The Implications of Low Oil Prices and Economic Diversification in the Middle-East

By: LTC Meteb Almarri, QAT Air Force, US Central Command: Strategy Plans and Policy Directorate; Combined Strategic Analysis Group
21 June 2021

Introduction:

The Middle East is a global producer and exporter of oil. The region enjoys high returns from oil sales to many countries around the world. The Middle East has relied heavily on oil revenue in the past to sustain its economies. In fact, many regional countries maintain economic stability through oil production and export. Great Power Competitors have established themselves in the region, intending to acquire a sustainable oil supply. Countries like the US, Russia, and China battle for dominance in the region due to good economic opportunities. Oil has made the region a strategic area for several countries, especially China, which needs a large oil supply to run its industries. China’s activities in the Middle East increased in 2020 as it sought to create lasting relationships with many governments in the region as a strategic economic investment. However, the region limited oil exports in 2020 due to increased demand for other products such as medication.

The region’s declining oil prices are a blow to its economic sustainability; hence, regional countries need to invest in more diverse economic activities and industries. These investments are intended to decrease overreliance on oil revenue. The region also benefits from economic investment from strong global economies like the US, Russia, and China. These countries’ interests in the Middle East have enabled the region to diversify its financial activities to accommodate fluctuations in oil prices.

Key Points:

• Oil prices decreased in 2020 due to COVID-19 and its ramifications for most Middle East economies.
• The region experienced diversification in economic activities in the last year, attributed to the need for other sources of national revenue.
• It is uncertain whether low oil prices and Middle East economic diversification will help or harm USCENTCOM’s strategic and functional priorities.
• The consequences of low oil prices and the need to diversify the economy may create advantages for China and Russia in the Middle East and Levant.
• Saudi Arabia and UAE have extended considerable loans to their neighbors. What initially appears to be an appreciable gesture of mutual assistance could ultimately significantly modify these nations’ political relationships.

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