And yet, the world economy has not gone into recession, there is no inflationary wave and no global currency crisis. Crude oil demand has not fallen. In fact, it rose by a startling 3.4 per cent in 2004 and by a further 1 million barrels a day (b/d) in 2005.
Sharply higher real oil prices and growing oil demand is an unprecedented combination. It is due in particular to the Chinese and Indian booms, refinery capacity constraints, political tensions and worries about supply interruptions in Nigeria and Venezuela. The consensus is it won’t end soon.
Some analysts are beginning to draw some interesting conclusions. At the MEED IPO & Asset Management conference in Dubai at the end of March, Samba Financial Group chief economist Brad Bourland said oil prices will stay above $50 a barrel until the end of the decade. Most other experts agree.
The consequence is five more great years for Middle East oil exporters. My forecast that GCC balance of payments surpluses could exceed $500,000 million in 2006-10 may now be conservative. Gulf governments will be solvent, companies liquid and households will be able to spend and save more simultaneously.
But what about after 2010? If oil prices can go above $50 a barrel without recession, inflation or falling oil demand, why should they ever fall in real terms? Why should OPEC drive prices back down when it knows that finance ministers in consuming nations will offset the decline with higher energy taxes, oil companies will make even bigger profits and consumers will buy more and bigger cars?
So here is my 25-year Gulf economic forecast. Oil prices will remain around $50 a barrel in real terms for an entire generation. This projection is in line with the US Energy Department’s 2006 Annual Energy Outlook published in February. World oil consumption will continue to grow by 1 million-2 million b/d a year to about 120 million b/d by in 2030.
The GCC could be producing more than 35 million b/d by then, compared with 16 million b/d in 2005.
The GCC states will lift gas production from about 7 per cent of the world total to as much as 20 per cent. Their gas cost advantage will mean by 2030, most bulk petrochemicals and a growing proportion of basic metals and nitrogenous fertilisers will be made in the Gulf. These commodities will be used in downstream industries established in dozens of new free zones across the region.
Because GCC economic expansion will exceed the rate of growth in skilled and white collar workers, the six states will welcome, as some already are doing, long-term professional migrants. They are already being given the right to buy some GCC freehold and leasehold properties and to invest directly in GCCshares.
If the growth of major GCC cities in the past three years is a sign of things to come, the combined population of the six states could rise to more than 90 million in 2030 from 35 million in 2005. It is possible that the combined gross domestic product (GDP) of the GCC will quadruple in the same period to $2 trillion in 2006 values. In 2030, the GCC could be the world’s sixth largest economy after China, India, the US, the EU and Japan.
The ramifications are enormous. The New Gulf will be a middle-class society and a beacon of moderation and modernity for the Middle East and the world. Long-term forecasts should be treated with caution. But it could happen. And perhaps it should.
Gulf airlines are sometimes charged with spending too much on advertising. But their efforts paled into insignificance compared with the fuss generated by the inauguration of Virgin Atlantic’s Dubai-London services. It included Richard Branson dressing up as a bedouin and then being