
With oil cheap, Arab states cannot balance their books - lowmemcpu
https://www.economist.com/leaders/2020/07/18/with-oil-cheap-arab-states-cannot-balance-their-books
======
wiremine
Previous conversation about this topic here:

[https://news.ycombinator.com/item?id=23869858](https://news.ycombinator.com/item?id=23869858)

------
supernova87a
I 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.

~~~
pydry
It's not strictly a "wrong leaders" problem. It's much more systemic than
that. Elect a good leader and the oil will provide the impetus to tear that
leader down.

Industry also won't form because of Dutch disease. Who wants to build a
factory in Saudi Arabia even if it weren't unstable? Everything just costs too
much because of the oil - land, materials, labor.

Sovereign wealth funds also don't really solve the problem because 1) they
attract corruption like flies on shit and 2) they're vulnerable to
confiscation from foreign governments if they decide they don't like your face
(e.g. Venezuelan gold in London).

I suspect it could be that there is no simple solution to this. Potentially
you are just fucked if you're a poor unstable country with oil and theres
nothing you can really do about it. No leader will save you and no policy will
help.

~~~
Svip
Norway kind of proves it is possible to make it work without the corruption.
But Norway also proves that you need to lay the groundwork for that, before
you lay any actual groundwork. I am not sure if these other oil producing
states could reach a level of stability as Norway.

~~~
dgut
Norway used to be a relatively poor country by Western European standards but
had a functional economy before oil. Homogeneity, a staunchly hard-working and
independent population, being surrounded by lutheran economies, and
"bondevett", is why Norway turned out well.

~~~
qwytw
That's not really true, Norway was one of the richest countries in the world
long before the oil boom. In Europe it was only behind Luxembourg, Switzerland
and Sweden by GDP per capita in 1960.

~~~
dgut
You're right. I've lived in Norway and was repeatedly told by Norwegians the
country used to be poor, something I believed (there isn't much in Norway that
reminds of a wealthy past). Apparently it's just a myth [1][2].

[1] [https://www.dnva.no/detskjer/2019/11/en-feiloppfatning-
norge...](https://www.dnva.no/detskjer/2019/11/en-feiloppfatning-norge-var-
fattig-rundt-1900)

[2]
[https://www.aftenposten.no/meninger/kronikk/i/LM1L1/Hvorfor-...](https://www.aftenposten.no/meninger/kronikk/i/LM1L1/Hvorfor-
ble-Norge-rikt)

------
tomcooks
"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
I recall that quote.

Sadly, while prescient that quote is - he still is (has?) done nothing to
mitigate its reality?

~~~
mancerayder
Dubai, 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?

~~~
prepend
Seems 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_Ara...](https://en.wikipedia.org/wiki/Oil_reserves_in_the_United_Arab_Emirates)

~~~
ArkVark
For the UAE overall crude oil makes up 28% of exports:

[https://en.wikipedia.org/wiki/Economy_of_the_United_Arab_Emi...](https://en.wikipedia.org/wiki/Economy_of_the_United_Arab_Emirates#/media/File:United_Arab_Emirates_Exports_Treemap_2017.svg)

and Refined petroleum 15%

If you want to see an Arab country that has run out of oil, look at Yemen.

~~~
prepend
My understanding is that Yemen has lots of reserves at 8 billion barrels [0]
but never really produced or imported.

So aren’t they a better example of never oil rather than once had oil?

[0]
[https://en.wikipedia.org/wiki/Economy_of_Yemen](https://en.wikipedia.org/wiki/Economy_of_Yemen)

------
yumraj
One 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.

~~~
apta
With 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.

------
irrational
It 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.

~~~
grayfaced
80% 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
Holy 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.

------
dghughes
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.

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-
soun...](https://www.aljazeera.com/ajimpact/nuclear-gulf-experts-sound-alarm-
uae-nuclear-reactors-200628194524692.html)

[https://en.wikipedia.org/wiki/Barakah_nuclear_power_plant](https://en.wikipedia.org/wiki/Barakah_nuclear_power_plant)

~~~
manfredo
Nuclear reactors are also have the added capability of driving desalination
plants with the waste heat.

------
082349872349872
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'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
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.

~~~
hnarn
I 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?

~~~
ksk
I've lived in Singapore, and while it is generally a free society, its only
pseudo democratic, and the government has placed various restrictions on
political activities. Its no where near the level of Saudi Arabia, but there
is a huge difference between traveling to Singapore for work/vacation and
living there.

~~~
hnarn
I am aware Singapore is not a perfect democratic example but this derails the
debate and is beside the point, which is that if Singapore had mirrored the
oppressive nature of Saudi Arabia, it would never have succeeded.

~~~
ksk
I can agree with that. I didn't mean to derail the debate.

------
quickthrowman
Paywall bypass: [http://archive.vn/MJKQ1](http://archive.vn/MJKQ1)

~~~
bartmika
Much appreciated

------
motohagiography
Worth 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
It 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.

------
opportune
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.

~~~
pydry
Oil 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
Oil 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
Pretty much the whole world was violent and reactionary before 1890.

------
chiefalchemist
This 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?

------
darth_avocado
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've saved for a rainy day,
because sooner or later, other countries are going to figure a way out to cut
you off.

------
lizknope
I'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
So is investing in construction the solution for all petro countries?

------
cameldrv
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.

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
Who 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
This 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.

~~~
sushshshsh
Thanks very much :) Sounds kind of similar to the loans made to Yugoslavia,
which were made with lots of formally defined stipulations.

We also have to consider the Yeltsin and Clinton relationship compared to the
Reagan/Bush ones

------
LockAndLol
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.

------
LukeEF
The 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.

~~~
colincooke
Not 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
The 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.

------
neonate
[https://archive.is/MJKQ1](https://archive.is/MJKQ1)

------
staycoolboy
The 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-
an...](https://www.cnbc.com/2018/03/27/softbank-and-saudi-arabia-announce-new-
solar-power-generation-project.html)

------
BurningFrog
A 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.

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

~~~
cmrdporcupine
To 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
I 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
What 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
I'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.

------
alextheparrot
> 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)

------
adamc
Registration wall. Ugh.

------
djsumdog
I 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
The 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.

~~~
jeffreyrogers
Biomass is over 40% of Europe's "renewable" energy.

Edit: see this for numbers: [https://www.vox.com/science-and-
health/2019/3/4/18216045/ren...](https://www.vox.com/science-and-
health/2019/3/4/18216045/renewable-energy-wood-pellets-biomass)

~~~
irrational
So, yes, "you're pretty special and living in an unusual place"

~~~
jeffreyrogers
It's over 10% of renewables in the US. So not that unusual.

~~~
irrational
I was referring to Europe. Right now Europe looks like a paradise compared to
the US.

