The falling price of oil is beginning to have a real impact on the energy-fuelled economies of the Gulf. In 2014, after almost a decade of record highs, the price of a barrel of Brent crude began to collapse from a peak of US$140 to less than US$30.
Saudi Arabia is lining up a US$2 trillion sovereign wealth fund to see it through the twilight years of the oil era. But not all the countries of the Gulf Co-operation Council, or GCC, have this kind of cash. Indeed, even for Saudi Arabia, the new era of low oil prices spells increasing budget deficits, reductions in state subsidies and a slowdown of the energy and construction sectors, which the region’s economies have been built on.
Both private and state-owned firms are starting to restructure to reduce costs and increase efficiency now that the boom is over. They are merging divisions or outsourcing certain functions, introducing performance-related earnings, offering redundancies or smaller pay increases to staff. Qatar ought to be able to continue awarding annual salary increases given the continued investment in areas such as construction thanks to the 2022 football World Cup. But others, such as Saudi Arabia – most exposed to oil price fluctuations and subject to wide-ranging public sector cuts – will likely see redundancies at a time when the rate of inflation is high and subsidies are declining.