Countries of the Persian Gulf are at risk of having their financial wealth depleted in the next 15 years as global oil supply increasingly exceeds demand, the International Monetary Fund (IMF) warned on Thursday.
In a report, titled The Future of Oil and Fiscal Sustainability in the GCC Region, the IMF reveals that demand for oil may start falling sooner as the global oil market undergoes a fundamental change – with new technologies increase the supply of oil and concerns over climate change are seeing the world gradually turning to renewable sources.
According to the organization, these changes “spells a significant fiscal sustainability challenge for the GCC region,” which accounts for over one-fifth of global oil supply.
“With continued improvements in energy-saving technologies, adoption of renewable sources of energy, and a stronger policy response to climate change, the world’s demand for oil is expected to grow more slowly and eventually begin to decline in the next two decades,” the report explained. “If these expectations materialize, they would reshape the economic landscape of many oil-exporting countries, including those in the GCC.”
The Gulf Cooperation Council (GCC), which covers Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates, accounts for 44 percent of the world’s reserves of crude oil and 15 percent of natural gas reserves. For nearly two decades, the region, which is largely controlled by the ruling dynasties, has accumulated about $2 trillion in financial wealth since 2014.
According to IMF, while most GCC states have already turned to economic diversification and reform programs, including the introduction of a value-added tax (VAT), the region is still at risk of exhausting their financial wealth by 2034 without decisive economic reforms.
In the IMF’s projection, global oil demand will likely peak around 2041 and will gradually slide from there.
“Ongoing reforms are moving the GCC region in the right direction, but they need to accelerate,” the IMF added.