The article below was originally published on African Globe, an independent news site focusing on Africa, economics, culture and African created development. For those who study the petroleum markets, the fear of an economic collapse caused by peak oil was a long time coming. The Persian Gulf countries have long been advised to diversify their economies instead of solely relying on petroleum to enjoy its high standard of living, continual economic growth and social development. Despite Saudi Arabia having a reputation as the wealthiest of the Gulf monarchies or Arabian Peninsula and being a generous aid donor around the world, poverty still exists among ordinary Saudis across the country. Poorer Saudis are ignored by the public face of the Saudi monarchary and the Saudi media rarely reports on poverty. Not everyone in The Kingdom has connections to the royal families or are grossily rich, oozing petrodollars. Poverty is not unique to Saudi Arabia. The United Arab Emirates and Qatar also have poor districts and citizens. Again, the poverty is hidden under and behind the glittering skyscrapers, flashy malls, designer purses and bling-bling cars. Petroleum has been a lifeline for the Saudi government and society for over 70 years. Since 1940s. when Roosevelt met with Ibn Saud the head of the al Saud family to offer protection for the royal family, collaborate on the construction and extraction of oil, the Kingdom has been transformed from a peripheral, quiet peninsula into a major regional and world power with the final say on how the world's petro economy will function. Companies such as Saudi Aramaco, Chevron and other gas companies have profited 20 times over from Saudi petroleum. While gas prices are fantastic for car owners in the non OPEC countries, for Saudi Arabia it can lead to financial problems and social choas. Eastern Saudi Arabia has been protesting against the corruption and monarchy's crushing rule since the 2011 revolution that swept through the region. The East is home to a large number of Saudi Shias who also share space with Sunnis. The Shias have rightfully bemoaned marginalization and being repressed by local police and the government. On top of the petrol prices leading to a wider crisis is the Saudi government's continual and shameless support for takfiri and wahhabist groups within The Kingdom and around the world particularly its not so quiet support for ISIS, Al Qaeda and local takfiri affiliates in Yemen, Lebanon and Iraq. At the same time, Saudi is also pushing to regain its regional influence and power in by playing on religious solidarity with its co religious both far and wide. The Saudis may be playing devil's advocate here. The law of Karma has caught up with Saudi Arabia. Once again, the petroleum price drop is nothing new. The older generation can look back at the Oil embargo/petro criss in the 1970s as a casestudy in how politics and economics intersect. Enjoy the read below.
Saudi Arabia or The Kingdom (KSA) position in the world. Long connected to Africa and Asia, the Kingdom shares cultural connections, food and language between both continents. Western media has often seen Saudi Arabia as mysterious and incomprehensible.
Believe It Or Not, Saudi Arabia Could Go BROKE In 5 Years!
AFRICANGLOBE – Cheap oil is great for American consumers and Hummer owners of all nationalities. It’s not so good for some oil-rich countries whose economies live and die by barrels of light, sweet crude. Case in point: Saudi Arabia. The OPEC leader could be out of money in five years if oil stays at or below $50 a barrel, according to a new report from the International Monetary Fund.
As of this writing, the OPEC Basket — an average price per barrel of 12 OPEC producing countries — was less than $40. That’s terrible news for a country that earns a great majority of its income, something like 90 percent, from the export of oil.
Saudi Arabia is the world’s largest oil producer and a major sponsor of terrorism
And the Saudis aren’t alone. The Sultanate of Oman and the Kingdom of Bahrain could see their economies crumble as a result of cheap oil. According to the IMF, the region is set to lose some $360 billion this year alone.
To balance its growing budget, Saudi Arabia needs oil to sell at around $106 per barrel. In one year, the Middle Eastern kingdom saw its budget deficit balloon from less than 2 percent last year — the lowest in the world — to an estimated 20 percent this year. It could go as high as 50 percent by 2020. The country still has $700 billion in cash reserves, but it’s blowing through its stash quickly. Government spending cuts are inevitable.
Bahrain also has about five years of life left at this price, but it’s in even more trouble after years of spending and borrowing. Iran and Iraq are in a little bit better position, and could survive for another decade at $50 a barrel, but destabilization in the region (namely ISIS) is also taking its toll.
The only countries in decent shape in the region are Kuwait, which has a break-even cost of $49 per barrel, and Qatar and the United Arab Emirates, which have both been stashing cash for years. These three countries can survive 25 to 30 years with prices this low.
It’s been a bad year for the Saudis, who started 2015 with the death of Saudi King Abdullah. The huge Saudi royal family owns all of the six oil fields located in their kingdom, and the depressed prices are sure to hit the family’s pocketbooks. At the beginning of the year, the 15,000 members of the Saudi royal family were estimated to be worth a staggering collective $1.4 trillion. That number is sure to drop as the oil depression wears on.
In short: cheap oil could further destabilize a region in the throes of strife and warfare. The Saudis and UAE have been a key exception, with economic growth, political stability, and leadership closely allied with the United States. So this fact is likely a bitter pill to swallow: One reason the price of oil is so low is because of the USA’s own oil-drilling boom, which has cut OPEC imports into the country by half. Hummer drivers rejoice.