Page 1of 2 THE
GULF'S BLACK TREASURE Toward an oil-less
world By Hossein Askari
This is the 23rd article in a special
series on oil and the Persian Gulf. For previous
articles, please see the foot of the page
For us, there are two sides toward an
oil-less world. There is the widely held side that
world oil production has peaked, or will soon
peak, and will be on a downward trend hereafter to
an oil-less world. The second side to an oil-less
world, and more our preoccupation, is the
successful or unsuccessful transformation of the
economies of the Persian Gulf countries from
oil-based economies to diversified economies that
produce little or no oil.
How are these
two transformations likely to play out over the
years to come?
First, and briefly, on
"Peak Oil". As we have said earlier, we do
not subscribe to the
thesis that Peak Oil is already upon us, or will
be any time soon. Our reasoning goes something
like this.
There will be significant
additions to oil and gas reserves in Iran and
especially in Iraq, as these countries adopt
better institutional structures and as more
normalized international relations encourage the
inflow of foreign direct investment in their oil
and gas industries and the introduction of the
latest oil exploration and production
technologies.
Sustained higher prices,
above US$75 per barrel, will further motivate
technological progress and exploration in
heretofore unexplored and promising areas - very
deep sea and the Arctic region. In other words, we
believe that much more conventional oil will be
found.
Even more significant, sustained
high oil prices and technological progress will
increase the output of oil from non-conventional
sources (tar sands and shale). Moreover, additions
to oil reserves (conventional and unconventional)
will rise faster than most analysts expect because
demand for oil will not increase as fast as
previously projected and new discoveries will be
more significant than current projections
indicate.
We believe that demand for oil
will not increase as fast as most expect because
sustained higher oil prices will encourage more
energy conservation and more-efficient energy use
than expected (the rest of the world, especially
the United States, will learn from Japan).
An even more important factor discouraging
growth in oil demand is our expectation that
natural gas will become increasingly traded and
used in transportation (in competition with oil).
We predict that shale gas will become a critical
factor in global energy supplies because of
sizeable reserves (with environmental issues in
its production addressed), diverse sources of
supply, and because it will provide the cheapest
way to combat global warming (with environmental
concerns that must be sooner or later addressed
more seriously on the global level).
This
"switch" will be further motivated by a faster
growth of renewable technologies (wind, solar, and
so forth) - again because of sustained higher
prices.
In short, while we realize that
eventually additions to conventional and
non-conventional oil reserves will become
negative, we don't expect it any time soon; and we
expect oil production to continue to increase for
quite a while but at a much slower pace than in
the past.
At the same time, we see oil
prices more in the $75-$100 range (adjusted for
inflation) as opposed to the $100-$125 range; that
is not to say that there will not be temporary
price shocks arising from conflicts and sharp
global economic downturns.
Second, how
successful will Persian Gulf countries be in
diversifying their economies along the march
towards an oil-less world? Although rulers in
these countries may have a different take on the
importance of a successful economic transformation
and all that it entails, to us this is an
existential issue that must be addressed sooner as
opposed to later. Let us explain.
Broadly
speaking, we see three categories of countries:
(i) Kuwait, Qatar and the United Arab Emirates,
(ii) Oman and Bahrain, and (iii) Iran, Iraq and
Saudi Arabia.
The first category is made
up of small economies (with sparse populations),
and extremely rich countries (as indicated by per
capita wealth in the form of proven oil and gas
reserves and invested net foreign assets). We must
emphasize their two key characteristics - sparsely
populated and extremely rich.
The native
(excluding expatriates) populations of these three
countries are respectively 1.5 million, 1 million
and 0.3 million; their gross domestic products
(GDPs) are respectively $170 billion, $258 billion
and $180 billion.
Today, with oil in the
$80-$100 per barrel range, if we assume an asset
price of $30/barrel for oil (and for natural gas
in its oil equivalent) in the ground, then a very
rough measure of per capita (not family) wealth
for each of these countries is respectively:
$2.2 million (Kuwait),
$3.9 million (UAE), and
$16 million (Qatar). These per capita figures
are only partial wealth figures as they represent
only oil and gas in the ground valued at $30 per
barrel and exclude net foreign assets of the
government invested abroad and all household
wealth. The partial per capita wealth figures
should be compared to the US median net worth of
families (not even per capita) of $126,000 in 2007
and $77,000 in 2010.
These three small countries,
especially Qatar and Abu Dhabi (one of seven
emirates in the UAE), are wealthy and rich beyond
belief. So what's the problem?
Let's start by emphasizing what we have mentioned
in a previous article and we consider as the most
important and fundamental issue. Whose oil is it?
While we know the answer, namely it is the
people's oil, citizens of this and future
generations, most of the rulers will not
acknowledge this fact and behave as if they
support it.
In Qatar and the UAE (not so
in Kuwait), the rulers treat the national treasury
as their private account; they take what they
will. Rulers in these two countries should receive
a fixed stipend. That's it! National resources,
the birthright of all citizens, should be managed
transparently.
As we have said before, the
world should embrace this fact now while these
rulers rule; and not act so surprised that this
has been going on for years only when rulers are
deposed, as they will be, and new rulers take
over.
In all these three countries,
transparent ownership (Kuwait has long embraced
this fact) and the management of oil revenues
should be administered with a clear mission - to
benefit all citizens of all generations equitably.
Again, as we have said a number of times
before, to our mind this can be best achieved by
(and maybe only by) weaning governments (and
rulers) from oil revenues, investing the proceeds,
and issuing an annual check (of equal purchasing
power) to all citizens of all generations.
If oil revenues are used to diversify the
economic base as they think they have been doing
and to afford subsidies to "buy off" the citizenry
so that they can continue to rule as they have all
along, then a number of results follow.
There is a distinct possibility that this
generation and a couple of future generations will
receive most of the benefits from oil depletion,
with others receiving nothing; even then, a few
will become very rich while the average citizens
will be made to feel that they are getting
generous handouts while oil lasts and then nothing
for their offspring.
These countries are
unlikely to develop as manufacturing and
industrial giants; expatriates make up more than
90% of their labor force and they have no readily
apparent areas of comparative advantage.
They can best create efficient
institutions, enhance the business climate for the
service sector, deliver public services (including
high-quality education and medical care)
efficiently, possibly through the private sector,
and afford citizens the opportunity to manage
their own wealth.
If these countries
continue as they have with rulers (and their
cronies) taking what is not theirs, resentment
towards rulers would without a doubt increase,
radicalism would fester, conflicts would develop
and instability would ensue.
The West
could in turn refer to these disenfranchised
citizens as Islamists and terrorists - citizens
who are denied economic justice and a say in the
governance of their country are labeled as
terrorists because they want change for a better
future! Autocratic rulers can echo the convenient
Western terrorist label and turn their guns on
their own people.
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