One of the major issues discussed at the recent World Economic Forum in Davos was global dependence on oil in general and the drastic drop in oil prices in particular. Conclusions reached at the Forum pointed to the fact that the oil and gas industry is undergoing a rapid transformation and that new frontiers of exploration and production have enhanced the complexity and extent of both existing and future projects. In addition, analysts see a shortfall in skilled workers that has already affected the industry’s ability to deliver projects safely, profitably and in a timely fashion.
One way of handling this crisis is for current oil producing companies to move away from global reliance on Middle East oil and by diversifying traditionally-oil based economies to methods that move away from fossil fuels.
…the oil and gas industry is undergoing a rapid transformation and …new frontiers of exploration and production have enhanced the complexity and extent of both existing and future projects.
Diversifying Energy Sources
Middle East oil suppliers such as the UAE are already diverting their economies from dependence on oil. At the Davos conference, Suhail Bin Mohammed Al Mazrouei, energy minister of the United Arab Emirates told reporters that in the UAE, “….. we are diversifying the sources of energy…and also we are diversifying the sources of income. We are developing our economy, and year on year we are seeing that the non-oil economy's contribution is growing.”
Al Mazrouei added that the country was working towards a “transition to have the revenues from the oil industry as a luxury, or as an additional profit that's going to be reinvested and not to have it as a major contributor in our budget.”
Saudi Arabia, considered the leader of oil producing group OPEC, has been blamed for the continued fall in prices by continuing its high levels of production as part of its strategy to pressure non-OPEC rivals who have higher production costs despite the exiting glut in oil reserves.
But not all analysts point to Saudi Arabia as the main culprit for the oil crisis. According to Al Mazrouei, OPEC produces only one third of the world’s oil and two thirds comes from the rest of the world which introduced 2.7 million barrels of additional volume in 2015 so “they've basically flooded the market."
Opportunity for Reforms
Other leaders see the lower oil prices as an opportunity for reforms which should be considered regardless of the drop in oil. At a panel discussion on economic reforms in the Middle East at WEF on Friday, fellow Gulf Cooperation Council (GCC) minister Anas Khalid Al Saleh, who is deputy prime minister, finance minister and acting oil minister of Kuwait, pointed to the need for additional reforms for global growth that are not dependent on the price of oil.
Another panelist at the Al Arabiya hosted news network, the chief executive of Bahrain's Economic Development Board, Khalid Al Rumaihi, laid out the challenges facing the Middle East which in addition to pressure on the fiscal budgets of all the regional economies, include “the demographic challenge and the youth unemployment … which is north of 30 percent – and lastly, the security challenge.”
Al Rumaihi said Bahrain and its neighbors were already embracing fiscal and economic diversity and investing in more infrastructures in their countries. "We need innovation in our economies…and we have to look at how we allow innovation in our economy."
As one of their first moves, Bahrain, together with the other OPEC countries-- Saudi Arabia, Kuwait, the UAE, Oman, Qatar—are planning to introduce a sales tax on their oil for the first time.
Oil prices rose as much as 7 percent on Friday to above $31 in their largest weekly rally in three months, as a cold front sweeping the U.S. and Europe supported prices. But it is still a far cry from the high of $114 a barrel in June 2014.