Tag Archives: Persian Gulf

The End of the Mindless Self-Indulgence: the Gulf States

Algeria needs the price of Brent crude, an international benchmark for oil, to rise to $157 dollars a barrel. Oman needs it to hit $87. No Arab oil producer, save tiny Qatar, can balance its books at the current price, around $40 (summer 2020)….The world’s economies are moving away from fossil fuels. Oversupply and the increasing competitiveness of cleaner energy sources mean that oil may stay cheap for the foreseeable future. 

Arab leaders knew that sky-high oil prices would not last for ever. Four years ago Muhammad bin Salman, the de facto ruler of Saudi Arabia, produced a plan called “Vision 2030” that aimed to wean his economy off oil. Many of his neighbours have their own versions. But “2030 has become 2020…” 

Still, some see an upside to the upheaval in oil-producing states. The countries of the Gulf produce the world’s cheapest oil, so they stand to gain market share if prices remain low. As expats flee, locals could take their jobs…

Remittances from energy-rich states are a lifeline for the entire region. More than 2.5m Egyptians, equal to almost 3% of that country’s population, work in Arab countries that export a lot of oil. Numbers are larger still for other countries: 5% from Lebanon and Jordan, 9% from the Palestinian territories. The money they send back makes up a sizeable chunk of the economies of their homelands. As oil revenue falls, so too will remittances. There will be fewer jobs for foreigners and smaller pay packets for those who do find work. This will upend the social contract in states that have relied on emigration to soak up jobless citizens….With fewer opportunities in the oil-producing states, many graduates may no longer emigrate. But their home countries cannot provide a good life. Doctors in Egypt earn as little as 3,000 pounds ($185) a month, a fraction of what they make in Saudi Arabia or Kuwait. A glut of unemployed graduates is a recipe for social unrest…

For four decades America has followed the “Carter Doctrine”, which held that it would use military force to maintain the free flow of oil through the Persian Gulf. Under President Donald Trump, though, the doctrine has started to fray. When Iranian-made cruise missiles and drones slammed into Saudi oil facilities in September 2019, America barely blinked. The Patriot missile-defence batteries it deployed to the kingdom weeks later have already been withdrawn. Outside the Gulf Mr Trump has been even less engaged, all but ignoring the chaos in Libya, where Russia, Turkey and the UAE (to name but a few) are vying for control.

A Middle East less central to the world’s energy supplies will be a Middle East less important to America. ..As Arab states become poorer, the nature of their relationship with China may change. This is already happening in Iran, where American sanctions have choked off oil revenue. Officials are discussing a long-term investment deal that could see Chinese firms develop everything from ports to telecoms… Falling oil revenue could force this model on Arab states—and perhaps complicate what remains of their relations with America.

Excerpts from The Arab World: Twilight of the Petrostates, Economist, July  18, 2020

Skip Pakistan: new way into Afghanistan

A port being developed in the southern Iranian city of Chabahar underscores some of the dilemmas U.S. policy makers face in implementing sanctions against Tehran.  Strategically located on the Gulf of Oman and named for an Iranian revolutionary war hero, the Shahid Beheshti Port is exactly the sort of Iranian economic development the Trump administration wants to stop with sanctions that kick in on Nov. 5, 2018…

Once completed, the port—a small part of which started initial operations in December—could help Iran by strengthening economic ties with South and Central Asia, providing an export point for its oil beyond the Persian Gulf and functioning as a strategic military asset.   But it could also be a critical economic lifeline for Afghanistan, where the U.S. has tried for 16 years to strengthen and stabilize the government so thousands of U.S. troops can come home.

The port also could be a big boon to India, an increasingly close partner of the U.S. in Asia. India wants Chabahar port activities exempted from sanctions. Indian companies are mostly equipping and operating the facility. If the port is completed, they are expected to be among the biggest users of the port in order to participate in the reconstruction of Afghanistan—something the Trump administration has asked India to get more involved in—and establish a stronger economic presence in Central Asia.

The Chabahar port has long been seen as a potential way around Pakistan, a sworn enemy of India that believes holding sway over Afghanistan is critical to its own security.  Pakistan has squelched trade between India and Afghanistan across its territory. It wants Afghanistan to eventually transport goods through a competing Pakistani port on the Gulf of Oman that is being developed with China…

“If you stop Chabahar, you make Afghanistan permanently dependent on Pakistan,” said Barnett Rubin, a New York University expert on South Asia who has advised Western governments on policy in Afghanistan and the surrounding region.

Exceprts from Iranian Port Project Poses a Dilemma for U.S., WSJ, Oct. 29, 2018