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With oil cheap, Arab states cannot balance their books
- quickthrowman 6y agoPaywall bypass: http://archive.vn/MJKQ1 http://archive.vn/MJKQ1
- wiremine 6y agoPrevious conversation about this topic here: https://news.ycombinator.com/item?id=23869858 https://news.ycombinator.com/item?id=23869858
- opportune 6y agoIt’s hard to feel bad for them but there are a lot of outcomes here which result in a lot of people dying. Pretty sure half the reason SA and friends promote violent, reactionary interpretations of Islam is to serve as a dead man’s switch in case of regime change.
- frankbreetz 6y agoIt is easy to feel bad for the citizens who don't really get a say in the matter and live under a repressive regime.
- pydry 6y agoOil is basically what made the middle east a violent and reactionary place. Natural resources dominating the economy drives conflict and economic clusterfucks in all but the richest, most stable democracies (i.e. everywhere except Norway). Oil's decline in importance might be the only way to escape this cycle (even if it will probably lead to bloodshed first).
- Pokepokalypse 6y agoOil would only have been a thing maybe after 1890's or so. It's been violent and reactionary for centuries. The natural resource that drove the Romans and Greeks, and later Europe to colonize that region was: trade routes. Frankly; Turkey, Persia, and Egypt have also been at each other's throats over regional dominance for centuries.
- BurningFrog 6y agoPretty much the whole world was violent and reactionary before 1890.
- tomjen3 6y agoEgypt fought the Europeans. Egypt fought the Romans. Egypt fought the Asyrian Empire. The middle-east has been a powerhouse since before Europe was a thing. They have been fighting each other for tens of millenniums. I don't think oil was that big a factor before WWI though. You have to remember that until cars come along the entire industrial revolution is powered by coal and the UK had plenty of coal. Oil only becomes important after the first world war -- at the same time the Ottoman Empire that had ruled most of the middle-east is broken up, so you have a bunch of new countries with new civil infrastructure getting massively wealthy from a seemingly endless gift from the group - and all of those countries are ruled by tribal people and strongmen, if only because they were set up that way by the British and French.
- minikites 6y ago>Oil is basically what made the middle east a violent and reactionary place. Colonialism did that, the oil was just a motivating factor.
- cs02rm0 6y agoPretty sure half the reason SA and friends promote violent, reactionary interpretations of Islam... Is that a common abbreviation for Saudi? We used to use KSA when I lived there, but I don't trust South Africans not to be violent either. ;)
- hnarn 6y agoSA is actually the ISO-3166 abbreviation for Saudi Arabia, South Africa is "ZA". Perhaps not the widely used abbreviation for South Africa, but using "SA" for Saudi Arabia probably isn't incorrect.
- staycoolboy 6y agoI spent a month in Antibes (next to Cannes) visiting new in-laws. The French Riviera is a playground for the hundreds (thousands?) of saudi princes. I've never seen so many mega yachts, Rolls Royces, and Lambos in one place. To be honest, it was (briefly) kinda cool to see ultra-wealth on display, despite the consequences to millions of poor who suffer for it.
- LukeEF 6y agoThe shallow pro market idealism that too often colors the Economist's analysis is hard to swallow. Give me the confidence to pronounce: 'If Arab rulers want citizens to pay their way, they will need to start earning their consent' in a complex and unstable region. As thou they can see the consequences of complex change. The ghosts of the dead in Libya, Syria and Egypt (remember that brief flame of democracy) should be a constant presence in the author's mind.
- supernova87a 6y agoEh, what do expect from the Economist? They write as if they just read something about the topic and now after 2 paragraphs came to the conclusion on how the world should be updated. That's their style.
