Negative oil prices, which have been brought about by a combination of the coronavirus disease (COVID-19) pandemic, the Saudi-Russian price war, and reduced demand for crude oil by some 29 million barrels per day (bpd), have raised concerns over social and political stability in the Middle East and North Africa (MENA)'s oil-producing countries. Most countries in the region, including Saudi Arabia, Iraq, Iran, the United Arab Emirates (UAE), Algeria, and Kuwait, rely on oil revenues for government expenditures and provision of social services.
The contraction of the global economy and the lack of consumption have left a major surplus of oil in the global market. The collapse of oil prices will likely have major consequences for MENA's oil-exporting countries. Oil revenues represent some 50 percent of the Saudi Gross Domestic Product (GDP), between 70 to 80 percent of its export earnings, and 87 percent of the government's expenditure. The Kingdom essentially needs oil prices to be at least USD 90 per barrel in order to be able to balance its budget and keep up with a highly subsidized economy.
The low oil prices will also halt the Saudi government's attempts to diversify the economy away from oil and postpone Crown Prince Mohammad bin Salman (MBS)'s Vision 2030, a strategic framework, that aims to develop the Kingdom's public service industries, such as health, education, and infrastructure. Libya needs USD 100 per barrel in order to be able to balance its budget while Algeria requires USD 109 per barrel. Oil accounts for 90 percent of Iraq's government expenditure; the country is the second largest oil exporter after Saudi Arabia in the Organization of the Petroleum Exporting Countries (OPEC).
While some countries like Kuwait, UAE, and Qatar have sovereign wealth funds and cash reserves that they can tap into to counteract their economic challenges in the short-term, Iran, Libya, and Iraq have no such luxury and will likely face social unrest in the form of demonstrations in the coming weeks and months.
Many services, including housing and health, are heavily subsidized in the six Gulf countries. By the time COVID-19 runs its course, it will have sapped significant government resources. When these governments in the Gulf and other areas throughout the Middle East fail to keep up with the social subsidy programs, the current political and economic arrangements could probably unravel.
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