Middle East oil producers are finding it much harder to compete globally, especially as the largest oil producer in the region Saudi Arabia is running out. The Middle East and OPEC are no longer a Cartel, they have been steadily losing market share to new oil producers. In particular, the Shale boom in the United States poses a direct challenge to Middle East oil producers. The increased supply of oil combined with lack of market share forces oil reliant States into a crisis of economic uncertainty. Oil producing States have recently begin to recognize their vulnerability, however; they have done very little to diversify. The lack of action can be attributed to a historical trend of higher oil prices giving the illusion that Oil producing States have a longer time span to act on diversifying their investments. Political infighting and the Arab spring are another contributing factor towards slow action in diversifying Middle Eastern economies. It has been estimated that in 2030, Saudi Arabia will completely run dry of oil, this estimate is becoming more likely as no new oil wells have been discovered. Oil production in the Middle East are completely dependent on Oil income. For instance, 90% of Saudi Arabia’s export is oil. In the next decade or so, this dependance on Crude oil, a non-renewable resource will collapse the Saudi economy, leaving the region with little to no resource. Saudi Arabia’s second largest export other then crude based products is agriculture making a mere 3.7% of GDP in 2009. Saudi Arabia’s main agricultural exports are wheat, dates, dairy products, eggs, fish, poultry, fruits, vegetables and flowers, however; this is in decline. The agriculture industry itself is a challenge for Saudi Arabia, as the kingdom lacks water, in fact it rains an average of four inches of water per year; one of the lowest in the world. A healthy and growing agriculture economy requires large amounts of water, this sector can not be sustainable for the costs associated with water, has made its agricultural industry uncompetitive within a global market.
I would be cautious in provide a solution to these issues, yet one can recommend the following:
– Expand innovation: Increase funding for schools, attract scholars, R&D
– Utilize Wealth reserves into building up a diversified stock portfolio
However, even with such recommendations, the biggest challenge appears to be the lack of good governance; where policymakers who are qualified are ignored by elites who have their own agenda’s.