There was a time when the price of a barrel of oil was a matter of interest to a relatively small proportion of the citizens of the world. Those who could tell you with any accuracy the cost of Brent crude on the London spot market or light, sweet crude in New York were largely limited to people working in the oil & gas industry, along with the traders who could make a turn on buying and selling, and the oil ministers who relied on the revenues.
Now everything is different. The recent unremitting rise in oil prices has led us all to take a great deal more interest. Consumers have seen with their own eyes the direct effect rising prices have had on everyday living, not just the price of petrol at the pump, but the impact of transportation costs on food prices and other goods, not to mention surcharges on air fares.
While oil-consuming countries start getting used to the new realities of a petroleum-constrained world, those countries fortunate enough to be sitting on reserves of oil are enjoying a new level of wealth even they could not have imagined.
The Middle East is, of course, a prime beneficiary of the current boom with Saudi Arabia being the world’s largest oil producer. It is estimated that Saudi Arabia is making $1 billion (Dh3.67 billion) a day in oil revenues and by 2030 will have amassed $16.6 trillion. Oil income for the United Arab Emirates is expected to reach $4.6 trillion over the same period and for Kuwait this figure is $4.5 trn In total, by 2030 all three countries will command $25.7 trillion in revenues with oil priced at $150 a barrel.
This kind of wealth is enabling GCC countries in particular to transform their economies, develop previously unimagined real estate projects and establish new industries at a pace never before seen. Qatar, for example, has used its gas riches to transform a venerable economy into a powerful force and created an important energy hub in the last ten years.
Like its neighbours, Qatar is looking beyond its current energy-based economy and is investing at home and overseas in such a way as to create a zero oil-dependent economy by 2020. Energy income accounts for two-thirds of Qatar’s revenues at present but last year it set a goal of developing an 80 per cent non-energy economy by 2015.
Soaring crude prices have created mammoth budget surpluses for GCC countries and enabled them to bolster their Sovereign Wealth Funds (SWF) to give them access to stable income in the long term. At the same time most member countries have been able to reduce debt and rebuild foreign currency reserves a further hedge against a time when natural resources have peaked. Although no official figures exist, Gulf banking experts have put the combined assets of three SWFs in the GCC at more than $1.15 trillion, compared with less than $200 billion in 2000.
Unlike the oil boom of the 1970s, GCC countries are investing heavily in their own economies, industries and infrastructure, as well as overseas. This is creating diversification on two levels and will enable the region to thrive on the back of established, strong industries long after the petroleum windfall has past. Gulf countries are creating world-leading companies outside of the energy sector, like Emirates Airlines, the Jumeirah luxury hotel group and Emaar real estate and construction.
At home, the need to invest in job creating industries is paramount given the need to create jobs for a young population of 35 million people, 25 million of whom are in Saudi Arabia and two-thirds of whom are under 30. The expectation of thee populations in terms of living standards will lead to ever-increasing demand for both power and water, and yet more investment in these industries.
The new found wealth is giving countries in the region a stronger position in the global economy and new confidence on the world stage. International banks have found Gulf-based finance houses willing to help recapitalise their books following the credit crunch and Arab investors are playing the role of responsible good corporate citizens. The region looks set to be a land of business opportunities both within and beyond the energy sector for some time to come.
Meanwhile, oil is nudging the $140 a barrel market and it could be higher still by the time you read this. This is good news for the oil ministers and a comforting thought as I fill my car with another tank full of petrol.