Oil Mourning

Since the late 19th century, oil production and exports have experienced numerous ups and downs, facing many shocks and counter-shocks. However, few events in the history of the global oil market have had consequences as significant as what we are witnessing today. The tragedy of dependency has seen oil prices plummet from over $115 per barrel in June 2014 to around $40 today, a staggering 70% drop. The implications of this decline extend far beyond mere economic dimensions, affecting various political and geopolitical arenas. In several oil-dependent countries, oil production and exports constitute a significant portion of their budgets and the foreign currency needed for imports. In these countries, the stability and authority of the political system largely depend on oil revenues, and their military power and influence in their regions are also reliant on these revenues. Therefore, it would not be an exaggeration to consider the recent fall in the price of 'black gold' over the past twenty-two months as a precursor to serious changes in both domestic and foreign policies of some oil powers. The most apparent signs of this major crisis can currently be seen in Venezuela, a country facing economic bankruptcy and political collapse despite having the largest oil reserves in the world. What has been presented to the people of this country and much of the international public under the grand title of '21st Century Socialism' by Hugo Chavez and his successor Nicolas Maduro has been a concoction of extreme populism and oil magic that, after a brief period of offering subsidized goods and services to naive people, has fallen into a hard reality, leaving its victims in a dark day. This is the tragedy that the citizens of this Latin American country are grappling with, with inflation rates expected to fluctuate between 600% to 700% this year and supermarkets that no longer have anything to offer their customers. The system left by Hugo Chavez, who taught lessons to everyone before his death in 2013, is now unable to provide energy for its people in the world's most important oil field, and its only initiative to solve the electricity problem has been to ask its employees to only attend their offices two days a week to save energy. For countries that had gradually become addicted to oil prices above $100 per barrel over the past fifteen years, the current price of this commodity, which is unlikely to see a positive change at least until the end of this year, is a real disaster. Among the 'mourners of oil,' Venezuela is struggling with the worst conditions, but there are other oil-rich countries that are not far from the edge of the abyss, including Algeria and Nigeria, which could face widespread social and political crises for various reasons. Even a significant number of forecasts are based on the premise that by 2020, the price of this commodity will not exceed $50 per barrel. These forecasts should be taken with caution, but senior officials in oil-dependent countries must consider them in their calculations. The latest report from the International Monetary Fund on economic growth prospects in the Middle East, Central Asia, North Africa, and the Caucasus, published in April, states that in 2015, the foreign currency receipts from oil exports in these regions decreased by $390 billion compared to the previous year, equivalent to about 18% of their GDP. Even countries with significant foreign currency reserves, particularly in the Arab Gulf region, are grappling with serious concerns in the face of the current crisis in the global oil market and its outlook, the most important of which is the fragility of oil-dependent economies and the dimming growth prospects in such economies. The IMF emphasizes the outlook for a slowdown in the economic growth rate of oil-exporting countries following the collapse of prices, an outlook that necessitates a more urgent reduction of their dependence on oil. The current model of economic growth in these countries, which relies on the distribution of oil-derived resources by the ruling powers, is no longer sustainable, as governments must reduce their expenditures in light of declining oil revenues, at a time when the active population is rapidly increasing. In fact, the pressure caused by reduced oil revenues on budgets no longer allows the public sector to absorb those entering the labor market. Among the Gulf countries, the United Arab Emirates has been more successful than others in reducing its dependence on oil, decreasing the weight of oil in its GDP from 50% to 30% over the past decade. The UAE's efforts to diversify its economic structures, especially relying on Dubai's achievements in enhancing the service sector, including tourism, have yielded satisfactory results so far. However, even the UAE has not been spared from the impact of falling oil prices, facing a significant budget deficit equivalent to about 6% of its GDP. Another sign of this crisis is the dismissal of about 10,000 employees from the Abu Dhabi National Oil Company, with some Emirati nationals among those laid off for the first time since the company's establishment. Subsidies for water, electricity, and gasoline have also been reduced, and the prices of these goods and services have noticeably increased. Due to this oil crisis, Emiratis are becoming more familiar with the concept of taxes and the necessity of paying them. Saudi Arabia, the major power in the Arab Gulf, is another significant 'mourner of oil.' However, this country has the ability to rely on the soft cushion of its vast foreign reserves, which reached about $700 billion in the first half of 2015. Iran is also naturally among the 'mourners of oil,' but with characteristics that distinguish its position from other exporters in the short term. In fact, Iran faced a painful shock from economic sanctions before being affected by the consequences of the severe drop in oil prices, with its oil exports reduced to less than half. Nevertheless, after the beginning of the oil price collapse, Saudi Arabia's budget deficit rapidly increased, and if it were to draw from its foreign reserves to compensate for this deficit month by month, little would remain in a short time. To counter this danger, Riyadh decided to halt a large part of its infrastructure projects, significantly reduce hiring and salary increases, and lower subsidies for water, electricity, and gasoline since mid-last year. Despite all these initiatives, Saudi Arabia's budget deficit is expected to reach about 15% of its GDP this year. To alleviate concerns and open new prospects, Riyadh presented an ambitious plan on Monday, April 25, to diversify the country's economic structures to prepare for a 'post-oil' era by 2030. One of the most talked-about initiatives to achieve this goal is the establishment of a $2 trillion sovereign fund, part of which will be financed by Saudi Arabia's current foreign reserves and the rest from other sources, including the sale of 5% of the government oil holding known as 'Aramco' and several privatizations. This is not the first time Riyadh has talked about reforms to reach a 'post-oil' era. Will it be able to achieve true modernity without making significant changes in the deeply frozen political, social, and economic structures of Saudi Arabia? Iran is also naturally among the 'mourners of oil,' but with characteristics that distinguish its position from other exporters in the short term. In fact, Iran faced a painful shock from economic sanctions before being affected by the consequences of the severe drop in oil prices, with its oil exports reduced to less than half. There is no doubt that the simultaneous reduction in exports and the fall in prices has severely impacted Iran's economy, but the weight of sanctions was such that the oil crisis overshadowed it. On the other hand, with the beginning of the process of lifting sanctions, the increase in the country's oil exports and the prospect of further increases in the coming months has created hope for receiving more foreign currency resources. However, these limited resources, compared to the multitude of the country's financial needs to overcome significant economic constraints, seem very insignificant. Beyond these temporary calculations, Iran's economy is one of the major victims of oil dependency, and despite hundreds of speeches, decrees, plans, and packages aimed at ending this tragedy, no fundamental steps have yet been taken to diversify the country's economic structures.