With oil cheap, Arab states cannot balance their books

https://www.economist.com/leaders/2020/07/18/with-oil-cheap-arab-states-cannot-balance-their-books

by lowmemcpu • 6 years ago

151 196 6 years ago

economist.com

quickthrowman• 6 years ago

Paywall bypass: http://archive.vn/MJKQ1

Magodo• 6 years ago

Thank you!

bartmika• 6 years ago

Much appreciated

wiremine• 6 years ago

Previous conversation about this topic here:

https://news.ycombinator.com/item?id=23869858

opportune• 6 years ago

It’s hard to feel bad for them but there are a lot of outcomes here which result in a lot of people dying. Pretty sure half the reason SA and friends promote violent, reactionary interpretations of Islam is to serve as a dead man’s switch in case of regime change.

frankbreetz• 6 years ago

It is easy to feel bad for the citizens who don't really get a say in the matter and live under a repressive regime.

natch2• 6 years ago

I feel worse for the non-citizens they effectively enslave in their households, controlling their passport while under employment.

pydry5• 6 years ago

Oil is basically what made the middle east a violent and reactionary place.

Natural resources dominating the economy drives conflict and economic clusterfucks in all but the richest, most stable democracies (i.e. everywhere except Norway).

Oil's decline in importance might be the only way to escape this cycle (even if it will probably lead to bloodshed first).

Pokepokalypse2• 6 years ago

Oil would only have been a thing maybe after 1890's or so.

It's been violent and reactionary for centuries.

The natural resource that drove the Romans and Greeks, and later Europe to colonize that region was: trade routes.

Frankly; Turkey, Persia, and Egypt have also been at each other's throats over regional dominance for centuries.

minikites• 6 years ago

Oil is basically what made the middle east a violent and reactionary place.

Colonialism did that, the oil was just a motivating factor.

irrational5• 6 years ago

Oil is basically what made the middle east a violent and reactionary place.

So, the Arab conquest after the 600s was not violent and reactionary?

cs02rm0• 6 years ago

Pretty sure half the reason SA and friends promote violent, reactionary interpretations of Islam...

Is that a common abbreviation for Saudi? We used to use KSA when I lived there, but I don't trust South Africans not to be violent either. ;)

hnarn8• 6 years ago

SA is actually the ISO-3166 abbreviation for Saudi Arabia, South Africa is "ZA". Perhaps not the widely used abbreviation for South Africa, but using "SA" for Saudi Arabia probably isn't incorrect.

staycoolboy2• 6 years ago

I spent a month in Antibes (next to Cannes) visiting new in-laws. The French Riviera is a playground for the hundreds (thousands?) of saudi princes. I've never seen so many mega yachts, Rolls Royces, and Lambos in one place. To be honest, it was (briefly) kinda cool to see ultra-wealth on display, despite the consequences to millions of poor who suffer for it.

LukeEF2• 6 years ago

The shallow pro market idealism that too often colors the Economist's analysis is hard to swallow. Give me the confidence to pronounce: 'If Arab rulers want citizens to pay their way, they will need to start earning their consent' in a complex and unstable region. As thou they can see the consequences of complex change. The ghosts of the dead in Libya, Syria and Egypt (remember that brief flame of democracy) should be a constant presence in the author's mind.

supernova87a5• 6 years ago

Eh, what do expect from the Economist? They write as if they just read something about the topic and now after 2 paragraphs came to the conclusion on how the world should be updated. That's their style.

colincooke• 6 years ago

Not exactly sure your critique (maybe I'm misunderstanding?). The gist I get from the article is that many Arab states have dependend on oil to stablize their economies/internal politics and fund their way of life, and that while some of these states had plans to diversify the current cheap oil makes the execution of that plan more complicated. In addition (something I learned from this article) the economies in the region are connected in ways which may make possibile instability amplified due to migrant workers/tourism.

The quote you picked out might not be a great take, but I think it's referring to the potential large (and growing) gap between the ruling class and normal citizens which could seed dissent.

LukeEF2• 6 years ago

The critique is that the Economist has a single solution to all complex problems and is confident to wave that wand even thou the reality - in most such transitions - is enormous, disastrous instability and war. It utterly ignores the hand of empire in the affairs of the petro states and their repeated failed interventions to prop up the leaders that fake democratic reform while chopping up journalists.

