The unexpected decline in oil prices to a level below US$50 marks the end of the commodity super cycle that began in the early 2000s. Though the current oil price plunge is significant, it is not an unprecedented event. However, the concern is that this bust cycle is expected to persist into the medium term.
The causes and consequences of the recent drop in oil prices and the ensuing policy responses have invited heated debates. Nowhere are these debates more relevant than for the Arab region which is blessed with large hydrocarbon endowments, holding about half of global oil reserves and a quarter of natural gas reserves. It also controls close to 33 percent and 14 percent of oil and natural gas production, respectively. For the Arab region, the severe drop in oil revenues is expected to have wide-ranging consequences for the region’s growth and development prospects.
At the heart of the current debate are the following policy questions:
- What is the medium to long term outlook for oil prices?
- What is the optimal macroeconomic policy response for Arab oil exporters and importers?
- Is there room for counter-cyclical macroeconomic policy?
- What is the role of sovereign wealth funds in short-term stabilization and in economic diversification?
- Can the existing social contract in the GCC survive a prolonged decline in oil prices?
ERF in partnership with the Arab Fund for Social and Economic Development, Kuwait organized a policy conference to better understand the recent dynamics in global oil markets, their consequences for the Arab region and put forward policy recommendations to address future prospects.