Over the past ten months, global oil prices have risen by more than 60 per cent. International benchmark Brent crude, trading at $55 a barrel in January 2021, reached more than $83 this week – a trend mirrored across other benchmark crudes too. Market experts project that Arab oil prices during the first half of 2022 will surpass $90 a barrel aided by global conditions.
This positive picture emerges against the backdrop of notable developments: a significant decline in the coronavirus epidemic, enhanced vaccination coverage amid improved available of vaccine doses, a global revival of air travel, and recovery of industrial and economic activity.
It is well known that Arab countries hold about 56 per cent of the world's oil reserves and account for 28.4 per cent of global production of oil. When it comes to natural gas, Arab states hold 26.7 per cent of total gas reserves and have a 17.9 per cent of total gas output. This gives them the ability to expand supply of oil and gas to help address the energy crisis facing many European countries amid a lack of adequate gas supply in the face of a severe winter.
This energy crisis is pushing a number of European states, as well as large energy consumers, to consider importing oil as an alternative to gas for their daily energy requirements – a trend that will likely lead to a rise in international oil prices. Exporting nations have the opportunity to benefit from this energy crisis and thereby recoup some of the losses arising out of the slump in oil price that began in mid-2014.
It is imperative that oil-producing countries use this opportunity to shore up their sovereign wealth funds on the one hand, and channel new funding for stalled service projects while also reducing their foreign debts, on the other.
According to the Institute of International Finance, the general foreign assets of the Gulf states -- including foreign reserves and sovereign wealth funds -- are expected to rise to more than $3 trillion by the end of 2022, equivalent to 170 per cent of their collective GDP.
The rise in global oil prices is primarily due to the energy crisis in European countries, according to some experts. This comes as a blessing to Arab countries, which undoubtedly would have racked up large debts in recent years on the back of low oil prices, the consequences of the pandemic, and their failure to diversify their economies.
The sudden rise in oil prices underscores the continuing importance of hydrocarbons as commodities of great value for years to come. This uptick in prices will enable countries to return to their rightful status prominence, enhance their financial resources from foreign revenues, and increase their financial wealth.
According to projections by Reuters, the demand for oil in the global market will recover during 2022-2023, helping reduce the budget deficits of the Gulf states.
On the flipside, Arab countries lacking oil wealth will see their economic pain increase with the rise in international oil prices, potentially impacting tourist inflows into their countries.
The outlook primarily depends on the conditions prevailing in some industrialised countries such as the US, China and key European nations.
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