Faced by warlords, bandits, and rapid smallpox spread, one British geologist, George Bernard Reynolds searched for oil in the sands of Persia which is now Iran. After drilling for seven years, he found very little oil. Finally, the financiers decided to quit that excavation process and fold their losses.
But, Reynolds was determined and he kept drilling. On May 26, 2908, he struck a gusher.it was the first big petroleum to be discovered in the Middle East which paved way for many more. Oil soon transformed the region’s economies and enriched families in the process. Also, it attracted foreign influence.
Over 110 years later, another major opportunity is coming up. Countries around the world are shifting to cleaner energy sources. Peak demand for oil may, for now, be years away, but the coronavirus crisis has given North Africa and the Middle East what the future holds. Prices dropped violently when economies around the world went on lockdown.
The Dwindling Oil Revenue
The energy exporters in the region will earn around 50% as much oil revenue in 2020 as they did last year. The IMF is convinced that their economies are bound to shrink by 7.3%. Even when the virus reduces, a lot of over-supply will keep oil prices down. Arab states must then adapt since they are faced with budgets that do not add up.
For instance, Algeria needs the Brent crude price to rise to $157 per barrel. Oman requires it to hit $87. Technically no Arab oil producer except tiny Qatar can balance its books at the current price which is around $40.
Thus, some nations are taking drastic measures. The Algerian government in May said that it would cut spending by 50%. In Iraq, the new prime minister wants to take a major slash on government salaries. Oman is struggling to borrow after its credit rating agencies listed it at near-defaulter levels.
That is the story for may oil producers around the world which has resulted in shrinking economies.