- deleted 6y ago[deleted]
- colincooke 6y agoNot exactly sure your critique (maybe I'm misunderstanding?). The gist I get from the article is that many Arab states have dependend on oil to stablize their economies/internal politics and fund their way of life, and that while some of these states had plans to diversify the current cheap oil makes the execution of that plan more complicated. In addition (something I learned from this article) the economies in the region are connected in ways which may make possibile instability amplified due to migrant workers/tourism. The quote you picked out might not be a great take, but I think it's referring to the potential large (and growing) gap between the ruling class and normal citizens which could seed dissent.
- LukeEF 6y agoThe critique is that the Economist has a single solution to all complex problems and is confident to wave that wand even thou the reality - in most such transitions - is enormous, disastrous instability and war. It utterly ignores the hand of empire in the affairs of the petro states and their repeated failed interventions to prop up the leaders that fake democratic reform while chopping up journalists. It is analysis governed by imagination and thus is hardly worth detailed consideration.
- supernova87a 6y agoI mean, this happened just a few years ago back in 2015, right? And 2008, and 2001, and 1998... These petro states suffer from the curse of natural resources combined with leadership that is too busy feasting off of the intermittent boom cycle to prepare their people constructively for the bust that comes later. So you have entire countries that are basically dependent on the oil handout, and in bad times, have little industry to fall back on and wait for the next rise (or foment civil unrest). Some of the leaders do know that they can't live on oil forever, so you see some sovereign wealth funds investing in things that their people can learn and use to build their society more resiliently. But in general the improvements are not very deep -- the money comes too easily and people get used to state intervention and not having to work. It's a problem.
- nickfromseattle 6y ago>Some of the leaders do know that they can't live on oil forever, so you see some sovereign wealth funds investing in things that their people can learn and use to build their society more resiliently Do the Saudi's have the experience and culture to make this work? $90B invested in Softbank Vision Fund. [0] [0] https://www.businessinsider.com/saudi-arabia-45-billion-with-softbank-2018-10 https://www.businessinsider.com/saudi-arabia-45-billion-with...
- supernova87a 6y agoIs that investment just finding a place to park money? Or does it do something good for the every day Saudi citizen? I don't follow the issue closely enough to know.
- rhizome 6y agoFollowing the list of Softbank "successes" seems like a decent proxy.
- andi999 6y agoA long time ago on an island far away... called Nauru, they tried to invest their wealth from their natural riches (phospor fertilizer). It didnt work out, if I remember correctly.
- djsumdog 6y agoI feel like this might go the other direction once the lockdowns end and once people realize a huge chunk of their "green" energy labeled as biomass is actually just burning down trees. Even if you use the fast growing forests used for paper in places like Oregon, there is still petroleum used in planting, cutting and fertilizing biofuel forests. In many ways, it's even worse for the environment than just burning the oil directly. Baring some massive breakthrough in fusion, society as a whole needs to consume less energy, purchase less stuff and make durable goods that last a lot longer (a cellphone should last 8 years, not 3). Mass consumption is going to kill our environment a lot faster than energy consumption or CO2 emissions. CO2 pales in comparison to the ecological devastation in Chinese factory cities, the large amount of plastic particulates/trash in our oceans and completely unsustainable economic doctrine of infinite growth.
- supernova87a 6y agoThe end of your comment makes some sense. The beginning is a puzzle. Who's using biomass? It's <1.5% of energy generation in the US -- you're pretty special and living in an unusual place if you get any substantial energy from that source.
- afandian 6y agoUp to 5% of car fuel in the UK https://en.wikipedia.org/wiki/Renewable_Transport_Fuel_Obligation https://en.wikipedia.org/wiki/Renewable_Transport_Fuel_Oblig...
- jeffreyrogers 6y agoBiomass is over 40% of Europe's "renewable" energy. Edit: see this for numbers: https://www.vox.com/science-and-health/2019/3/4/18216045/renewable-energy-wood-pellets-biomass https://www.vox.com/science-and-health/2019/3/4/18216045/ren...
