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The dispute between Moscow and Riyadh focuses on oil prices. Pixabay

By Amin Bagheri

The rise in oil prices and the government’s emergency plans to fight the coronavirus have harmed the overall budgets of the Gulf states and on average growth forecasts for the coming period, but the impact has varied from country to country. The dispute between Moscow and Riyadh focuses on oil prices, declining production, and divergent attitudes toward how to deal with US shale oil. This is evidence against the background of weak demand – which has waned since the start of the corona – and the low price of oil, which has already put pressure on the state budget of oil-producing countries. On the other hand, declining oil prices and the government’s emergency plans to fight the coronavirus have harmed the overall budgets of the Gulf states and the average growth forecast for the coming period, but the impact has varied from country to country. This conflict is likely to lead to significant economic deterioration throughout the Middle East and may exacerbate growing geopolitical tensions in the Persian Gulf region. Overall, falling oil prices will drastically reduce oil and gas producers’ incomes. Most of them have already faced a financial deficit, which is now deepening. In more than half of the countries in the region, the headline of the financial series, which indicates the price of oil needed to balance the government’s budget, is more than double the current price of oil. The economic consequences of the price war are intertwined with the effects of the coronavirus. This is particularly damaging sectors of the Gulf economy that have seen progress in diversifying their economies. But when oil revenues are declining, these sectors have no way out. Several international banks have cut their forecast for GDP growth in the region from 0.2 percent last year to 0.4 percent in the Gulf Cooperation Council (GCC). Some Arab states in the Persian Gulf are in a better position to deal with a long period of falling oil prices than others. Kuwait and Qatar, for example, have relatively high per capita oil revenues, and governments in these countries can rely on significant financial reserves. But most countries now face deep challenges. The risks for Saudi Arabia as OPEC’s top producer are higher. The country is struggling with a severe financial deficit and declining reserves (in 2014, Saudi Arabia’s reserves were 48 percent higher than today). Riyadh has launched a price war and is likely to believe it can withstand the initial decline in revenue. But this oil policy, if it affects social spending, could have significant implications for Muhammad bin Salman’s efforts to consolidate his power in the country, as well as Saudi Arabia’s international position as a factor in the crisis. Saudi Arabia suffered the most after the fall of about 30 percent in oil prices and the suspension of the OPEC agreement to reduce production, especially since the situation continues to suffer hundreds of millions (dollars) a day. That put Saudi Arabia down about $ 13 billion (5 percent of the overall 2020 budget) from government spending. According to the Fitch International Financial Institution, Saudi Arabia needs to raise the price of a barrel of oil to $ 91 a barrel in 2020 so that it can balance its budget, and Saudi Arabia’s budget deficit is projected to rise from 4.5 percent to 10 percent. For this reason, it can be said that the Saudi banking sector will not have the prospect of an interesting banking system with the deterioration of the banking environment. Besides, economic activity in Saudi Arabia can be predicted to slow down, and the instability caused by the Coronavirus will affect banks’ capital and profits, and the case for strong financial support for banks will come under pressure. Because falling oil prices are an obstacle to the Saudi government’s treasury. Consequently, this will lead to a gradual decline in the capital of the National Wealth Fund for two reasons. First, Saudi Arabia’s reliance on the fund to reduce financial crises, and second, the reduction in oil prices reduces the profit margins that were the main source of these funds.

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Dubai’s overall financial market index has lost 61% of its value since 2014. Pixabay


The UAE is also considering a period of economic concern centered on Dubai. In recent years, Dubai’s problems, which have never been able to fully recover from the 2008 financial crisis, have grown. Government-related institutions, while making progress towards diversification, have heavy debts, amounting to half of Dubai’s gross domestic product. Dubai’s overall financial market index has lost 61 percent of its value since 2014, and real estate prices have fallen amid fears of a bubble. In general, the growth of the UAE’s gross domestic product in recent years has declined sharply, while the government’s non-oil financial balance has also increased.


Qatar’s impact on recent global oil markets is not as great as in other Gulf countries, but it cannot be said that Qatar’s situation is much better. The main reason that excludes Qatar to some extent from other victims is the country’s gas. The country relies heavily on liquefied natural gas, which is not much lower than oil prices. But the problem facing Qatar’s revenues is the possibility of declining global gas demand. In this regard, the stability of the banking sector and the non-impact of banks’ financial centers on the crisis are predicted and likely, but if the disease continues uncontrolled, economic pressures will increase and this will have a direct impact on Qatar’s national capital, especially in The shadow of the collapse of global stock markets.


The country that will suffer the most from the oil price war in Iraq. In Iraq’s 2019 budget, about 95 percent of the government’s budget was based on oil revenues. The consequences are being felt while reducing oil revenues has made it difficult for government employees to pay their salaries. Iraq’s budget crisis is unfolding at a dangerous time. Baghdad is in the midst of a long-running political crisis. The government is struggling economically to provide basic public services, including electricity and health. The anger of the Iraqis is growing. At the technical level, low oil prices could slow the development of Iraq’s upstream oil industry, and the stalemate between Iran and the United States could complicate matters.

The country that will suffer the most from the oil price war in Iraq. Pixabay


With the current situation in Bahrain, it can be said that the recent developments will affect this country more than other countries, especially in the light of the increase in the average public debt and the connection between the Bahraini economy and the Saudi economy. With oil prices falling, Bahrain will face tough obstacles.

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In general, the war over oil prices could destabilize beyond the Persian Gulf. Egypt, in particular, depends on the financial support of the Persian Gulf region to maintain development spending, social services, and security. Jordan and Lebanon also rely on funding from the Persian Gulf region. If financial pressures increase, Gulf Arab states may reconsider budgeting and aid development in the Middle East.

In conclusion, the recent oil war in the global oil markets, which flared up over Moscow’s and Riyadh’s differences over the production of this strategic commodity, During the Coronavirus crisis sounded the alarm for oil-producing countries by an unprecedented price shock. The oil war and the fall in oil prices have harmed the overall budgets of the Gulf states and on average growth forecasts for the coming period. Despite all this, after the start of the Saudi oil war, the regional power centers of Qatar, Saudi Arabia, and the UAE are likely to continue to have sufficient reserves to continue their political and military interactions abroad, at least for the foreseeable future. However, if the price of oil remains low over time, these actors may be forced to re-analyze the cost and profit of their regional actions. At the same time, the war over oil prices is still ongoing and we must wait and see if Riyadh or Moscow will lose the oil war.



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