It is analysis governed by imagination and thus is hardly worth detailed consideration.

supernova87a5• 6 years ago

I mean, this happened just a few years ago back in 2015, right? And 2008, and 2001, and 1998...

These petro states suffer from the curse of natural resources combined with leadership that is too busy feasting off of the intermittent boom cycle to prepare their people constructively for the bust that comes later. So you have entire countries that are basically dependent on the oil handout, and in bad times, have little industry to fall back on and wait for the next rise (or foment civil unrest).

Some of the leaders do know that they can't live on oil forever, so you see some sovereign wealth funds investing in things that their people can learn and use to build their society more resiliently. But in general the improvements are not very deep -- the money comes too easily and people get used to state intervention and not having to work.

It's a problem.

nickfromseattle• 6 years ago

Some of the leaders do know that they can't live on oil forever, so you see some sovereign wealth funds investing in things that their people can learn and use to build their society more resiliently

Do the Saudi's have the experience and culture to make this work? $90B invested in Softbank Vision Fund. [0]

[0] https://www.businessinsider.com/saudi-arabia-45-billion-with...

supernova87a5• 6 years ago

Is that investment just finding a place to park money? Or does it do something good for the every day Saudi citizen? I don't follow the issue closely enough to know.

andi9993• 6 years ago

A long time ago on an island far away... called Nauru, they tried to invest their wealth from their natural riches (phospor fertilizer). It didnt work out, if I remember correctly.

awillen• 6 years ago

It feels like this time is different because of the ongoing lack of demand. International flights from the US are looking to basically be nonexistent until there's a vaccine. After that, it's very plausible the business travel economy won't ever recover fully.

I agree that some of the more foresighted countries are making some of the right moves (though Saudi Arabia is probably kicking itself for not moving forward with the Aramco IPO last year), but I really wonder what the effects will be on the political stability of places like Iran and Iraq - they're not in great shape to start with, and this kind of economic shock seems like about the worst possible thing to really exacerbate all the problems that exist already.

Alex39172• 6 years ago

International flights from the US are looking to basically be nonexistent until there's a vaccine.

But there's likely going to be a vaccine in less than a year. It will take several years to know to what extent it's really safe or effective, but people who travel a lot for business can get it right away if they want.

eloff3• 6 years ago

Flights account for very small single digit demand for oil. The main driver of the low demand is lower economic activity in general.

pydry5• 6 years ago

It's not strictly a "wrong leaders" problem. It's much more systemic than that. Elect a good leader and the oil will provide the impetus to tear that leader down.

Industry also won't form because of Dutch disease. Who wants to build a factory in Saudi Arabia even if it weren't unstable? Everything just costs too much because of the oil - land, materials, labor.

Sovereign wealth funds also don't really solve the problem because 1) they attract corruption like flies on shit and 2) they're vulnerable to confiscation from foreign governments if they decide they don't like your face (e.g. Venezuelan gold in London).

I suspect it could be that there is no simple solution to this. Potentially you are just fucked if you're a poor unstable country with oil and theres nothing you can really do about it. No leader will save you and no policy will help.

solotronics• 6 years ago

They should vertically integrate while they can. Produce exportable goods and materials with the oil.

dodobirdlord• 6 years ago

Interestingly, the first thoughts that come to mind on how to mitigate this problem fit Saudi Arabia very well (as far as I know, I am no expert). Invest in a considerable security force, try really hard to ingratiate yourself with a few powerful foreign allies that have a vested interest in your stability, and then fund education like mad, especially sending children to foreign universities, to try to raise the capability level of the country before the wheels fall off.

marcosdumay3• 6 years ago

Who wants to build a factory in Saudi Arabia even if it weren't unstable? Everything just costs too much because of the oil - land, materials, labor.

So, import all the inputs you can and sell the output on the local market where everything is expensive.

Dutch disease is way more complicated than just "there's too much money coming from this source, the economy is fucked-up". I would really like to see any non-simplified study for a change.

