The Covid-19 pandemic and low oil prices will create both internal and external domino effects on Gulf states, sinking them into economic and political turmoil, Khalil Jahshan, executive director of Arab Center Washington DC said.
In an exclusive interview with Anadolu Agency on Thursday, Jahshan asserted that Gulf countries with oil-based economies need stable and equitable oil prices of between $70 and $75 per barrel to maintain their operations.
According to Jahshan, the internal effects of the crises are seen through huge budgetary pressure resulting in massive deficits, which is forcing these countries to sell government bonds or seek borrowing from international institutions.
"The current oil prices will drive them to cut down on their budgets. Riyadh considers a cutting of about 20%, and some governments are talking about even 40%," he said.
Furthermore, he suggested the local crises would impact local sectors in the Gulf region like tourism; travel and logistic hubs noting "oil is so central and major in terms of the local economy that no sector in these type of societies will be untouched by the crises."
Regarding the presence of a foreign workforce in the region, he claimed they have a high percentage of coronavirus cases of almost 70-75 %, raising the question as to how the pandemic will impact foreign labor in the future and, in turn, the regions’ economies.
"The mass of foreign labor and expats is unique to Gulf countries. If these people have to be sent home, we will see high unemployment, more cutting down on budgets and the freezing of grandiose projects. The Gulf economies will suffer seriously if expats, particularly people in technical jobs, have to go home due to lack of income and jobs," he added.
- Impacts of economic crises on Gulf States' foreign policy
Riyadh and Abu Dhabi, which are heavily involved in the conflicts in Yemen and Libya, have to reassess their policy in the light of the economic crises they are facing, Jahshan said.
He said that Gulf governments annually spend billions of dollars on these wars, which is unsustainable both financially and politically.
"They have to stop totally, as Abu Dhabi will become smaller and more fragile economically and politically. Riyadh is also stuck in Yemen but they have already begun thinking of pulling out step by step from countries they are involved in," he said.
-Mega projects might be delayed or halted
Gulf countries are likely to delay or halt their mega projects that were planned to diversify the economy due to the impact of lower oil export revenues, Kate Dourian, regional manager for the Middle East and the Gulf States at the World Energy Council said.
"If you look at Saudi Arabia's Vision 2030, much depended on the flotation of Saudi Aramco to generate the funds needed for diversification so that low oil price will not have an effect on the economic reform agenda," she said.
She also warned of a spillover effect on other sectors of these economies in the region that will be impacted not only by low oil prices but in behavioral changes resulting from the pandemic.
"The UAE for example had diversified into tourism, hospitality, logistics and aviation. All of these sectors have been hit and are likely to remain weak in the short- to medium-terms as recovery will be slow," she explained.
According to Dourian, asset sales to make up for lost income are no longer a viable option as potential investors are likely to prioritize other sectors of the global economy in a post-pandemic world.
"Investors are likely to be more risk-averse in a tighter fiscal environment so foreign direct investment flows are likely to slow in the near to medium-terms," she said.
If oil prices fall below a breakeven level, it will be difficult for many Gulf States to balance their budgets and they may need to resort to external borrowing to plug their deficits, she said.
By Busranur Begcecanli