- irrational 6y agoSo, yes, "you're pretty special and living in an unusual place"
- 082349872349872 6y agoOn sorts of pain that have resulted: in 1985, Fahd opened the taps just when Gorbi was trying to reform the soviet economy. Successful reform was presumably made more difficult when one's principal export declines to a third (not helped by concurrent USD weakness) in real value. https://en.wikipedia.org/wiki/1980s_oil_glut https://en.wikipedia.org/wiki/1980s_oil_glut
- tijuco2 6y agoI had a roommate from Saudi Arabia who said that their king have realized that a while ago and because they have basically infinite money, he started to develop small cities that have touristic potential, and people are being taught English too. In his words, they want to change this oil stereotype about their country, and that in ten years their country will be transformed.
- yardie 6y agoOne of those English speaking cities is Neom [0]. I think they want to build it into a tech/tourist planned city. The Mediterranean and South East Asia is littered with these futuristic planned cities. I was anchored off the coast of Malta near this KSA financed "Smart City" [1] [0] https://www.businessinsider.com/neom-what-we-know-saudi-arabia-500bn-mega-city-2019-9?op=1 https://www.businessinsider.com/neom-what-we-know-saudi-arab... [1] http://smartcitymalta.com.mt http://smartcitymalta.com.mt
- Apocryphon 6y agoUnfortunately, tourism is the one major industry that is a non-starter right now.
- tazjin 6y agoThese plans are more long-term than the next handful of months, so I don't think that's a consideration.
- Apocryphon 6y agoA city should last for centuries, at least, but it's hard to say if international tourism (as we know it) will recover within the next handful of months.
- hnarn 6y agoI question how realistic it is for Saudi Arabia to turn into anything like the "tech hub" or "international finance center" or whatever of the area while simultaneously being an Islamist, conservative theocracy that is in many ways still judicially medieval. Even if they pull it off, many people will think twice about coming there. Corruption, bigotry and a close-minded view of the world needs to go first. Look at a country like Singapore: does anyone believe that they would be where they are today if they were an authoritarian regime that executed homosexuals and ordered the murder and dismemberment of dissidents abroad?
- Pokepokalypse 6y agothen. . . why did the Arab states (Saudi Arabia) join with Russia to overproduce and sandbag prices?
- cmrdporcupine 6y agoTo bankrupt and slow down other oil producing countries that have even higher costs. As an example, take a look at Alberta, Canada, with its giant oil sands projects -- on the world's largest deposit of crude oil on the planet -- basically unprofitable now.
- duxup 6y agoI think that is true to an extent, as far as international politics goes. Saudi Arabia is happy to make that move to target say Iran, etc. But things like oil sands and etc won't go away. It's accessible and the boom and bust nature of oil is just part of the system. They don't really stop oil sands.. just pause them. Someone goes bankrupt today, someone else will sell that oil when the price goes back up. And if the price never goes back up then even Saudi Arabia is in trouble...
- cmrdporcupine 6y agoWhat if you believe or know that the environmental regulatory environment for fossil fuel extraction is bound to change, or has to change? Say, due to climate change? Wouldn't you want to at least temporarily stop your competitors from profiting from the last couple decades of massive unregulated oil sales, and at the same time try to dump as much of your product as you could?
- duxup 6y agoI'm not sure Saudi Arabia is willing to sit on theses low prices for decades. Reg pressure on oil could hurt them too... Generally speaking the oil available now will be in the future if prices rise again. The technology to access oil has made it easier to get to, not harder.
- staycoolboy 6y agoThe Crown Prince of Saudi Arabia and SoftBank have invested in the largest solar project in history. MBS is no dummy. https://www.cnbc.com/2018/03/27/softbank-and-saudi-arabia-announce-new-solar-power-generation-project.html https://www.cnbc.com/2018/03/27/softbank-and-saudi-arabia-an...
