The Coming Petroleum Revenues Crisis in the MENA

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Cordesman: Coming Petroleum Revenues Crisis 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 in the MENA 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 in the 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 the MENA 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 in the MENA region have achieved is due more to outside aid

by the petroleum states than to any success of their own.

The Petroleum 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 in the

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.

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