Opec chief calls GCC to adopt economic diversification

The current plummeting oil price scenario is a wake-up call for all GCC countries to adopt a strategy of economic diversification, Abdullah Al Badri, Secretary-General of the Opec, said on Sunday as he insisted that there was no cause for alarm.

Addressing the 7th edition of the Arab Strategy Forum, Al Badri said the current low price would not affect GCC economies for at least three years due to the surplus they enjoy.

“The current situation is a chance to review the public budgets of Opec countries. It is no cause for alarm and a good wake up call for all GCC countries to adopt a strategy of economic diversification — away from dependency on oil and gas,” the Opec chief said as he warned that terminating investments in oil would lead to supply shortage in the future. “There are huge surpluses that could be invested. I don’t think there are any tendencies to reduce investing in oil production or stop any current investment projects. Terminating investments in oil will lead to shortage in the future and risk a return to the 2008 scenario when prices hit $147 per barrel,” he said.

Al Badri said there are three economic scenarios in the Arab region. “We have countries that are in the middle of active conflicts such as Syria and Iraq, which put neighbouring countries such as Lebanon and Jordan under economic pressure that hinders their progress. We also have countries of the so-called Arab Spring such as Egypt and Tunisia that are under huge economic pressure because of the recent instability which has affected their economic development. Finally, there are Gulf countries which are set for a healthy 4.5 per cent growth.”

Leading economist and Nobel laureate Dr Paul Krugman said oil price fall would have little impact on GCC economies in the short term, particularly in the case of a diversified economy like the UAE, but for the overall global growth it is good news.

Dr Krugman said the UAE, like some of the other GCC economies, can withstand an oil price shock, especially since Dubai has emerged as a global business and trade hub. He noted that the impact of a predicted slower global growth on Dubai and the UAE would also be of lesser intensity.

Another speaker, Henry Azzam, an economic expert said the fall in oil prices would have a positive impact on some countries, especially the ones that import oil except Syria that already suffers from economic collapse. The non-oil-exporting countries such Libya, Iraq and Algeria will also not be in a good situation.

Quoting a study conducted by McKinsey, he said “if the oil prices remain at $70 rate per barrel, investments in shale gas will fall. Shale constitutes 17 per cent of the total world fuel production. There is no doubt that we will see an increase in consumption and a decline in investment in conventional oil. Within a year or two oil prices will healthier and fairer levels.”

Dr Francis Fukuyama, the world renowned American political scientist, looking ahead at the state of the world in 2015, said 2015 cannot be worse than 2014 but fall of oil prices will have a destabilising impact on most countries in the short term. He was sceptical about Libya and Syria resolving their problems in 2015.

On the political situation in 2015, Fukuyama said: “The power balance is shifting across the globe. The rise of China is not to be denied with the Chinese government seeking to reinforce its role. China is becoming a dominant power that the US and Japan do not want to acknowledge. China’s growing ambitions reflect its emerging power. The degree of nationalism could be alarming, even frightening. Russia on the other hand will be unable to achieve its goals given the complicated situations it has to face, especially after the Ukraine crisis. As for the Middle East region, I believe the ISIS issue has been overplayed by the US media and I don’t think ISIS represents a real threat since it has no international support of any sort. It has access to oil resources but is unable to sell it.”

Ghassan Salame, the former Lebanese minister, said he expects to see more of a localization of policy as there will be higher impact of the region’s countries and a lower impact of international powers. “During the past few years, the impact of the UAE and Saudi Arabia was considerably larger than that of the US in a number of regional issues.”

“The second trend is that there is a significant impact of the oil markets and revenues on politics. We are facing a new phase and if the oil reaches lower prices, we will see a large number of countries that spent part of their surplus on conflicts across the world, reducing their expenditure on these conflicts.”

Egyptian former minister Ahmed Abu Ghaith said 2015 would be a continuity of 2014 and the vision of 2015 will be an extension of the events we witnessed this year. “Honestly, it is a bit difficult to foresee the region’s situation in 2015 as the Arab world and the countries of the region are unable to realise what’s going on. I think 2014 has set the stage for 2015 and this means that the situation will not change positively as we all we wish.”

Bruce Bueno de Mesquita, Professor of Politics and Director of the Alexander Hamilton Center for Political Economy at New York University, said the world is overseeing major changes resulting from dynamic political shifts. “Although Europe is currently suffering from economic crisis, it will witness signs of recovery next year,” he said. He also predicted that Spain will achieve political and economic stability and emerge as an ideal investment destination. On the other hand in the EU region, Hungary might be the weakest link in Europe and could be the first country to leave EU. — issacjohn@khaleejtimes.com