- yumraj 6y agoOne of the things I've always wondered about when Arab countries run out of oil, and now with cheap oil, will it, at a macro level, result in lower Islamic terrorism or higher? Argument for Lower : State sponsors, and rich individual sponsors will have fewer funds. There may be local revolutions resulting in more democratic governments. Higher: There will be instability due to rising poverty with many people turning to radicalization and in many cases terrorism becoming the only way for poor people to support their families.
- hnarn 6y agoIt all comes down to how you ask the question. If you ask the question like this instead, the outcome is in my opinion slightly less up for interpretation: Q: "What happens when a badly governed country, already ripe with corruption and tendencies of sectarianism and local warlords, loses its only real source of income and the economy collapses?" > There may be local revolutions resulting in more democratic governments. If we are to entertain this hypothesis, why has this not happened already in the general area? There have been plenty of chances, not only in the Middle East but also in war-torn countries in Africa. The answer in my mind is that armed forces are already concentrated in the hands of the corrupt, and in an environment where surplus is a generation away, power will corrupt the uncorrupted. When state power collapses, the economy grinds to a halt and the most basic necessities of life can no longer be counted on, in a country that also already has armed para-military groups and tendencies toward sectarianism and warlord leadership, the outcome is predictable: it's civil war, and untold suffering.
- slim 6y agoterrorism is cheap
- apta 6y agoWith all due respect, but this is overly simplistic thinking. You're implying that people in that region are somehow more predisposed to "terrorism" compared to people in other regions, and that due to instability, they will somehow turn to "terrorism" as the defacto way to support their families, putting aside their morals and ethics that prevent them from engaging in those actions to begin with. We've already seen what happened in the US at the slightest hint of instability (all the looting that took place in the past weeks, and in a bizarre manner, some by seemingly well off people as well). Secondly, it's known that funding also comes from non-Arab countries, who have vested interest to see that region continue to be unstable, to further their own benefits.
- chiefalchemist 6y agoThis is an unintended consequence (?) of the US' increase in fracking, starting circa 2005 or so. With oil being so ubiquitous within the (ailing) economy, cheap fuel was a proxy for lowing interest rates; which were already rock bottom. The benefit then was it hurt Russia, Venezuela, and Iran. The pamademic has taken it a step further. I guess the question is: can the USA bail out SA and associates? Does the US have the political will and the capital to do so? If not, then what? p.s. Keep in mind the first foreign country the current POTUS visited was SA. It seemed like an odd choice. Maybe not?
- tomcooks 6y ago"My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel" Rashid bin Saeed Al Maktoum, Emir of Dubai
- samstave 6y agoI recall that quote. Sadly, while prescient that quote is - he still is (has?) done nothing to mitigate its reality?
- mancerayder 6y agoDubai, as far as I've heard, has no oil left. It's tourism, finance and other industries unrelated. So in that sense haven't they?
- jdhawk 6y agoand shipping, so much shipping
- prepend 6y agoSeems like Dubai has 4 billion barrels of reserves [0]. Not as much as they once did and much less than Abu Dhabi. But still quite a few years worth of oil left. [0] https://en.wikipedia.org/wiki/Oil_reserves_in_the_United_Arab_Emirates https://en.wikipedia.org/wiki/Oil_reserves_in_the_United_Ara...
- ArkVark 6y agoFor the UAE overall crude oil makes up 28% of exports: https://en.wikipedia.org/wiki/Economy_of_the_United_Arab_Emirates#/media/File:United_Arab_Emirates_Exports_Treemap_2017.svg https://en.wikipedia.org/wiki/Economy_of_the_United_Arab_Emi... and Refined petroleum 15% If you want to see an Arab country that has run out of oil, look at Yemen.
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- adamc 6y agoRegistration wall. Ugh.
- deleted 6y ago[deleted]
- irrational 6y agoIt seems like the Middle East is going to get a double whammy from climate change. 1. Their economies will be affected as the world moves to non-oil based energy. 2. Their land will become more uninhabitable as time goes on. Higher temperatures, less water, more sandstorms, etc. I've seen studies that say the Middle East will be completely uninhabitable by the end of the century so we should expect mass migration from there to other places. They will need money to combat number 2, but they will have less of that because of number 1.
