Cordesman: ComingPetroleumRevenuesCrisis 3/11/16 2 The world is so focused on ISIS or Daesh—and on the crises in Iraq, Libya, Syria, and Yemen—that it is easy to forget that the political upheavals intheMENA region that began in 2011, and have become the “Arab Winter,” arose from other causes. Violent Islamic extremism, secular and ethnic tensions, and abuse by authoritarian regimes now drive the civil conflicts inthe region. A decade before 2011, however, sources like the Arab Human Development Reports began to warn that growing population pressure, failed economic development, a lack of employment and meaningful careers for one of the youngest parts of the world’s population, and failed and corrupt governance had created a mix of forces that were potentially explosive. The choice was reform or crisis. None of these issues were addressed by 2011, and war and crisis have since made them worse in most of theMENA region. Only a few of the wealthiest petroleum monarchies have made serious efforts to deal with these underlying causes, and their efforts have at best had moderate success. They also have been driven far more by a bubble in oil prices and petroleum export revenues than by reform. Moreover, the uncertain stability that many of the other countries intheMENA region have achieved is due more to outside aid by the petroleum states than to any success of their own. ThePetroleum Bubble Has Burst The petroleum bubble, however, has burst. If one looks at oil prices, they have crashed to levels roughly a third of the peaks that helped fund some level of stability and have dropped 40% in less than a year. These price trends are shown in Figure One, and inthe U.S. Energy Information Administration’s (EIA) spring 2015 estimate of their impact on OPEC oil revenues, as shown in Figure Two. The EIA has not updated its past estimate, but things have gotten much worse over the course of 2015 and early 2016. No nation dependent on petroleum revenues can weather price drops from over $100 a barrel to between $30 and $40 a barrel without facing a crisis—one that borrowing and buying time in terms of national budgets and debt can’t solve. Fiscal measures of this kind don’t create jobs, pay for marriage and housing, or create careers. They don’t compensate for failed governance, corruption, or repression. Buying time from bankers doesn’t buy time from a nation’s people. While MENA states can always hope for recovery, hope is no substitute for reality and reform.
Cordesman: ComingPetroleumRevenuesCrisis 3/11/16 3 The Rise and Fall: 2007-2016 Figure One: Bursting the Oil Revenue Bubble The Current Crash: 2014-March 2016 Source: NASDAQ, http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=7y