Svip2• 6 years ago

Norway kind of proves it is possible to make it work without the corruption. But Norway also proves that you need to lay the groundwork for that, before you lay any actual groundwork. I am not sure if these other oil producing states could reach a level of stability as Norway.

derefr• 6 years ago

It's not strictly a "wrong leaders" problem. It's much more systemic than that. Elect a good leader and the oil will provide the impetus to tear that leader down.

See also, The Dictator's Handbook, summarized well by CGP Grey's video "The Rules for Rulers" (https://www.youtube.com/watch?v=rStL7niR7gs).

It's an unstable equilibrium to run a country on a wide power base, if it has centralized resource-extraction economy; as any dictator who just plans on staging a coup to take the oil and then reward their few revolutionaries with it, will be able to win over pretty much anyone from the previous wide-base government, who was previously getting a much-smaller slice of the pie.

coliveira2• 6 years ago

vulnerable to confiscation from foreign governments if they decide they don't like your face

This should be a sign that the rule of law is in decline all over the world. What UK did and the US is doing is completely absurd, even when dealing with an authoritarian regime. Not only UK is holding gold that is not owned by them, but it is giving that gold to a pirate designated by the US.

And this is bad not just for the particular case, but it may also be used as precedent for similar illegal actions against other governments that don't subscribe to the US gospel.

ogre_codes8• 6 years ago

I mean, this happened just a few years ago back in 2015, right? And 2008, and 2001, and 1998

The point here is that sub $40 oil is becoming the new norm. While these countries can weather a 2-3 year drop in oil prices, those short term drops are more and more frequent and the bottom keeps getting lower.

Between electrification of transportation and reduced travel which may last for another 6 months (or much longer, it's not really clear), demand is down. On top of that, any time oil stays over $50/ barrel for a prolonged period of time, shale oil and oil sands production increases putting downward pressure on prices.

Any way you look at it, there is no good news for oil-dependent states.

guepe• 6 years ago

Prices have dropped more frequently because of US shale oil. Electrification is a very small factor (yet).

jeffreyrogers9• 6 years ago

As they say in the oil industry: the cure for low oil prices is low oil prices. In any case, if the developing world is really to develop as much as hoped for and claimed they will need a lot of oil. Even if it is all renewables based (which is a fantasy) those renewables require large oil inputs to be manufactured (those 400 ton mining trucks won't be electrified anytime soon). So while I expect oil to be down over the next year or so, I think the long-term trend is upwards, for better or for worse.

drocer88• 6 years ago

"The point here is that sub $40 oil is becoming the new norm"

Crude is currently $41.74 as of 1:10PM EDT.

vbezhenar• 6 years ago

I don't think it's about demand. If oil price were regulated as a honest market, it would cost much lower. Oil price is regulated by OPEC cartel. They could make it $200 if they want. I think that they're manipulating price low enough to slow development of non-oil energetics as much as possible and high enough to stay profitable. Also they're interested to put a pressure on Russia and some other countries, because Russia spends much more to get oil from the earth, so their margins are much tighter.

rgbrenner• 6 years ago

Demand is temporarily down because of covid and the russia/opec dispute. Consumption was hitting records before that, and the EIA projects over 100m barrels/day next year: https://www.eia.gov/outlooks/steo/report/global_oil.php

Also take a look at this inflation adjusted crude oil chart: https://www.macrotrends.net/1369/crude-oil-price-history-cha...

You have a high period from 1980-85 and from 2005-14... but those are the exceptions rather than the norm. I'm sure they got spoiled by the high prices, but $40-50 is a normal price for oil.. and they'll learn to adjust like they have in the past.

The electrification of transportation is great and it'll eventually have the effects your mention... but right now, those effects are out weighed by the growth in developing markets. Very similar effect as renewables and coal. Coal use will keep growing through 2030, even though renewables are growing rapidly. The demand for these things (vehicles, energy) is much higher than what the clean economy can deliver at the moment.

3pt14159• 6 years ago

In the long run the cost of energy approaches 0 and ultimately heat dissipation and space (and hence, speed) will be more relevant. But short-termism and individual greed have reigned supreme in most energy rich companies. At least Canada has a diverse economy to take up all the petro-refugees, even if we didn't build a serious wealth fund out of our oil as the Norwegians did.

supernova87a5• 6 years ago

I will make the snarky observation that if there is one good thing about the Norwegians and their petro fund, it's that they seem to have a national culture of being a bit ashamed of having come into so much money, and are willing to have it hoarded away for them for some future while they live relatively "modestly". It takes some self-discipline to not pressure your government to give handouts left and right when you're rich.

jariel• 6 years ago

" too busy feasting off of the intermittent boom cycle to prepare their people constructively for the bust that comes later."

