The fading golden age of oil and its consequences for Middle-East geopolitics

The enormous oil revenues of the Arab exporting states — the Gulf states above all — played an important role in shaping the structure of their societies, bringing forth a new system of values, and drawing the features of geopolitics in the Middle East region in particular and the world in general. This is because the activities of human civilisation — transport, heating, industry, aviation, tourism, and the rest — depend on petroleum as a principal source of energy. The discovery of oil produced a fundamental change in the structure of the societies that enjoyed enormous wealth — in the form and content of social relations and value concepts, and in creating a culture and behaviours of luxury consumption on an unprecedented scale. These states, which became fabulously rich, were able to create the state of welfare and luxury, enabling them to buy their peoples' contentment through lavish, extravagant largesse. These states were likewise able to seize an important and highly influential role on the external front, through their possession of enormous resources to spend on promoting their policies and their interventions, in peace and in war, in the poor states and regions. Oil revenues were deployed as financial and economic tools for political, security, and cultural purposes in the receiving states and regions — the oil-exporting states acquiring an important, influential standing in Arab, regional, and international politics against the traditional Arab capitals such as Cairo, Damascus, Baghdad, and Beirut. But it has become certain that the golden age of petroleum is on its way to extinction — which will sharply affect the structure of the oil-exporting societies and their positions in international politics, and will greatly affect the state of internal stability and the relationship of the ruling authorities with their peoples.

A sharp decline in revenues:-

The total revenues of the Middle East's oil-exporting states in 2012 reached a thousand billion (a trillion) dollars. These revenues fell by about half over the following three years, reaching 575 billion dollars in 2017. Oil revenues are expected to continue falling this year, 2020, to a level of only 300 billion dollars (The Economist). The site RT likewise published statements from the Russian energy ministry indicating that the share of oil and gas in the global energy balance will fall below 50% by 2040. A report issued in July 2020 by Ember, the organisation specialised in tracking the development of alternative-energy production, noted that the 27 states of the European Union managed to produce 40% of their electricity needs from alternative energy — wind and solar power. The decline in oil revenues is attributed to many causes, foremost the advanced states' turn to renewable, environmentally friendly energy sources (wind, sun, and seas) to confront pollution and climate change.

Swollen spending levels against a sharp decline in revenues:-

The oil-exporting states relied, in setting the size of the budget and allocating funds for development and service programmes, on the value of expected revenues from oil sales. Petroleum revenues became the most important source for financing general operating and development expenditures. Indeed these states expanded their fields of spending far beyond the size of their revenues, expecting this to continue for long decades. For example: Saudi Arabia must sell the barrel of oil at $73, Kuwait at $62, Iraq at $58, and the Emirates at $65 for these states to obtain revenues sufficient to meet the spending levels maintained since the years of the oil boom. But the price of a barrel of oil in recent years fell below 50 dollars, after reaching about 100 dollars in certain years. The decline of oil and gas revenues in the last decade caused a chronic deficit in their budgets. Some of these states resorted to borrowing and to selling assets and public companies as quick means of financing the deficit. But the curve of the falling oil price was far faster than these states' capacity to lower spending levels, pursue a policy of diversifying revenue sources, and apply austerity policies.

Effects on the states benefiting from their expatriates' remittances:-

The sharp, continuing decline of oil revenues will reduce the exporting states' capacity to bring in and keep employing expatriate labour; these states will be compelled to nationalise jobs so as to cut the public-spending bill, retain hard currency, and stimulate domestic consumption. The labour-exporting states will be directly and sharply harmed by the decline in oil-sale revenues. Among them are Egypt, 3% of whose citizens work in the Gulf states, Lebanon and Jordan at 5%, and Palestine at 9% — their remittances forming a principal source for their countries' economies. The annual remittances to the Middle East states from their sons working abroad are estimated at 62 billion dollars: Egypt holds first place at 28 billion dollars in 2019, Morocco 8 billion, Lebanon 7 billion, and Jordan 5 billion dollars.

A decline in intervention and influence at the regional and international levels:-

The decline of oil revenues will reduce the exporting states' capacity to keep meeting the consumption patterns of their peoples that spread in the time of the boom. Facing declining oil revenues, some states adopted new policies: imposing taxes on consumption and on luxury goods, applying austerity policies, and more. This may carry repercussions for the state of stability these countries have enjoyed; an increase in expressions of anger and discontent is not to be ruled out from peoples who did not see democracy as an important demand amid the prosperity they enjoyed. On the external front, these states will not be able, as in the past, to provide resources sufficient to spend on promoting their policies and their humanitarian, political, and security interventions in other states and regions. Some Gulf Arab states have done well to begin pursuing policies of austerity, diversifying revenue sources, and localising industries. The age of the oil boom is on its way to fading — so it is essential to draw up strategic, serious plans to confront its repercussions.