Conexio consulting


On April 20, it was the first time in the world oil market and the barrel price of crude oil fell to $ -37.63 in May contracts. It may be interesting to many of us that the value of a commodity falls below zero. But in this process, the cost of storage and transportation of crude oil has increased so much that the producer prefers to pay and dispose of it rather than take the long-term risks of stopping production. The price drops below zero is the most dramatic result of the developments in the oil market in the last 5 months. The COVID-19 outbreak has reduced oil demand and Saudi Arabia and Russia failed to agree to cut the oil supply and struggle on price, leading to historical levels of crude oil prices.
The decline in crude oil prices is expected due to the COVID-19 outbreak, but the main reason for the decline to be so sudden and historical was the struggle between Saudi Arabia and Russia. The fact that the two countries could not agree on the reduction of production in response to the decreasing demand and Saudi Arabia, which could produce crude oil at the cheapest cost, increased production by decreasing prices in turn, creating a serious volatility in the oil markets.
Washington-based think tank Arab Center President Halil Jahshan said that Gulf governments, whose budget deficit increased due to low oil prices, had to sell government bonds or borrow from international institutions. Pointing out to the existence of the oil-based commodity economy in the Gulf, Jahshan noted that efforts to diversify the economy are dependent on oil, and that the crisis could hit those efforts.
Jahshan, dividing the oil prices and the impact of the Kovid-19 crisis on the Gulf economies internally and externally, said that ” The biggest internal impact will be the impact of sectors such as tourism, travel and logistics, which are connected to the petroleum industry. In addition, the budgets of the Gulf countries are based on social services and expenditures. Social spending will be the number one victim of budgets with cuts of up to 40 percent.”
Noting that the second victim of the crisis will be billions of dollars spent in countries where they wage war of proxy, Jahshan said, ” It is clear that Riyadh and Abu Dhabi cannot sustain these wars economically. Abu Dhabi is becoming increasingly small and fragile economically. We can say that they are thinking of gradually pulling their economic support from these regions.”
World Energy Council Middle East and Gulf Countries Regional Manager Kate Dourian stated that due to the crisis in the market, regional governments will have to shelve or cancel mega projects they have launched to diversify their economies, said that ” For example, we can see that the fund required for the 2030 vision of Riyadh is based on the sale of Saudi Aramco shares. As a result, the impact of Aramco, the world’s largest integrated oil and gas company, at low oil prices will also affect the country’s economic reform agenda.”
In addition, Dourian pointed out that not only low oil prices, but also behavioral changes caused by the epidemic will cause great destruction on other sectors of the regional economy, noticing that “The United Arab Emirates (UAE) has invested heavily in tourism, hotel management, logistics and aviation, but these areas have been hit by pandemics. As the recovery of the country’s economy will be slow, these sectors will also remain weak in the short and medium term.”
“The agenda of each state and every institution will be self-sufficiency,” says Ateş, the founder of Solarbaba platform, who thinks that the exit from fossil fuels and renewable energy transformation will occur faster after the pandemic.
“In terms of the energy sector, I don’t think he can continue on the road normally. There wasn’t anything “normal” going on in the last few years in the energy field. The edible energy sector was experiencing an irrepressible exit. We know that some of the major fossil fuel companies have even changed their names. Some of these companies entered huge wind and solar auctions, won and started investments. So the change had begun, and that wouldn’t come back. After the pandemic, I think this process will increase even more because the agenda of every institution, every state will be self-sufficiency. Turkey in particular were very lucky because we look at in terms of clean energy sources in this respect a country that can be called paradise. So I think it can be a big chance for us and countries like us.”