The main stock market index in the Arabian Peninsula, Tadawul from the Saudi capital Riyadh, closed 6.86 per cent lower on Sunday compared to the start of the trading day, while Dubai’s main stock market index lost 6.96 per cent for the day. Other indexes in the Arab area have also been hard hit – Egypt EGX30 fell 5.4 per cent and the United Arab Emirates index also took a 5 per cent hit.
All of these downfalls were caused by Saturday’s change in the international oil price benchmark, the Brent crude, fell over $1 to the $45.46 point. At the same time, the United States equivalent, US crude fell to $40.45.
This marks a dramatic year for oil prices, which are now 60 per cent cheaper than in August last year, according to the New York Times. This is mainly caused by an increase in crude oil supply, but also by a slowdown in global economy; oil prices are now at their lowest since 2009 and this is heavily affecting traditional oil exporters.
Middle East analysts are seeing a bleak near future, as some think that oil prices might take almost a decade to recover if they would stop falling now – of which there are no realistic indications. This brings dark prospects over heavy oil exporters – such as Saudi Arabia, Qatar or the United Arab Emirates, who have been thriving as long as oil prices maintained themselves at high levels.
This bodes especially worse with Saudi Arabia, which has prospered in the area despite the unruly climatic conditions of the area. The Saudi government is now going to adjust is heavy infrastructure and social spending to more moderate economic conditions – which might have a lot of adverse effects if not handled adequately.
The kingdom might also look into diversifying its economy so as to minimize the losses brought by lower oil prices, an aspect for which Riyadh was intensely criticized – as it prefer to just concentrate on riding the prosperous oil trade wave rather than prepare for any possible downfall. However, it still has enough in its coffers to encourage its private industry off an oil addiction path and possibly into other profitable areas. Until now, the Saudi government preferred to boost the rate at which it sells oil to combat low prices, but this strategy will only deplete its resources faster and leave its long-term future in a gray area.
Image Source: Daily Mail