Chief Economist for Middle East and North Africa, Institute of International Finance
Interim Assistant Vice-President of International Relations and Professor of Political Science, University of Waterloo
Khalil E. Jahshan
Executive Director, Arab Center Washington DC
On April 22, 2020, Arab Center Washington DC (ACW) held a webinar titled “The Oil Market and the Economic Impact of COVID-19 in the Arab World.” Speakers were Garbis Iradian, Chief Economist for Middle East and North Africa at the Institute of International Finance; and Bessma Momani,Interim Assistant Vice-President of International Relations and Professor of Political Science at the University of Waterloo. ACW Executive Director Khalil E. Jahshan served as moderator.
Garbis Iradian asserted that the oil market is crucial for most of the countries in the Middle East region, all of which are experiencing a twin shock: the coronavirus pandemic has caused a profound global recession that has led to a great decline in the demand for oil. In terms of the Arab world, he discussed prospects for the six countries of the GCC along with Algeria and Iraq, noting that Saudi Arabia, the UAE, Qatar, and Kuwait could likely cope with low oil prices for the next two to three years as they have large financial buffers that could easily finance large deficits. The major risk, however, is for countries like Oman and Bahrain, which do not have sizable official financial reserves and must make deep cuts in their budgets. Iradian said that overall, MENA oil exporters will shift from surplus to deficit, which will widen the fiscal shortfall. Oil importers, such as Egypt, Morocco, Tunisia, Jordan, Lebanon, and Sudan, he noted, could benefit in the short term from lower oil prices; however, a slowdown in the global economy will have an impact on tourism in addition to decreasing investment and remittances from the Gulf states. He said that many countries have approached the International Monetary Fund (IMF) for emergency loans and may be able to cope in the short term. But for the long term, they still need to address longstanding challenges like high unemployment, poverty, and ailing public health systems. Their recovery will not be strong or quick, he said. Iradian also predicted that once the crisis is somewhat mitigated, protests against governments in such places as Lebanon and Iraq will start anew, since the fundamental issues of concern—such as corruption—will not have been addressed.
Bessma Momani offered an even more pessimistic scenario, adding that to date, COVID-19 has hardly hit the developing world. Especially because of crowded living conditions for families and laborers, the prospects of its spread are very high. Its ramifications, coupled with the ripple effects of the decline in the world economy, will mean serious economic restructuring in the long term for the MENA region. Governments will have to move forward on diversification strategies, beyond oil, as their current budget forecasts assume oil sales at $75/barrel, a rate that is no longer tenable. She noted that they will also be having discussions about increasingly drawing on nationals for their labor forces rather than on guest workers. Momani said that “economic scarring” is ahead; unemployment, in particular, will have devastating effects on the informal labor sector, day laborers, and guest workers in the Gulf region. She pointed to the 1.5 million Egyptian workers in Saudi Arabia who are now without work. In addition, she predicted that the Arab private sector will likely bear much of the brunt of the economic collapse. Momani also said that the tendency for regimes in the region is to securitize this crisis, with the police, military, and national guard assuming additional power and increasing surveillance. This will deepen the lack of trust—already a problem—between governments and their citizens. In general, she concluded, “We are heading to a depression.”