Oil producing and exporting countries, including the GCC, have unevenly benefited from any increases in oil prices over the past five decades. Such a disparity in harnessing the financial windfall from oil has created clear differences in GDP growth rates for these economies.
The progress achieved by the GCC stands out as the best among the lot. Yet, the GCC’s economic diversification process still requires efforts to be made to achieve further developmental goals, and counter a future drop in oil revenues brought on by decline in the contribution of hydrocarbons to the global energy balance.
This means opportunities available now and in the future are less than that in the past when looking from a timing point of view. It is thus ideal to bring about a structural change to the economics of energy in these countries.
The previously large increases in oil prices were mostly short-term, excluding the first oil boom between 1973-81. The current spike has lasted far longer in the recent past - prices have been stable at high levels for four months now and will likely continue until the beginning of next year, according to most forecasts. Despite the sanctions, Russia will achieve an increase in oil and gas revenues by $14 billion, according to Finance Minister Anton Siluanov.
Earlier this year, many indicators expected GCC budgets, without exception, would achieve surpluses this year, totalling about $110 billion. Such surpluses will certainly support the economic conditions by allocating more resources on mega-projects, foster diversification, and provide more jobs.
The growing tax revenues have become an important source of funding for state budgets. This is a golden opportunity that should be seized, as it may not be available within a decade from now due to fluctuations in oil markets and prices.
Covid created clarity of purpose
Oil-producing countries, including the GCC, have been suffering economic difficulties, due to the pandemic, and the drop in oil prices to record low levels. Yet the bright side of the crisis was that it enriched their experiences on how to deal with volatility. Their vast expertise should be harnessed to take advantage of current opportunities now that they are backed by huge returns.
The GCC has the best resources for diversification compared to developing oil-producing states. In addition to advanced infrastructure, economic, political, and social stability, they have the qualified cadres capable of bringing about required change and managing development in accordance with the requirements of a knowledge-based economy. Many of the other oil producers lack these basic foundations.
If the current opportunity was to be seized properly, the GCC countries will achieve a qualitative economic shift that will be accelerated by some factors including digitization and AI. The shift requires investments that are already available thanks to those increases in oil prices.
Gulf economic cooperation and the implementation of joint agreements can also play a role in accelerating economic diversification. This may widen the current gap between them and the rest of the developing oil-producing countries. But that will largely depend on the extent to which the GCC can exploit current opportunities…