Gulf governments are starting to react to concerns that a shale revolution in the US and elsewhere could put a dent in state revenues by lowering exports of their most precious natural resource
At an OPEC conference in Vienna in December, the oil minister of the United Arab Emirates was outspoken — unusually so for a top Gulf Arab official — about the threat to the cartel from rising US oil and gas production.
The US shale energy revolution is a “big issue”, Mohammed Bin Dhaen Al Hamli told the meeting of the Organisation of Petroleum Exporting Countries. OPEC, he said, should protect itself by making its oil more attractive to the world’s consumers.
OPEC decided in Vienna not to change its output policy, and since then most Gulf officials in public have stayed sanguine about the prospect of new technologies unlocking hundreds of billions of barrels of oil in the United States and elsewhere.
But Al Hamli’s remarks revealed growing concern about shale among Gulf policymakers and businessmen, which may eventually lead to a shift in economic strategy in the region.
Gulf Arab countries have ridden out the last few years of political and economic turbulence by using petrodollars to pay for large, continuous increases in state spending on social welfare and infrastructure projects.
The rise of shale energy, which could in the long term pull down oil prices and slow growth in demand for supplies from the Gulf, suggests the day is approaching when the region will no longer be able to afford that strategy.
Governments will therefore face growing pressure to create jobs in other sectors and stimulate non-oil parts of their economies. Efforts to move citizens into the private sector, and develop new industries to accommodate them, are likely to accelerate.
Business cooperation between Gulf Arab countries, in areas from financial markets to building a regional railway, may strengthen. Some economists already detect the beginnings of a policy shift.
Mark McFarland, chief investment strategist for the wealth management business of Emirates NBD, Dubai’s biggest bank, says that visiting Saudi Arabia to meet clients last month, he found the shale threat was causing a “rethink” about economic policy.
Among government officials and businessmen around the Gulf, “there is concern at the micro level: how are we going to replace our primary source of income?” he says.
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