Oil prices are rebounding thanks to an extended OPEC+ production cut, a surge in demand as economies recover from the coronavirus pandemic, and the beginning of a supply reaction from a year of both diminished production and inventory draw-downs. This is good news for the oil producers of the Gulf Cooperation Council.
But we should resist the temptation to equate this price spike to surges of the past, particularly the so-called “magic decade” between 2003 and 2014. Even at $70 a barrel, the current prices do not meet fiscal break-even thresholds for most Gulf Arab states. The gap between revenue and fiscal expenditure has been so wide since 2015 that the rebound won’t alter the basic fact that governments need to find new sources of revenue.
It is telling that Saudi Arabia is betting competition from U.S. shale will not reignite. This means they can focus on market share and relationship-building with key Asian customers without fear of resurgent American production. An eco-friendly Biden administration also fits into that calculation.
We are approaching an energy inflection point in the global economy: plentiful oil supply, a demand plateau by 2030 and more competitive renewable-energy options, even as investors and consumers grow more leery of carbon-intensive products. The future of the GCC is still one in which oil revenues fail to meet growth goals of governments, with a knock-on effect on job expectations of citizens.
In other words, if there is an oil boom this year, it may well be the last.
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