With oil cheap, Arab states cannot balance their books
economist.com
economist.com
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.
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...
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.
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.
And someone who would travel for business if there were a vaccine at least has a reason to be an early adopter of the vaccine, whereas for someone who never leaves their house anyway it would make more sense just to wait for other people to find out whether it's safe and effective or not.
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.
Their "hundred year plan" is fn' formidible and they really will be the super-power based on, not only, their implementation of it - but the lack of forethought from literally any other nation on the planet, save Norway.
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.
Wont they?
Like you need to have serious incentives to import all your inputs.
Else, you are a leeching economy regardless of the value of your goods (Apple)
I'm not sure that's viable nor helpful as an idea when you can just import iPhones from China.
[1] https://www.dnva.no/detskjer/2019/11/en-feiloppfatning-norge...
[2] https://www.aftenposten.no/meninger/kronikk/i/LM1L1/Hvorfor-...
The Norwegian state and identity were formed before oil.
The far right frequently claim it's something to do with a lack of colored immigrants, for instance.
Norway has almost no industry other than oil. If oil shut down tomorrow their sovereign fund could keep the country running for about 10 years.
10 years isn't really long enough to transition to other industries. It's barely long enough to educate the next generation in new technology.
(Source: Norway's imports per capita were $16.9k, and its fund is $195K per capita.)
Norway is hoping that oil will shut down slowly, giving them time to transition, using the fund as a cushion. But historically industries tend to shut down "slowly, then all at once".
Edit: I didn't see you wrote "work without the corruption". My reply is misdirected, my reply is about the economy. In regards to corruption I agree with you.
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.
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.
"Foreign government" means "different laws".
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.
Electrification is the longer term existential threat. Even if 20% of vehicles are electric, the impact on demand and oil prices will be profound.
These countries weather boom/bust cycles in oil prices, waiting for a 'someday' to refill their coffers, and every year there are more and more things trying to put off 'someday' a little longer.
Essentially these countries have an antagonistic relationship with the rest of the world, as do quite a few corporations really. If you only get good news when everyone else gets bad news, then you've made an enemy of your customers. They just might know it yet. Lots of them will be working in an uncoordinated fashion to make their bad news a little better, making your good news worse and worse.
Once word gets around they'll start teaming up.
They were able to do this fairly successfully until shale oil and spoiled their intermittently successful collusion.
https://www.popularmechanics.com/technology/infrastructure/a...
Some of the trucks in question: https://www.komatsuamerica.com/equipment/trucks/electric
Heavy industry and core infrastructure are the last things that people interested in renewables will be fighting over. The low hanging fruit of personal vehicles and electricity generation is what's killing the middle east oil cartel.
And mine was that it doesn't need to. The only reason it needs a ton of oil is if it wants to emulate the US obsession with private transportation, which even the US is getting away from. It's not like Civ 6 here: they don't need to invent the internal combustion engine for themselves.
The idea that developing countries can develop without increasing global demand for oil is a fairy tale, and impossible to believe by anyone who thinks about the issue for more than a few minutes. Admittedly, there are in theory possible paths that would avoid an increase in fossil fuel demand, but I have never seen someone bring them up when discussing this, nor have I even seen an understanding of the basic problems that need to be circumvented.
In the US, it could still be done (and has), but the economics are not as compelling because the price of diesel is lower.
Nuclear trains might make sense with some of the newer reactors... but we know that'll never happen.
Modern steam engines!
But I guess they'd have to construct a lot of water stations. The stops to take on water might negate some of the advantages.
For one, it makes it hard to find the counterarguments, which are often where the best parts of the discussion are.
I think the point about the cure for low oil prices is low oil prices stands on its own, but not as a virtue (not that I think you were implying that).
It's a warning. Low oil prices cause complacency, which means the next minor emergency we have to go crawling back to them whether we want to or not. Low oil prices are the anesthetic in the mosquito's saliva.
Crude is currently $41.74 as of 1:10PM EDT.
Last time this came up someone was trying to make the argument that the reason some countries need 50% higher oil prices has less to do with the costs of extracting and shipping the oil and more to do with the cost of doing business in that country.
If so, you may see some pressure to change the equation, for better or worse.
No, if oil was regulated as an honest market, it'd have the CO2 externality priced in to make it carbon neutral. That'd make the price significantly higher.
This is why oil prices have been high since the late 70s. Shale oil and oil sands have put a big damper on the OPEC's ability to set prices. The only control OPEC has on oil prices is by limiting supply. Limiting supply to control prices only works when you can reap the rewards. If OPEC drops prices and US shale oil companies turn up the volume, then OPEC only gets the downside of limiting supply while shale oil gets the profits.
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.
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.
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!
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.
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.
Rashid bin Saeed Al Maktoum, Emir of Dubai
Sadly, while prescient that quote is - he still is (has?) done nothing to mitigate its reality?
[0] https://en.wikipedia.org/wiki/Oil_reserves_in_the_United_Ara...
https://en.wikipedia.org/wiki/Economy_of_the_United_Arab_Emi...
and Refined petroleum 15%
If you want to see an Arab country that has run out of oil, look at Yemen.
So aren’t they a better example of never oil rather than once had oil?
Meanwhile Eisenhower's warning on the military industrial complex has been ignored and seems to be coming true.
To be coming true? The production of military systems, like fighters and ships, has been spread across the states and counties for decades, to the point that Congress will stuff an unwanted system down the Pentagon's throat to ensure re-election in defense intense districts. And be up front about the reason why!
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.
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.
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.
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.
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.
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.
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...
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
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?
> executed homosexuals
Claims like this make it hard to take these comments seriously.
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.
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).
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.
The middle-east has been a powerhouse since before Europe was a thing. They have been fighting each other for tens of millenniums.
I don't think oil was that big a factor before WWI though. You have to remember that until cars come along the entire industrial revolution is powered by coal and the UK had plenty of coal. Oil only becomes important after the first world war -- at the same time the Ottoman Empire that had ruled most of the middle-east is broken up, so you have a bunch of new countries with new civil infrastructure getting massively wealthy from a seemingly endless gift from the group - and all of those countries are ruled by tribal people and strongmen, if only because they were set up that way by the British and French.
Colonialism did that, the oil was just a motivating factor.
So, the Arab conquest after the 600s was not violent and reactionary?
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. ;)
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?
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.
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.
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.
We also have to consider the Yeltsin and Clinton relationship compared to the Reagan/Bush ones
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.
It is analysis governed by imagination and thus is hardly worth detailed consideration.
https://www.cnbc.com/2018/03/27/softbank-and-saudi-arabia-an...
If that unearned funding source dies out, I think it can only be good for human freedom and, at least longer term, peace.
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.
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...
Wouldn't you want to at least temporarily stop your competitors from profiting from the last couple decades of massive unregulated oil sales, and at the same time try to dump as much of your product as you could?
Reg pressure on oil could hurt them too...
Generally speaking the oil available now will be in the future if prices rise again. The technology to access oil has made it easier to get to, not harder.
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.
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.
Edit: see this for numbers: https://www.vox.com/science-and-health/2019/3/4/18216045/ren...
This seems like a testable claim. Is there research about this subject that could confirm or debunk this claim?
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.
Oil is releasing carbon from prehistoric atmospheres.
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.
It's a problem that could be solved over time if using green energy for the agriculture.
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.
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.