- diminish 6y ago3. During the cold war most middle-east countries sided with the USA. They were perceived as the allies. Now it's becoming increasingly harder for those countries to enjoy western support.
- grayfaced 6y ago80% of Dubai's food is imported, so can you label it already uninhabitable? Habitable is just a matter of how many resources you're willing to pump into making it so. With the holy sites in the middle east, it will remain populated for long to come. You're right though, we'll see unprecedented mass migration. What's worse is the middle east has some of the highest birth rates in the world. With that excess population and constrained resources it is inevitable there will be continued conflict.
- irrational 6y agoHoly sites like Mecca only have tons of pilgrims during the Hajj. The rest of the year there could be a small maintenance population living on site.
- motohagiography 6y agoWorth appreciating the economic dynamic the article is based on: https://en.wikipedia.org/wiki/Resource_curse https://en.wikipedia.org/wiki/Resource_curse Basic issue is that when a government can fund itself using resource extraction, it does not need the consent of a nation of people who would otherwise make up a tax base, so they pay the army and police out of oil money to keep them in power, and the average citizen is reduced to a subject. Trouble is, if all you need for power is control of the resources, it's not like you need to spend on winning hearts and minds when you can seize the resources with a relatively small rebel group. Given the high stakes of oil/resource billions and the very low bar to entry for cheap rebellions to seize them, these incentives are a recipe for the political shit shows we tend to associate with some resource cursed economies. The predictable effect of oil price collapse is that leaders can no longer guarantee those payouts to the people who keep them in power, and as a result, those people will replace them with someone who can keep paying them. This is described in the DeMesquita-based idea of the "Rules for Rulers" video (https://youtu.be/rStL7niR7gs https://youtu.be/rStL7niR7gs), which is related to the article's closing line about leaders getting their peoples consent. The "Arab World," is a diverse place with a variety of multilateral interests so there are more dimensions to the outcomes than this, but the most obvious risk is that China will prop up whoever they can control in exchange for oil, and the mid-east will become the field for an China/US proxy war. The next risk is that unfortunately, if Arab leaders are reduced to winning hearts and minds to stay in power, they may do it with appeals to religious radicalism instead of democracy, which will bring about another era of state sponsored terrorism, that again, invites war. Nice that we're using less oil which is good for the planet, but there is the small matter in the interim of what is good for humanity. The people who lose in these conflicts are never the participants, but the ones caught between them. These people will form new waves of refugees from the conflicts that can bring additional instability. The precise knock-on effects of an oil price collapse can't be predicted, but you can anticipate the change in downstream volatility, and find a way to become indispensable in volatile times.
- bluGill 6y agoIt is a lot easier to win the hearts of the people when you don't have to tax them to give them whatever will interest them.
- neonate 6y agohttps://archive.is/MJKQ1 https://archive.is/MJKQ1
- lizknope 6y agoI'm not going to defend Dubai but regarding oil being dominant to the economy. https://en.wikipedia.org/wiki/Economy_of_Dubai https://en.wikipedia.org/wiki/Economy_of_Dubai Oil production, which once accounted for 50 percent of Dubai's gross domestic product, contributes less than 1 percent to GDP today.
- diminish 6y agoSo is investing in construction the solution for all petro countries?
- BurningFrog 6y agoA lot of the evil in this world comes from nasty regimes that own oil fields. Half the middle east, Russia, Venezuela. I'll give Canada a pass. If that unearned funding source dies out, I think it can only be good for human freedom and, at least longer term, peace.