It's much worse than merely 'feasting and fasting' - the problems are very deep, another way of putting it, there was 'not much at all' in these places at all, then they had oil, and the absence of other parts of the economy isn't quite so much an artefact of dysfunction, rather, it never existed in the first place.

Many of these places had 3% literacy 2 generations ago, and much of the civic institutional infrastructure (I mean like 'laws' and 'Judiciary' and 'Governance' etc.) is as new as many of those shiny buildings.

Let alone the absence wide networks of useful artisanal know-how spread from generation to generation, or at least, such information that can be used to found industry.

If Oil permanently crashed, it would be very bad and there would be no recovery. The Gulf States would be the poorest states in the Middle East. Saudi Arabia would be like Yemen or Algeria.

leoh• 6 years ago

Well, it's more severe now and as you pointed out yourself, it's becoming increasingly common. Not to mention a shift to renewables (despite some developing countries continuing to rely on oil), which may add increasing pressure.

eternalban• 6 years ago

Oil money comes with strings attached and to completely ignore this in your analysis seems either uninformed or disingenuous.

So called Petro Dollars, for example, can't be just spent on anything. It is so difficult to dig up information on this (which was US state secret for a while btw) but iirc KSA must at least spend a portion of "their" Dollars on US treasuries. Another portion of "their" Dollars must go to US arms manufacturers. In return, US backed (formerly UK backed) Saud family gets to play King in Arabia.

So that "leadership that is too busy feating off" is aka Puppets of Western imperial colonials cum American hegemon's vassals. Any efforts by locals to denude themselves of the said "leadership" is not looked upon kindly by the "interantional community".

the oil handout

That's cute!

hindsightbias• 6 years ago

1985...

Afghanistan, Iraq/Iran War, Balkans, Chechnya, Afghanistan again, Somalia, Iraq/Syria, Yemen.

KSA’s population has doubled in 30 years and they like to burn through excess youth by exporting them. They’re going to need another, bigger war or domestically they’ll be in trouble.

ksk3• 6 years ago

That is a very valid point, however, how long before the US can't get away with simply printing money during financial crises ? :)

bluGill8• 6 years ago

Longer than those of us who oppose printing money would like. The US economy has many different parts that stand well on the world stage and so it can get away with things.

Agriculture in the US is something that the middle east cannot duplicate. They could duplicate some other industry, though some of it has historical roots that will be hard to overcome starting from scratch.

djsumdog• 6 years ago

I feel like this might go the other direction once the lockdowns end and once people realize a huge chunk of their "green" energy labeled as biomass is actually just burning down trees.

Even if you use the fast growing forests used for paper in places like Oregon, there is still petroleum used in planting, cutting and fertilizing biofuel forests. In many ways, it's even worse for the environment than just burning the oil directly.

Baring some massive breakthrough in fusion, society as a whole needs to consume less energy, purchase less stuff and make durable goods that last a lot longer (a cellphone should last 8 years, not 3). Mass consumption is going to kill our environment a lot faster than energy consumption or CO2 emissions. CO2 pales in comparison to the ecological devastation in Chinese factory cities, the large amount of plastic particulates/trash in our oceans and completely unsustainable economic doctrine of infinite growth.

supernova87a5• 6 years ago

The end of your comment makes some sense. The beginning is a puzzle. Who's using biomass? It's <1.5% of energy generation in the US -- you're pretty special and living in an unusual place if you get any substantial energy from that source.

afandian• 6 years ago

Up to 5% of car fuel in the UK https://en.wikipedia.org/wiki/Renewable_Transport_Fuel_Oblig...

jeffreyrogers9• 6 years ago

Biomass is over 40% of Europe's "renewable" energy.

Edit: see this for numbers: https://www.vox.com/science-and-health/2019/3/4/18216045/ren...

gerbal• 6 years ago

In many ways, it's even worse for the environment than just burning the oil directly.

This seems like a testable claim. Is there research about this subject that could confirm or debunk this claim?

