, or 40% of international production, which is higher than that achieved before the global financial crisis between 2007-2009.
And when the wild dream appeared in 2017, its financing seemed impossible, but today the torrent of oil money may allow the construction process to proceed. The world is recovering from the repercussions of Covid-19, and what the report called the “Russian invasion of Ukraine” pushed oil prices, as it led to an amazing transfer of global wealth from the consumer world to the oil-exporting countries.
Between January and June, the price of a barrel of oil rose from $80 to $120 (today it has returned to $95). The International Monetary Fund estimates that the oil-exporting countries in the Middle East and Central Asia will get this year a net $320 billion in oil revenues, more than it expected, a number equal to 7% of the general national income, and over the next five years that the accumulated surplus may reach 1.2 trillion dollar. The leaders of the Gulf states must think and act on how to spend the money, which could be the last injection of oil money. Some countries promise to pay debts and provide for the post-oil future. There will be pressures to share with citizens, and little oversight for those who want to splash money on megaprojects and buy international influence.
The effect of this was felt in diplomatic circles. On a visit to Jeddah in July, President Joe Biden handed the fist of Saudi Crown Prince Mohammed bin Salman. Biden has kept a long distance from the prince for the past period, but the current political duties and the attempt to reduce oil prices did not leave room for moral positions.
Exorbitant oil prices support the Gulf financial strength at home and abroad, and open a gateway to pumping public expenditures and directing the flow of money around the world. The magazine refers to the first decade of the twenty-first century, which witnessed an increase in oil prices, which led to huge imbalances in global fuel and put pressure on interest rates and attracted a torrent of beggars who wanted to obtain an advantage in dealing. In comparison, cheap oil reduces ambitions. And when the last sustainable period of high oil prices ended in 2014, it seemed as if the oil social contract, which carried with it promises of great support for basic materials and the public sector, needed to change.
There was widespread talk about diversification, increasing the prices of local fuel and food, and even imposing taxes. And in the period that witnessed the decline in oil prices and the spread of Covid-19, the budgets of the oil countries suffered from a deterioration. However, this year presents an opportunity to strengthen it. Bahrain’s public debt has increased to 130 percent in 2020, but the country’s budget is based on a price of $60 a barrel. Hence, high oil prices allow Bahrain to reduce public debt by 12%, even though it is one of the smallest oil producers in the Gulf Cooperation Council countries.
Saudi Arabia will face a challenge to satisfy the desires of citizens, as two-thirds of the population is young people under the age of thirty-five years. In the past, the government used the oil boom by providing job opportunities and high salaries in the public sector. Doing so would be contrary to Vision 2030, a plan to diversify the economy that means weaning the kingdom off oil. Companies complain about their inability to retain talent. Many Saudis deal with the private sector as just a pleasure to distort their thinking until a job is available in the government.
Oil wealth offers other ways to protect citizens from cost problems. In 2016, the countries of the Gulf Cooperation Council agreed to impose a 5% value-added tax. Four countries did this, except for Kuwait and Qatar. Saudi Arabia went even further. In 2020, it doubled the value-added to 15% in the hope that it would prevent the financial effects of the pandemic and the fall in oil prices.
The magazine believes that the Gulf countries were not good at judging the risks to be taken, as the region is full of huge and failed projects and dates back to previous oil boom periods. The financial district in Saudi Arabia, which was intended to compete with Dubai, has suffered from delays and exceeded the cost prescribed for it. And when the work was finished, it remained empty, and the banks did not see the need to move to it. The UAE has spent billions of dollars to create artificial islands in the shape of the world map. More than a decade later, this archipelago of islands appears deserted. In the same context, the UAE’s ambitions to become a center for the semiconductor industry and a center for medical tourism have faded.
And this time it will be thinking about a world ready to absorb part of the oil wealth, as Saudi Arabia plans to host the Asian Winter Games in 2029 and sprinkle the desert mountains with snow. Dubai has a laughable plan to create 40,000 jobs in a future project within five years. And overly ostentatious projects may prove to be a waste of money. Saudi Arabia believes that tourism will be a focus in its plans for the post-oil era, and provides 10% of the gross domestic product. The oil boom will give the Public Investment Authority billions to spend on theme parks, resorts and other entertainment. But Saudi officials do not have a proper assessment showing that 100 million tourists will choose to visit the kingdom each year. As Ali Al-Salem, the Kuwaiti investor, puts it, “This is a volatile business, to make it the cornerstone of your economic plan.”
The oil boom will have a tangible impact on the world. The financial surplus of the Gulf countries this year will be more than $400 billion, or 40% of the international general GDP, which is a higher percentage than what was achieved before the global financial crisis between 2007-2009. In the past, the surplus of financial prosperity was recycled from By investing in America, but it became the largest oil producer in the world, the emerging countries became rich and developed a desire for more oil. Therefore, the Gulf financial surplus today is commensurate with the weaker balance of payments position of the emerging countries, including China and India, and a number of smaller countries, including Sri Lanka, which are suffering from paralysis due to the increase in the prices of imported oil.
The world was affected by the increase in oil prices more than the first decade of this century. This stems from disruptions in supply chains and not as a result of strong demand for oil. Several countries have asked Gulf leaders for financial support, in order to fulfill their commitments and not to support environmental policies. Like China and India, Saudi Arabia and the UAE have played an increasing role in lending to poor countries over the past two decades, playing a role that was limited to advanced economies and multiple international institutions such as the World Bank. The crisis that has hit the low- and middle-income economies will give the Gulf states leverage if they want to use it in places unlucky to succeed. This may be the last chance. In rich and poor countries, the pain of rising energy prices increases the need to reduce dependence on fossil fuels. Emotions are evident at the heart of the current oil boom. Al-Salem, the Kuwaiti investor, said, “There is a feeling that the days are numbered… Look at the state of Europe, and I do not think that it will allow itself to be weak in the coming years.” The question applies to the Gulf, will it be allowed?