Countries across the world have to deal with numerous challenges created by the coronavirus pandemic. Moreover, in the case of developing countries, it is even harder to solve all problems. Interestingly, the International Monetary Fund (IMF) downgraded its outlook for the Middle East and Central Asian economic recovery, projecting a 4.1% contraction for the region as a whole. It is worth mentioning that, the previous outlook that it released in April was less severe compared to the latest regional outlook.
People should take into account that the latest regional outlook, underlines the severity of the problem. Importantly, there is a large disparity in economic loss between oil importing and exporting countries, as the region suffered heavy losses. However, the coronavirus pandemic is not the only problem, another is the oil prices.
The problems mentioned above led to a sharp decline in economic activity, which is different between oil-exporting and oil-importing countries.
The Middle East and oil prices
It is no secret that the oil industry is important for several countries located in the Middle East. Thus, oil prices will be the important factor for oil exporters’ recovery, especially in the case of Saudi Arabia, Iran, Iraq, and UAE, Kuwait, and Bahrain. As a reminder, the oil industry plays an important role when it comes to revenue.
However, the International Monetary Fund does not expect oil prices to stage a dramatic recovery anytime soon, and without high oil prices, it would be harder to solve problems. The IMF expects the oil prices to be around the $40 to $50 range in 2021.
It is worth noting that, the de-facto leader of the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia needs the price of oil to reach $80 per barrel. In this case, the country will be able to balance its budget.
Another important factor is oil demand. Importantly, the oil demand outlook remains grim amid new waves of coronavirus. Moreover, uncertainty regarding the U.S. fiscal stimulus and the U.S. presidential election also affect the demand.
Last month, the International Energy Agency reduced its outlook for worldwide oil demand to 91.7 million barrels per day in 2020. The agency’s August report was more optimistic. Unfortunately, OPEC posted an even worse outlook for 2020. The intergovernmental organization downgraded its outlook for global oil demand last month. The OPEC expects oil demand to decline to an average of 90.2 million barrels per day in 2020.
In this situation, diversification may be the best solution. However, it won’t be easy to reduce the dependence on the oil industry. Non-oil sectors such as tourism, transportation, retail, and real estate also suffered losses. In the case of air travel, it could take several years to return to pre-coronavirus levels.