762236• 6 years ago

It can be tested in the other direction too: is there research that can confirm or debunk the opposite claim?

vkou• 6 years ago

Only napkin math. The typical sources of climate change denial don't see biomass as a threat (Because it is tiny, growing slowly, and augments fossil fuels, not replaces them), so they don't fund any research to attack it.

The proponents of it probably know that its numbers don't look great, so they don't push for research that thoroughly audits it.

It's also difficult to thoroughly audit the carbon costs of a complex supply chain that has to move tens and hundreds of millions tonnes of lumber - when the costs greatly vary based on how the lumber was sourced.

babypuncher• 6 years ago

Biomass only makes up a small fraction of the energy economy. Wind and solar have much more promising futures.

eloff3• 6 years ago

Biofuel is a small industry. But the big difference is it's carbon neutral because the carbon released into the atmosphere came from the atmosphere.

Oil is releasing carbon from prehistoric atmospheres.

andi9993• 6 years ago

Actually it is tax neutral, not carbon neutral. The kicker here is (i cant find the source anymore) at least in Germany agriculture is energy intensive. It seems one energy unit of crop need one energie unit of (tax excempted) fossil fuel (for the machineries).

So basically you are pumping fuel into a black box, and out comes bioful (which has tax breaks as well, if I remember correctly)

It is a left picket right pocket game.

ogre_codes8• 6 years ago

CO2 pales in comparison to the ecological devastation in Chinese factory cities, the large amount of plastic particulates/trash in our oceans and completely unsustainable economic doctrine of infinite growth.

No... not remotely. While these things you mention are a big threat, and truly terrible disasters themselves, they pale in comparison to the planet changing disaster that is Climate Change.

marcosdumay3• 6 years ago

a huge chunk of their "green" energy labeled as biomass is actually just burning down trees.

Nearly all it comes from some variety of grass. Be it corn, sugar cane or some foraging grass. Trees are way too inefficient to be practical.

082349872349872• 6 years ago

On sorts of pain that have resulted: in 1985, Fahd opened the taps just when Gorbi was trying to reform the soviet economy. Successful reform was presumably made more difficult when one's principal export declines to a third (not helped by concurrent USD weakness) in real value.

https://en.wikipedia.org/wiki/1980s_oil_glut

tijuco2• 6 years ago

I had a roommate from Saudi Arabia who said that their king have realized that a while ago and because they have basically infinite money, he started to develop small cities that have touristic potential, and people are being taught English too. In his words, they want to change this oil stereotype about their country, and that in ten years their country will be transformed.

yardie• 6 years ago

One of those English speaking cities is Neom [0]. I think they want to build it into a tech/tourist planned city.

The Mediterranean and South East Asia is littered with these futuristic planned cities. I was anchored off the coast of Malta near this KSA financed "Smart City" [1]

[0] https://www.businessinsider.com/neom-what-we-know-saudi-arab... [1] http://smartcitymalta.com.mt

Apocryphon2• 6 years ago

Unfortunately, tourism is the one major industry that is a non-starter right now.

hnarn8• 6 years ago

I question how realistic it is for Saudi Arabia to turn into anything like the "tech hub" or "international finance center" or whatever of the area while simultaneously being an Islamist, conservative theocracy that is in many ways still judicially medieval.

Even if they pull it off, many people will think twice about coming there. Corruption, bigotry and a close-minded view of the world needs to go first.

Look at a country like Singapore: does anyone believe that they would be where they are today if they were an authoritarian regime that executed homosexuals and ordered the murder and dismemberment of dissidents abroad?

ksk3• 6 years ago

I've lived in Singapore, and while it is generally a free society, its only pseudo democratic, and the government has placed various restrictions on political activities. Its no where near the level of Saudi Arabia, but there is a huge difference between traveling to Singapore for work/vacation and living there.

apta3• 6 years ago

What does "being an Islamist theocracy" have anything to do against becoming a tech hub or finance center? They're not mutually exclusive in any way.

executed homosexuals

Claims like this make it hard to take these comments seriously.

Pokepokalypse2• 6 years ago

then. . . why did the Arab states (Saudi Arabia) join with Russia to overproduce and sandbag prices?

cmrdporcupine2• 6 years ago

To bankrupt and slow down other oil producing countries that have even higher costs.

