What Does Oil Price Crash Mean For Migrant Workers In The Gulf?
A dizzying dive in oil price will lead to job loss for migrants in the Arab Gulf countries as non-oil mainstream companies will let people go and end contracts, as revenues and spending are down, a global energy expert has said.
“For sure, migrants will be losing their jobs. However, lower job levels, high and specialised jobs will be needed to keep the government running. Main targets for job culls are going to be the Asian workers,” Cyril Widdershoven, Middle East defense energy analyst, told The Lede in an exclusive interview.
There are 90 lakh Indian migrant workers in the Arab Gulf.
On Wednesday, international benchmark Brent futures dropped 14.3% to $16.57 per barrel. So far this week, it has lost 40%.
The US June crude futures also dropped 4.7% to $11.03 per barrel.
Last Monday, US oil plunged below $0 a barrel for the first time in history and the price of June crude contracts fell by 18.4% to $20.43 a barrel.
According to Widdershoven, who holds several advisory positions with international think tanks in the Middle East and energy sectors in the US, the effects of low oil prices on Arab Gulf countries will be short-mid-term negative, as lower oil prices lead to less income-generation of governments.
“With most GCC countries needing reasonably high oil prices higher than $60 per barrel, the current situation will eat into their government reserves and increase budget deficits,” Widdershoven says.
However, he adds that not all of the crisis is linked to oil, as financial markets globally are still very cheap.
Widdershoven reveals that Dubai investments are down, and tourism is dead, Oman’s financial situation already was not very promising and Bahrain, could be an issue, but Saudi-UAE will assist.
“So, mainstream Gulf Cooperation Council (GCC) countries will be hitting debt markets for new government bond issues, cheaper to increase debt than to take out from Sovereign Wealth Funds,” he added.
Last Sunday, the Emirate of Abu Dhabi sold bonds worth $7 billion (Rs 53,000 crore) in the third major sale this month by Gulf sovereigns seeking to counter slumping oil prices.
Abu Dhabi, which has the biggest sovereign wealth fund in the GCC, said its offering was oversubscribed by more than six times.
Saudi Arabia last week had raised $7 billion (Rs 53,000 crore) in a bond sale, while gas-rich Qatar had sold bonds worth $10 billion (Rs 76,000 crore) two weeks ago.
The media has reported that the Kuwaiti government has sent legislation to parliament seeking to borrow $65 billion over the next 10 years.
Widdershoven says that it is still much cheaper to take out new debt financing than to rely on your reserves.
“Costs of debt on global markets is very low,” he said.
The six GCC member states, which also include Bahrain and Oman, depend heavily on oil income for between 65% and 90% of public revenues.
Demand Is Down
Widdershoven says that the main reason for the current low oil prices is based on Coronavirus lockdowns and demand destruction if industry and consumers are locked down or closed.
“Total demand destruction is said to be around 20-25 million bpd (barrels per day), so 20-25% of total production is not needed. The latter has increased not only pressure on prices but also has moved oil storage and petroleum product storage levels at record highs,” he said adding that within the next 2-3 weeks all tanks onshore and offshore would be full, so production will need to be cut in reality dramatically.
However, Widdershoven is positive about oil price recovery.
He says that the first Q2-Q3 price increase will be marginal, not reaching above $25 WTI (West Texas Intermediate) for sure, and Q4 2020 could show a steep increase, if US shale volumes are out, non-OPEC production down and part of COVID-19 measures are lifted.
“2021 will be a major issue, if COVID-19 is out, then demand will increase substantially over 2020 levels, so demand will be higher most probably than supply,” he adds.
Growth To Contract
The International Monetary Fund (IMF) in its April outlook has said that in GCC countries, growth is projected to contract by 2.7% in 2020.
“Non-oil activity is expected to be a major drag on the near-term outlook, contracting by 4.3 percent this year, a significant downward revision from the 2.3 percent growth projected in the October 2019 Regional Economic Outlook for the Middle East and Central Asia,” the outlook adds.
According to the IMF outlook, the service, retail, hospitality, and tourism sectors have been particularly hard hit by the spread of COVID-19 and containment measures, raising challenges for those countries where these industries command a large share of output (Bahrain, Qatar, and UAE).
“Manufacturing has also slowed, and investment plans have been delayed across most of the region. Oil GDP is also expected to slow in 2020, contracting in all countries except for Kuwait, Saudi Arabia, and UAE. Overall, oil GDP is expected to contract by 0.3 percent, though overall oil production is set to fall further with the latest OPEC+ agreement, underscoring downside risks to oil GDP growth,” the outlook adds.