COVID 19 has hit us hard, in every respect. Taking our lives and dashing our economy to ground. Concerning the global impact of COVID-19, World Bank had pledged up to 12 billion dollars, including 8 billion dollars to finance countries dealing with COVID outburst. Bloomberg has reported that the Coronavirus could cost the global economy $ 2.7 Trillion that approximately equals the amount that US spent in Afghanistan for 19 long years. The unending lockdown has altogether tilted the scenario of global oil production and the global oil demand has plummeted to as low as 30 percent, or about 30 million barrels per day (bpd), since measures to trim down the spread of the pandemic has caused a collapse in demand for aviation turbine fuel, petrol, and diesel. It has engendered alteration in the world economic leverage and thus the world order is changing. Arab oil reserves are drying out and due to a steep plunge in the world oil prices, the Arab and OPEC hegemony is sinking. The continuous plunge in the oil prices may force countries to keep their oil reserves in the ground without its extraction, and subsequently there is a potential hold back in state income receipts and because of variation in oil production costs in Arab countries; some countries will face greater hardship than others. At present, there is torpor in oil production, where oil rigs will slow down, and persist to flow at a slower pace, but many oil exporters may opt to reduce production notably as international prices continue to drop and oversupply ripples throughout the markets. With very low international oil prices, the effects of the COVID on the Arab world would be more catastrophic economically. The crown Prince bin Salman had comprehended this situation very clearly, back in 2016 when even Covid threat did not exist. Saudi and Emirates, the two large Gulf countries have begun exploring other means of sustaining economy. This is pushing them to deport several thousands of skilled and non skilled employees to their own countries. This would have a disadvantage for countries like India, Pakistan and Bangladesh. Arabs do not have a reserve base of much qualified and professionally competent chunk of men of their own. These are from overseas who are presently drawing handsome salaries. Financial burdens are compelling to introduce heavy income and sales taxes in the Gulf countries. The global oil demand will remain stumpy as the world's slow economic recovery responds to the precipitous drop in aggregate production and consumption. Oil producers have recently been forced to reach an accord to cut their production to hold the slide in crude prices. This implies that the potential for an economic revival throughout the Arab world will be dim. Oil exporters in the Gulf will of course be negatively affected by low oil prices, which will have undesirable repercussions on many Arab oil importers who, simultaneously, rely on workers' remittances from the region. This domino effect will be felt regionally as dwindling oil prices and public health discrepancies expose the Arab world's inequities and aggravate the problems of internally displaced people such as those in Gaza, Syria, and Yemen as well as the urban poor in Egypt, Morocco, and Iraq. One week before, oil prices cut down to 1% after OPEC+ agreed to ease record supply curbs, and as new infections of the novel, coronavirus continues to surge in the USA. OPEC agreed a few days ago to scale back oil production cuts from August, reducing cuts by 2 million barrels per day to 7.7 million bpd through December. Saudi Arabian Energy Minister Prince Abdul Aziz bin Salman said production cuts in August and September would end up amounting to about 8.1 million-8.3 million bpd, more than the headline number.
Saudi Arabia, Russia, and allied oil producers would agree to deep cuts to their crude output at talks this week only if the U.S and several others join in with curbs to help prop up prices that have been hammered by the COVID 19 crisis. However, the US Department of Energy said in a statement a few days ago that US output was already falling without government action, in line with the White House's insistence that it would not intervene in private markets. That decline, however, would take place slowly, over the next two years. While Saudi Arabia, Russia, and other members of the group known as OPEC+ have expressed willingness to return to the bargaining table, they have made their response conditional upon actions by the United States and other countries that are not members of OPEC. Iran's Oil Minister Bijan Zanganeh tweeted, adding that the United States and Canada need to play a role in determining production cuts. Recently, Pakistan has found new deposits of oil and gas in the exploratory well, located in Tal block in Khyber-Pakhtunkhwa. The discovery will slash the country's heavy reliance on energy imports and cut the import bill and to further a negative effect on OPEC+. The news that Pakistan is revisiting oil exploration in Karachi deep waters where it had found huge oil and gas reserves last year that had been abandoned owing to perceived threats from the US, Israel and Emirates is being given a media hype. According to reports these huge oil reserves if extracted, will reduce the country's energy reliance on OPEC considerably.
What overall impact will be on the Arab world, especially the oil-producing Gulf States? The answer is simple; the Arab world is heading towards the worst economic crisis since its independence and facing its biggest budget deficit in almost 100 years. Riyadh-based Jadwa Investment Company predicted just before the collapse of oil prices that the Saudi budget will register a deficit of 422 billion riyals, which is 40 percent of the budget, and 15.7 percent of the Kingdom's GDP. It is easy to imagine how these figures could get worse after the collapse in oil prices registered on 20 April. If the Gulf States go into a great depression, millions of Arab émigré workers will have to return to their home countries, creating possibly even bigger problem of mass unemployment. Undoubtedly, several Arab governments will be seeking external financing to cushion the economic blow. Besides oil, COVID 19 has also affected tourism and travel, the airline industry, logistics hubs, media production, and food manufacturing in the Arab world. It will be difficult to see a near-term recovery in these sectors. Moreover, one should not expect large sporting events in which Gulf countries have invested to resume for many years to come. The 2020 World Fair in Dubai (Expo 2020) and the 2022 World Cup in Qatar may not be able to meet the revenue targets in which these countries had pinned their hopes. Saudi Arabia also receives income from the annual hajj pilgrimage, but the 2020 HAJ was cancelled affecting the Arabs economy to an estimated loss of 12 billion dollars
The question that should be on the mind is: Will the global economy fire up its engine and reboot, once the lockdown is completely lifted? Or is the fallout of COVID-19 almost permanent? It is anticipated that major economic restructuring is expected and applied to almost every commerce sector. Amidst COVID 19 pandemic, God alone knows what sort of future we will have for at least two more years to come.
Dr. Muzaffar Shaheen is Professor& Head VEPM, SUAST-K.
Dr. Abrar Ul Haq Wani is PhD Scholar