- alextheparrot 6y ago> The region’s energy exporters are expected to earn about half as much oil revenue this year as they did in 2019 I could only read to this point due to the paywall, but US sanctions halved Iranian oil exports from 2017 -> 2019 [0] as well. Goes to show the significance of the sanctions. [0] https://www.bbc.com/news/world-middle-east-48119109 https://www.bbc.com/news/world-middle-east-48119109
- dghughes 6y agoI thought this article was about the new UAE nuclear reactor. If anything I figured solar would be smarter for a hot sunny region. But dust, heat, and fragile panels (target for attack) may not be a good idea. At least the UAE started construction when oil prices were high. I can't imagine a Gulf state starting a reactor program now with oil prices so low. https://www.aljazeera.com/ajimpact/nuclear-gulf-experts-sound-alarm-uae-nuclear-reactors-200628194524692.html https://www.aljazeera.com/ajimpact/nuclear-gulf-experts-soun... https://en.wikipedia.org/wiki/Barakah_nuclear_power_plant https://en.wikipedia.org/wiki/Barakah_nuclear_power_plant
- manfredo 6y agoNuclear reactors are also have the added capability of driving desalination plants with the waste heat.
- cameldrv 6y agoIncidentally, this situation ended up being the nail in the coffin for the Soviet Union. The Soviets had been forced to import a lot of grain in the eighties and they were paying for it with oil exports, since that was really the only export that the west was interested in buying from the Soviets. When oil crashed in the mid eighties, the Soviets were forced to look for hard currency loans from the west to keep up food imports. These loans were then tacitly conditioned on the Soviets behaving themselves in Eastern Europe. When the Solidarity protests started up in Poland and the Monday demonstrations started in East Germany, the normal Soviet response (as in 1956 and 1968) to roll tanks was not an option, because it would have meant no more loans, no more grain, and the starvation of the Soviet population.
- sushshshsh 6y agoWho was making the loans to the Soviets specifically? For all the hard rhetoric of the 80s, it's quite interesting that the West was willing to prop up a (Communist!!!) entity for a fee.
- cameldrv 6y agoThis is a good summary: https://apps.dtic.mil/dtic/tr/fulltext/u2/a254728.pdf https://apps.dtic.mil/dtic/tr/fulltext/u2/a254728.pdf "In retrospect, it is possible to see that bank confidence had begun to erode as early as the latter part of 1988. In the fall of that year, new patterns of bank lending to the Soviet Union appeared. Previously, it was typical for banks from many nations to participate in syndications for loans to the Soviet Union. Beginning in October 1988, though, a number of very large loans were negotiated with purely national syndications-that is, all participating banks were from a single Western country. Western governments played important roles in arranging these syndications, and usually the loans were to finance exports from the lending country. At the time, a number of Western governments were intent on providing material support for the processes of economic and political reform perceived to be under way in the Soviet Union. By intervening with banks on behalf of the Soviet Union-either directly through loan guarantees or through less formal encouragement of bank lending-these governments probably helped the Soviet Union to achieve better terms from the banks than it could have gotten on its own. By mid-1990, bank confidence had declined sufficiently that banks would lend to the Soviet Union only with explicit guarantees from Western governments." To answer your question though, I believe it was primarily Western European countries providing or guaranteeing the funds by 1989. At the time, Gorbachev was seen as a reformer, and the West was willing to grant him some rope in the form of hard currency loans, but that would have evaporated if he had pulled a Prague in Warsaw or East Berlin.
- darth_avocado 6y agoI mean, how is this different from any other industry in the world? If you have a set of exports, if someone out competes you and lowers the prices, you suffer. That is why you diversify and build other economies. These petro states made a ton of money, most of the times squeezing desperate countries and selling them oil at above market rates. Should've saved for a rainy day, because sooner or later, other countries are going to figure a way out to cut you off.
- deleted 6y ago[deleted]
- LockAndLol 6y agoSome of these countries has so much time to prepare for the future, while others were busy being railed by theocracies propped up by foreign influences in order to keep exploiting them for their oil. The later are being dropped like hot potatoes by their foreign influences and the former have taken action way, way, waaay too late.