How oil has shaped the geopolitics of the Middle East

Elephant Rock, Ola, Saudi Arabia

Ahmad Abdul-Rahman writes about the implications of the post-golden age of petroleum on the geopolitics of the Middle East.

The huge oil revenues of the Arab oil-exporting countries, especially the Gulf States, played an important role in shaping the structure of societies in these countries, the political geography of the Middle East and the world in general. These countries became super rich and were able to buy the satisfaction of their people through largesse and extreme extravagance.

These countries too have been able to very influential at the external level since they have spent considerable resources on promoting their policies, both in peace and war, in poor countries and regions. Oil revenues have been used as financial and economic tools for political, security, and cultural purposes in the countries and territories that receive aid. The oil-exporting countries gained an important and influential position in Arab, regional, and international politics in the face of traditional Arab capitals such as Cairo, Damascus, Baghdad, and Beirut. Nevertheless, the golden age of petroleum is fading, severely affecting the structure of oil-exporting societies and their positions in international politics.

A sharp decline in oil revenues

The total revenues of the Middle East oil-exporting countries in 2012 amounted to USD 1,000 billion. These revenues fell by about half in the following three years, reaching USD 575 billion in 2017. Oil revenues continued to decline in 2020 to reach only USD 300 billion, according to The Economist.

Russia Today also published statements issued by the Russian Energy Ministry indicating that the share of oil and gas in the global energy mix will drop to less than 50% by 2040. A report issued in July 2020 by Ember (a non-profit organisation focused on climate change) mentioned that 27 EU countries were able to produce 40% of their electricity needs from alternative energy such as wind and solar energy. The decline in oil revenues is due to many reasons, the most important of which is the development of environmentally friendly renewable energy sources (such as wind, sun, and sea) to confront pollution and climate change.

Inflated spending levels and a sharp decline in revenues

The oil-exporting countries have relied on, in determining the size of the budget and in monitoring allocations for development and service programmes, the value of expected revenues from the sale of oil. For these countries, petroleum revenues have become the most important source of financing for general operating and development expenditures. The expenditure of these countries far exceeds revenue, anticipating that oil supply would continue for decades. The price of a barrel of oil in recent years has decreased to less than USD 50 a barrel, after reaching USD 100 earlier.

The decline in oil and gas revenues in the last decade has left a chronic deficit in the budgets of these countries. Hence, some of these countries have resorted to borrowing and selling assets, and public companies, as a quick way to finance the deficit. However, the decline in the price of a barrel of oil has been much faster than the ability of some countries to reduce their spending, apply austerity policies, and to diversify sources of revenue. Some have been successful, and some have not.

Decline in intervention and influence at the regional and international level

The decline in oil revenues will reduce the ability of oil-exporting countries to fulfill the consumption patterns of their people. In the face of declining oil revenues, some countries have adopted new policies, including imposing taxes on consumption and luxury goods, and implementing austerity policies. However, these measures may have repercussions on the political stability of these countries. Too often the general population do not equate democracy with prosperity. Moreover, these countries will not be able to continue to provide sufficient resources to promote their humanitarian, political, and security policies in other countries and regions, as was the case in the past. Some of the Arab Gulf states, which began to adopt austerity policies, diversify sources of revenue, and localize industries locally, have done well. But the era of the oil boom is fading, so it is necessary to formulate strategic and serious plans to face the repercussions of this.

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Thursday, 17 June 2021