The Gulf’s Castles of Sand | Foreign Policy

The Gulf’s Castles of Sand | Foreign Policy:



"Jeddah’s glittering kilometer-high Kingdom Tower, set for completion in 2018, looms over a Saudi Arabia just beginning to confront the challenge of lower oil prices. The construction of ultra-tall buildings, however, has famously heralded economic crashes in the past: Just five years ago, Dubai’s $1.5 billion Burj Khalifa, the world’s current tallest tower, opened amid the emirate’s financial crisis, part of the worldwide meltdown of property, commodity, and stock prices. 




Now Saudi Arabia and its seven Persian Gulf neighbors are hoping history doesn’t repeat itself. Oil prices, above $100 per barrel as recently as June 2014, have plummeted to less than $50 per barrel.



The price drop was a result of rampant U.S. shale oil growth colliding with tepid demand, which was exacerbated this August by the Chinese currency devaluation and stock market crash. With no OPEC consensus on production cuts, Saudi Arabia and its Gulf allies have stumbled into their only strategy — to increase output and try to smoke out their high-cost competitors. Prices may well creep upwards during 2015 and 2016 as shale output declines, but this is counterweighed by slowing Chinese economic growth and its shift to a less energy-intensive track."



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