With oil cheap, Arab states cannot balance their books

Previous conversation about this topic here:<p><a href="https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=23869858" rel="nofollow">https:&#x2F;&#x2F;news.ycombinator.com&#x2F;item?id=23869858</a>

I mean, this happened just a few years ago back in 2015, right? And 2008, and 2001, and 1998...<p>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).<p>Some of the leaders do know that they can&#x27;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.<p>It&#x27;s a problem.

&quot;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&quot;<p>Rashid bin Saeed Al Maktoum, Emir of Dubai

One of the things I&#x27;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?<p>Argument for Lower : State sponsors, and rich individual sponsors will have fewer funds. There may be local revolutions resulting in more democratic governments.<p>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.

It seems like the Middle East is going to get a double whammy from climate change.<p>1. Their economies will be affected as the world moves to non-oil based energy.<p>2. Their land will become more uninhabitable as time goes on. Higher temperatures, less water, more sandstorms, etc. I&#x27;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.<p>They will need money to combat number 2, but they will have less of that because of number 1.

I 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.<p>At least the UAE started construction when oil prices were high. I can&#x27;t imagine a Gulf state starting a reactor program now with oil prices so low.<p><a href="https:&#x2F;&#x2F;www.aljazeera.com&#x2F;ajimpact&#x2F;nuclear-gulf-experts-sound-alarm-uae-nuclear-reactors-200628194524692.html" rel="nofollow">https:&#x2F;&#x2F;www.aljazeera.com&#x2F;ajimpact&#x2F;nuclear-gulf-experts-soun...</a><p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Barakah_nuclear_power_plant" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Barakah_nuclear_power_plant</a>

On 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&#x27;s principal export declines to a third (not helped by concurrent USD weakness) in real value.<p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;1980s_oil_glut" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;1980s_oil_glut</a>

I 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.

Paywall bypass: <a href="http:&#x2F;&#x2F;archive.vn&#x2F;MJKQ1" rel="nofollow">http:&#x2F;&#x2F;archive.vn&#x2F;MJKQ1</a>

Worth appreciating the economic dynamic the article is based on: <a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Resource_curse" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Resource_curse</a><p>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&#x27;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&#x2F;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.<p>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 &quot;Rules for Rulers&quot; video (<a href="https:&#x2F;&#x2F;youtu.be&#x2F;rStL7niR7gs" rel="nofollow">https:&#x2F;&#x2F;youtu.be&#x2F;rStL7niR7gs</a>), which is related to the article&#x27;s closing line about leaders getting their peoples consent.<p>The &quot;Arab World,&quot; 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&#x2F;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.<p>Nice that we&#x27;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.<p>The precise knock-on effects of an oil price collapse can&#x27;t be predicted, but you can anticipate the change in downstream volatility, and find a way to become indispensable in volatile times.

It’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.

This is an unintended consequence (?) of the US&#x27; 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.<p>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>p.s. Keep in mind the first foreign country the current POTUS visited was SA. It seemed like an odd choice. Maybe not?

I 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&#x27;ve saved for a rainy day, because sooner or later, other countries are going to figure a way out to cut you off.

I&#x27;m not going to defend Dubai but regarding oil being dominant to the economy.<p><a href="https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Economy_of_Dubai" rel="nofollow">https:&#x2F;&#x2F;en.wikipedia.org&#x2F;wiki&#x2F;Economy_of_Dubai</a><p>Oil production, which once accounted for 50 percent of Dubai&#x27;s gross domestic product, contributes less than 1 percent to GDP today.

Incidentally, 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.<p>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.

Some 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.

The shallow pro market idealism that too often colors the Economist&#x27;s analysis is hard to swallow. Give me the confidence to pronounce: &#x27;If Arab rulers want citizens to pay their way, they will need to start earning their consent&#x27; 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&#x27;s mind.

<a href="https:&#x2F;&#x2F;archive.is&#x2F;MJKQ1" rel="nofollow">https:&#x2F;&#x2F;archive.is&#x2F;MJKQ1</a>

The Crown Prince of Saudi Arabia and SoftBank have invested in the largest solar project in history. MBS is no dummy.<p><a href="https:&#x2F;&#x2F;www.cnbc.com&#x2F;2018&#x2F;03&#x2F;27&#x2F;softbank-and-saudi-arabia-announce-new-solar-power-generation-project.html" rel="nofollow">https:&#x2F;&#x2F;www.cnbc.com&#x2F;2018&#x2F;03&#x2F;27&#x2F;softbank-and-saudi-arabia-an...</a>

A lot of the evil in this world comes from nasty regimes that own oil fields. Half the middle east, Russia, Venezuela. I&#x27;ll give Canada a pass.<p>If that unearned funding source dies out, I think it can only be good for human freedom and, at least longer term, peace.

then. . . why did the Arab states (Saudi Arabia) join with Russia to overproduce and sandbag prices?

&gt; The region’s energy exporters are expected to earn about half as much oil revenue this year as they did in 2019<p>I could only read to this point due to the paywall, but US sanctions halved Iranian oil exports from 2017 -&gt; 2019 [0] as well. Goes to show the significance of the sanctions.<p>[0] <a href="https:&#x2F;&#x2F;www.bbc.com&#x2F;news&#x2F;world-middle-east-48119109" rel="nofollow">https:&#x2F;&#x2F;www.bbc.com&#x2F;news&#x2F;world-middle-east-48119109</a>

Registration wall. Ugh.

I feel like this might go the other direction once the lockdowns end and once people realize a huge chunk of their &quot;green&quot; energy labeled as biomass is actually just burning down trees.<p>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&#x27;s even worse for the environment than just burning the oil directly.<p>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&#x2F;trash in our oceans and completely unsustainable economic doctrine of infinite growth.