“Yet due to the determined efforts of Gulf producers to increase supply and compensate for losses elsewhere, global oil prices have not reached the levels that might spark a global economic crisis.”
Badr Jafar explained how the Gulf States had worked to ensure that recent upheavals in the Arab world do not create an oil crisis and global economic recession.
In 2011, oil production from the member countries of the Arab League was 26.8 million barrels per day, 4.6% higher than it was in 2010. This increase in output of 1.2 million barrels of oil per day was greater than the absolute global increase in oil demand in 2011. Such growth was achieved, despite the drastic drop in production from the countries which had been worst hit by unrest: Libyan production dropped 71%; Syrian production fell by 14%. Production proved resilient even in those countries which were the initial focus of the upheaval: Tunisian oil production fell by 2.5%, while Egyptian oil output actually increased by 0.3% in 2011. Most importantly the core Gulf Cooperation Council oil producers followed up on their verbal assurances to do their bit to stabilise global oil markets by increasing oil output 12.4% to 20.0 million barrels per day.
While oil prices did rise substantially in 2011 vs. 2012, with average prices rising some 40% year on year to around $110 per barrel, they did not reach the peak seen in 2008 of over $140 let alone precipitate the economic burden reached in the second oil crisis of the late 1970s (equivalent to approximately $200 per barrel today). He said the surge in the oil product was the clear signal that they were willing to increase supplies, and prompt delivery on that promise by Saudi Arabia, the UAE and Kuwait headed off this potentially disastrous scenario for the global economy. The oil-producing potential of the Arab World has proven to be robust even in the context of significant regional turbulence.
Yet the upheaval has still left the region with a reduced capacity to increase oil production further, the region is now near it current limits on production. The region’s future productive capacity has been damaged: in Libya, for example, production has rebounded since the civil war but is now steady at 10% below its pre-war levels. Looking to the longer term, instability has reduced foreign investment from outside the Arab region – meaning that projects to increase oil and gas production in future are slowed. Should demand increase further or supply be cut back elsewhere in the world, there is now a limited spare capacity cushion to work with and project the region’s influence globally.
“Recent political events in the Arab world have proven that the Gulf States are reliable suppliers of oil and gas to global markets,” Badr Jafar, said.
However, he added, the stability provided by the work of these states should not lead us to complacency.
“The extra effort and raised performance that has been applied in order to maintain a dependable supply of oil to the world will need to be redoubled as global demand increases. Therefore investment in and development of the oil and gas industry in the Gulf region is as important as ever,” Jafar, said.
“I believe that heavy involvement of the private sector, in cooperation with local governments, is essential to deliver this next step up in investment, innovation and ingenuity needed to rebuild initially and ultimately expand oil production capacity across the region.”