The Enlarged Arabian Sea

Oil from the Arabic Peninsula

An Economy Strongly Dependent on Oil

Energy production in the Middle East represents 16% of global production. In the area of oil production alone, it accounts for 32% of global output; the region produces four times more oil than it consumes. Not surprisingly, the Middle East is the heart of world oil exchanges.

The well explored region has 80 years of “proven” reserves at the current pace of production and 170 years of natural gas. Its “proven” reserves represent 60% of its total “retrievable” resources. With them, the region has 120 years of oil production and close to 300 years of natural gas production. The region thus has sustainable access to resources over the long term and can continue to produce at the current pace and possibly increase its output in the coming decades. Actually, the world has fueled its growth with oil from the Middle East for decades, a region often qualified as “a geological anomaly” (Chevalier 2012). According to forecasts from the International Energy Agency (2012), the region would still have in 2035 over 50 years of reserves of oil and 150 years of reserves of natural gas. However, its reserves of coal are extremely low and would not allow it to supply coal to China for more than 6 months; coal production is virtually non-existent in the region (Fig. 4.6).

The share of oil exports from the Middle East should continue to increase in the coming years, to reach around 36% of global oil production (versus 32% today). This is related to the low cost of production of oil in the region, the most competitive in the world. Actually, the Middle East region is always favored thanks to its oil

Production and Reserves in the Middle East (BP 2014; © OECD/IEA, WEO 2012)

Fig. 4.6 Production and Reserves in the Middle East (BP 2014; © OECD/IEA, WEO 2012)

production cost. If the oil price is high, investments in other regions of the world become profitable, but the Middle East countries benefit from an important oil rent. When the oil price drops, the rent decreases, but investments in other regions can be frozen because they are not profitable anymore. The energy exports of the Middle East vary strongly from one region to another. Asia (including China and India) today represents 75% of its exports. The “influence ratio” compares the total volume of oil exports from the Middle East in a given region to the overall total consumption of oil. It indicates the actual influence the Middle East can exert on a given region. It shows that 70% of oil consumption in India and 60% in Asia (excluding China) depend on Middle East supplies. The relations between these three regions will thus remain intricate in the coming years. In particular, the oil consumption boom in India as well as its historical relationship with the Gulf countries could lead the country to reinforce its political and economic ties with the Middle East in the coming years (Fig. 4.7).

Beyond this specific situation, the economy of the Middle East depends highly on the revenues of its oil industry. These revenues represent indeed 75% of the government’s budgets in Saudi Arabia, Qatar and the United Arab Emirates. In Iran, they represent more than 50% of the government budget. The economy of the region is highly dependent on oil price.

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