As an example, take a look at Alberta, Canada, with its giant oil sands projects -- on the world's largest deposit of crude oil on the planet -- basically unprofitable now.

duxup2• 6 years ago

I think that is true to an extent, as far as international politics goes. Saudi Arabia is happy to make that move to target say Iran, etc.

But things like oil sands and etc won't go away. It's accessible and the boom and bust nature of oil is just part of the system. They don't really stop oil sands.. just pause them.

Someone goes bankrupt today, someone else will sell that oil when the price goes back up. And if the price never goes back up then even Saudi Arabia is in trouble...

staycoolboy2• 6 years ago

The Crown Prince of Saudi Arabia and SoftBank have invested in the largest solar project in history. MBS is no dummy.

https://www.cnbc.com/2018/03/27/softbank-and-saudi-arabia-an...

yumraj• 6 years ago

One of the things I've always wondered about when Arab countries run out of oil, and now with cheap oil, will it, at a macro level, result in lower Islamic terrorism or higher?

Argument for Lower : State sponsors, and rich individual sponsors will have fewer funds. There may be local revolutions resulting in more democratic governments.

Higher: There will be instability due to rising poverty with many people turning to radicalization and in many cases terrorism becoming the only way for poor people to support their families.

hnarn8• 6 years ago

It all comes down to how you ask the question. If you ask the question like this instead, the outcome is in my opinion slightly less up for interpretation:

Q: "What happens when a badly governed country, already ripe with corruption and tendencies of sectarianism and local warlords, loses its only real source of income and the economy collapses?"

There may be local revolutions resulting in more democratic governments.

If we are to entertain this hypothesis, why has this not happened already in the general area? There have been plenty of chances, not only in the Middle East but also in war-torn countries in Africa. The answer in my mind is that armed forces are already concentrated in the hands of the corrupt, and in an environment where surplus is a generation away, power will corrupt the uncorrupted.

When state power collapses, the economy grinds to a halt and the most basic necessities of life can no longer be counted on, in a country that also already has armed para-military groups and tendencies toward sectarianism and warlord leadership, the outcome is predictable: it's civil war, and untold suffering.

slim• 6 years ago

terrorism is cheap

apta3• 6 years ago

With all due respect, but this is overly simplistic thinking. You're implying that people in that region are somehow more predisposed to "terrorism" compared to people in other regions, and that due to instability, they will somehow turn to "terrorism" as the defacto way to support their families, putting aside their morals and ethics that prevent them from engaging in those actions to begin with. We've already seen what happened in the US at the slightest hint of instability (all the looting that took place in the past weeks, and in a bizarre manner, some by seemingly well off people as well).

Secondly, it's known that funding also comes from non-Arab countries, who have vested interest to see that region continue to be unstable, to further their own benefits.

chiefalchemist• 6 years ago

This is an unintended consequence (?) of the US' increase in fracking, starting circa 2005 or so. With oil being so ubiquitous within the (ailing) economy, cheap fuel was a proxy for lowing interest rates; which were already rock bottom.

The benefit then was it hurt Russia, Venezuela, and Iran. The pamademic has taken it a step further. I guess the question is: can the USA bail out SA and associates? Does the US have the political will and the capital to do so? If not, then what?

p.s. Keep in mind the first foreign country the current POTUS visited was SA. It seemed like an odd choice. Maybe not?

tomcooks• 6 years ago

"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel"

Rashid bin Saeed Al Maktoum, Emir of Dubai

samstave3• 6 years ago

I recall that quote.

Sadly, while prescient that quote is - he still is (has?) done nothing to mitigate its reality?

mancerayder• 6 years ago

Dubai, as far as I've heard, has no oil left. It's tourism, finance and other industries unrelated. So in that sense haven't they?

grayfaced2• 6 years ago

Well he died in 1990, so probably not much he can do. And it's safe to say it's not reality since he has many grandchildren in their 30s. Quotes like this seem to be more of a warning then predictive, and Dubai seems to be trying to diversify.

Meanwhile Eisenhower's warning on the military industrial complex has been ignored and seems to be coming true.

hnarn8• 6 years ago

While I understand the point he's trying to make, I'm not sure I understand how it can be true unless the underlying point is the classical one about how your children will inevitably squander your wealth.

