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The oil prices have been declining in the international arena for almost two years. What looked like a slight market correction at first turned out to be a record slide in market prices. The current price levels are a mere shadow of the peak price experienced in mid-.
While the non-oil producing nations have benefited from the decline in oil prices, it has caused great financial pain for nations whose economies depend on oil revenues.
Right after the start of the oil bust, the Middle Eastern oil producing nations had taken the strategy of defending market share instead of reducing production to bolster prices. The obvious result was a further decline in the oil prices at the international arena. The major oil importing countries especially China and Japan lost appetite for black gold as their economies stalled after experiencing record growth in the past decades.
The supply of oil, however, continued at the previous levels due to which the market was flooded with cheap oil. Since the economies of Middle Eastern states including Saudi Arabia, UAE, Bahrain, and Qatar depend on oil revues, they have suffered the most due to the low-level oil prices.
The combined value of oil and gas assets in the Middle East is astounding. Even if the oil prices remain in the $-$ per barrel range, the proven wealth from oil and gas reserves is about $ trillion. The foreign reserves in the region stand at about $ billion, which is about percent of the regions’ GDP. Apart from that, about $3 trillion is reported to be held in wealth funds.
Debt ratio of oil-rich countries in the GCC region as a ratio to GDP has increased due to record low oil price level. But they are still low as compared to the global standards. Lower leverage ratio provides latitude to central banks of the countries to run fiscal deficits for longer periods.
Having said all that, the revenues from energy resources in the region can produce only a limited amount. Due to reliance on the countries in the Middle Eastern region for oil revenues for meeting economic needs, low oil prices is causing great financial woes in the region.
In Saudi Arabia, oil revenues decreased by about percent in causing a great financial impact as the countries’ percent of total revenues come from oil. Its foreign reserves declined from $ billion in to $ last year. The budget deficit amounted to $ billion that was one of the biggest in the history of the nation.
Policy makers in the Kingdom had to reduce subsidies on public utilities and reduce the income of government employees. King Salman, the current Head of the State, announced reduction in oil subsidy by about percent.
Bahrain and Oman that possess low foreign reserves suffered the most due to low oil prices. The government of Oman removed perks including cars for employees of all state-controlled corporations. The country posted a budget deficit that was about percent of the GDP in. The budget deficit of Bahrain was far worse standing at percent of GDP. Experts state that the country needs oil prices to be at $ per barrel just to balance its books.
Qatari government had to lay off employees in publically owned companies including Al Jazeera. However, Qatar along with the UAE and Kuwait can withstand low oil prices for decades since they have small populations and large foreign-exchange reserves.
