What Happens When The Oil in The Middle East Runs Out

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The Gulf countries managed to have huge economies just because of their oil. Oil was demanded world over and before the recession, prices even reached $100 a barrel. The Gulf countries capitalized on this huge demand for oil and they had a lot of money. In fact, to bail out its economy from the recession, the government of the United Arab Emirates, pumped $700 billion from what is known as the “Sovereign wealth fund” into Dubai’s banks. We are all aware of the number of projects in which the gulf countries are creating in order to use their wealth. They were literally rolling in tons of cash and flaunting their wealth.

But now the tables have turned on them. When recession struck, the prices of oil per barrel came down to below $50. That came as a real rude shock to the gulf economies. But this was not only the effect of a global recession, but also a warning for the future.

The Gulf actually didn’t need to have a recession to give them an example of what could happen if their oil ran out. Of course, the recession provided a much clearer picture.

Dubai is an emirate of the United Arab Emirates and a really prosperous one. Dubai unlike other emirates has not had a lot of wealth coming from oil, but from other industries like real estate and tourism. Its ruler, Shaikh Mohammad, initiated a lot of infrastructure projects that literally transformed Dubai. There were hundreds of skyscrapers and large buildings. Dubai had thousands of residential apartments and office spaces. Some projects were so ambitious, that they set records. BurjKhalifa, for example, is currently the tallest tower in the world. There were also other projects like The Palms, Dubailand and other very huge projects with ludicrous investments involved. Rents went through the roof. There were not many residents in these empty buildings because the properties which were in Dubai was mainly for trading.

Image via Wikipedia

Image via Wikipedia

Image via Wikipedia

And that was the time when the recession struck Dubai really hard. The banks ran out of credit. People dropped their investments. People did not find it cool to invest in real estate in Dubai anymore. People pulled out their money from the UAE economy, thousands of people lost their jobs and many businesses just filed for bankruptcy and just shut down.

Dubai bore the brunt of the recession pretty badly. Abu Dhabi, UAE’s capital which was more into oil than other fields was forced to bail Dubai out. Abu Dhabi has most of the oil and is considerably better off than Dubai even though it may not be as modern as Dubai is.

Dubai did not have a lot of oil and its growth was not because of its oil reserves. Dubai was more into non-oil sectors. And when a recession struck, it turned Dubai upside down. It wasn’t too bad because it had AbuDhabi to bail them out.

But what if Abu Dhabi did not have the petro-dollars to bail them out next time?

This question was echoed throughout the gulf region. “What if we don’t have oil anymore?”

The fact remains that how much ever the Gulf tries to diversify the economy, its backbone for a really long time is definitely going to be oil. Even if it wants to diversify, it needs its petro-dollars. And even with continued efforts to diversify, the Gulf economies cannot completely reduce their dependence on oil.

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First of all, without oil the Gulf region actually has nothing much left. There is obviously no agriculture and absolutely no efforts to increase land under cultivation. Its food comes from all around the world and there is very little that the Gulf produces on its own.

There are very few other mineral resources in the gulf, other than maybe some aluminium here and there.

Very few would actually want to set up industries in the Gulf region. First of all, the Gulf region is not a place where you will find a lot of innovative people who actually create things. Besides, production in the Gulf region can actually get really expensive considering the fact that there are no resources and there will be very small workforce.

Why I say that there will be a very small workforce after the oil is over because there won’t be any jobs left for the expatriate workers that are in the gulf who were employed due to the discovery of oil. Most of them will go back to their home countries for good. There will be no more jobs in the gulf for people to go to.

So industrialization will not be a very great idea for the Gulf region.

And they won’t even have enough energy for their own consumption. They don’t have a lot of alternatives for their energy and even if they want to power their industries or anything they want, they can’t do it because their energy infrastructure is almost entirely dependent on oil. Of course, there is a lot of talk of bringing in Nuclear energy into the region in order to power up the place, but that could take some while.

So after the depletion of oil, the gulf will have very few sources of income. It will probably live on the wealth that it has accumulated over the years. They will survive obviously, but they will never be able to expand or grow to phenomenal levels like they are doing today.

Probably, Arabs will go to other countries for employment and send back remittances from these countries.

Or they will have to go back to the days prior to the discovery of oil when the main trade was fishing, pearl-diving and trading.

And thus, it will be a tragic end to the glorious days of the gulf, when they wielded a lot of power because of their money.

Copyright © 2010 AshwathKomath
 

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