Even if your wealth comes from a business that is only temporarily viable, your wealth will persist even if the underlying business does not, if it's conservatively invested. Additionally, rich people have no problem moving around in the world, so there's no need for the "petro-millionares" to remain in a country that is collapsing economically.

This quote is obviously meant to convey some sort of wisdom from the Emir, but it doesn't ring true. That anyone beyond the grand son of a hyper-rich individual will be back to square one out of sheer inevitability is a laughable idea.

mostlysimilar• 6 years ago

It seems to me to be expressing a point about the nation in general. Sure, he and his family are probably fine for generations. It makes a lot more sense when applied as a trend for the average citizen of the nation.

adamc• 6 years ago

Registration wall. Ugh.

irrational5• 6 years ago

It seems like the Middle East is going to get a double whammy from climate change.

1. Their economies will be affected as the world moves to non-oil based energy.

2. Their land will become more uninhabitable as time goes on. Higher temperatures, less water, more sandstorms, etc. I've seen studies that say the Middle East will be completely uninhabitable by the end of the century so we should expect mass migration from there to other places.

They will need money to combat number 2, but they will have less of that because of number 1.

diminish2• 6 years ago

3. During the cold war most middle-east countries sided with the USA. They were perceived as the allies. Now it's becoming increasingly harder for those countries to enjoy western support.

grayfaced2• 6 years ago

80% of Dubai's food is imported, so can you label it already uninhabitable? Habitable is just a matter of how many resources you're willing to pump into making it so. With the holy sites in the middle east, it will remain populated for long to come.

You're right though, we'll see unprecedented mass migration. What's worse is the middle east has some of the highest birth rates in the world. With that excess population and constrained resources it is inevitable there will be continued conflict.

irrational5• 6 years ago

Holy sites like Mecca only have tons of pilgrims during the Hajj. The rest of the year there could be a small maintenance population living on site.

motohagiography• 6 years ago

Worth appreciating the economic dynamic the article is based on: https://en.wikipedia.org/wiki/Resource_curse

Basic issue is that when a government can fund itself using resource extraction, it does not need the consent of a nation of people who would otherwise make up a tax base, so they pay the army and police out of oil money to keep them in power, and the average citizen is reduced to a subject. Trouble is, if all you need for power is control of the resources, it's not like you need to spend on winning hearts and minds when you can seize the resources with a relatively small rebel group. Given the high stakes of oil/resource billions and the very low bar to entry for cheap rebellions to seize them, these incentives are a recipe for the political shit shows we tend to associate with some resource cursed economies.

The predictable effect of oil price collapse is that leaders can no longer guarantee those payouts to the people who keep them in power, and as a result, those people will replace them with someone who can keep paying them. This is described in the DeMesquita-based idea of the "Rules for Rulers" video (https://youtu.be/rStL7niR7gs), which is related to the article's closing line about leaders getting their peoples consent.

The "Arab World," is a diverse place with a variety of multilateral interests so there are more dimensions to the outcomes than this, but the most obvious risk is that China will prop up whoever they can control in exchange for oil, and the mid-east will become the field for an China/US proxy war. The next risk is that unfortunately, if Arab leaders are reduced to winning hearts and minds to stay in power, they may do it with appeals to religious radicalism instead of democracy, which will bring about another era of state sponsored terrorism, that again, invites war.

Nice that we're using less oil which is good for the planet, but there is the small matter in the interim of what is good for humanity. The people who lose in these conflicts are never the participants, but the ones caught between them. These people will form new waves of refugees from the conflicts that can bring additional instability.

The precise knock-on effects of an oil price collapse can't be predicted, but you can anticipate the change in downstream volatility, and find a way to become indispensable in volatile times.

bluGill8• 6 years ago

It is a lot easier to win the hearts of the people when you don't have to tax them to give them whatever will interest them.

neonate• 6 years ago

https://archive.is/MJKQ1

lizknope• 6 years ago

I'm not going to defend Dubai but regarding oil being dominant to the economy.

https://en.wikipedia.org/wiki/Economy_of_Dubai

Oil production, which once accounted for 50 percent of Dubai's gross domestic product, contributes less than 1 percent to GDP today.

diminish2• 6 years ago

So is investing in construction the solution for all petro countries?

BurningFrog2• 6 years ago

A lot of the evil in this world comes from nasty regimes that own oil fields. Half the middle east, Russia, Venezuela. I'll give Canada a pass.

If that unearned funding source dies out, I think it can only be good for human freedom and, at least longer term, peace.

alextheparrot• 6 years ago

The region’s energy exporters are expected to earn about half as much oil revenue this year as they did in 2019

I could only read to this point due to the paywall, but US sanctions halved Iranian oil exports from 2017 -> 2019 [0] as well. Goes to show the significance of the sanctions.

[0] https://www.bbc.com/news/world-middle-east-48119109

dghughes• 6 years ago

I thought this article was about the new UAE nuclear reactor. If anything I figured solar would be smarter for a hot sunny region. But dust, heat, and fragile panels (target for attack) may not be a good idea.

At least the UAE started construction when oil prices were high. I can't imagine a Gulf state starting a reactor program now with oil prices so low.

https://www.aljazeera.com/ajimpact/nuclear-gulf-experts-soun...

https://en.wikipedia.org/wiki/Barakah_nuclear_power_plant

manfredo• 6 years ago

Nuclear reactors are also have the added capability of driving desalination plants with the waste heat.

darth_avocado• 6 years ago

I mean, how is this different from any other industry in the world? If you have a set of exports, if someone out competes you and lowers the prices, you suffer. That is why you diversify and build other economies. These petro states made a ton of money, most of the times squeezing desperate countries and selling them oil at above market rates. Should've saved for a rainy day, because sooner or later, other countries are going to figure a way out to cut you off.

cameldrv2• 6 years ago

Incidentally, this situation ended up being the nail in the coffin for the Soviet Union. The Soviets had been forced to import a lot of grain in the eighties and they were paying for it with oil exports, since that was really the only export that the west was interested in buying from the Soviets.

When oil crashed in the mid eighties, the Soviets were forced to look for hard currency loans from the west to keep up food imports. These loans were then tacitly conditioned on the Soviets behaving themselves in Eastern Europe. When the Solidarity protests started up in Poland and the Monday demonstrations started in East Germany, the normal Soviet response (as in 1956 and 1968) to roll tanks was not an option, because it would have meant no more loans, no more grain, and the starvation of the Soviet population.

sushshshsh2• 6 years ago

Who was making the loans to the Soviets specifically? For all the hard rhetoric of the 80s, it's quite interesting that the West was willing to prop up a (Communist!!!) entity for a fee.

cameldrv2• 6 years ago

This is a good summary:

https://apps.dtic.mil/dtic/tr/fulltext/u2/a254728.pdf

"In retrospect, it is possible to see that bank confidence had begun to erode as early as the latter part of 1988. In the fall of that year, new patterns of bank lending to the Soviet Union appeared. Previously, it was typical for banks from many nations to participate in syndications for loans to the Soviet Union. Beginning in October 1988, though, a number of very large loans were negotiated with purely national syndications-that is, all participating banks were from a single Western country. Western governments played important roles in arranging these syndications, and usually the loans were to finance exports from the lending country. At the time, a number of Western governments were intent on providing material support for the processes of economic and political reform perceived to be under way in the Soviet Union. By intervening with banks on behalf of the Soviet Union-either directly through loan guarantees or through less formal encouragement of bank lending-these governments probably helped the Soviet Union to achieve better terms from the banks than it could have gotten on its own. By mid-1990, bank confidence had declined sufficiently that banks would lend to the Soviet Union only with explicit guarantees from Western governments."

To answer your question though, I believe it was primarily Western European countries providing or guaranteeing the funds by 1989.

At the time, Gorbachev was seen as a reformer, and the West was willing to grant him some rope in the form of hard currency loans, but that would have evaporated if he had pulled a Prague in Warsaw or East Berlin.

LockAndLol• 6 years ago

Some of these countries has so much time to prepare for the future, while others were busy being railed by theocracies propped up by foreign influences in order to keep exploiting them for their oil. The later are being dropped like hot potatoes by their foreign influences and the former have taken action way, way, waaay too late.

With oil cheap, Arab states cannot balance their books

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