27 September 2023 10:48 pm
Second-annual flagship MENA Forum from the sidelines of UNGA

Second-annual flagship MENA Forum from the sidelines of UNGA

Sep 22, 2023

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‘Exploring MENA’s role in driving resilience through Sustainability’ was in the second-annual flagship MENA Forum from the sidelines of UNGA which was debated as described here below.

.The above featured image is for illustration

 

SRMG Think and the Middle East Institute co-host second-annual flagship MENA Forum from the sidelines of UNGA

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Press Release post in Zawya of September 22, 2023

 

MENA COUNTRIES

Convening on the sidelines of the 78th Session of the UN General Assembly, the second edition of MENA Forum goes beyond the headlines to provide unparalleled insights through the lens of MENA’s leading figures and thinkers

The distinguished panelists and moderators include senior ministers from Egypt, Jordan, United Arab Emirates, Turkey and Qatar as well as diplomats, leading experts and private sector decision-makers

MENA Forum 2023 will be livestreamed and will be available to watch here from 09:40AM EST on 22nd September

To coincide with the Forum, SRMG Think Research & Advisory publishes ‘MENA Forum Report: the case for cooperation beyond de-escalation’, providing a complementary examination of MENA’s potential for fostering regional collaboration across geopolitics, economics, and energy

New York – SRMG Think Research and Advisory (SRMG Think), an independent research and strategic advisory firm focused on the Middle East and North Africa (MENA), is pleased to announce the second edition of its flagship annual MENA Forum, providing a global platform to showcase the region’s growing role in contributing innovative solutions to address important issues impacting the world today. Hosted in partnership with non-partisan think tank, the Middle East Institute (MEI), MENA Forum 2023 will convene on the sidelines of the 78th session of the UN General Assembly (UNGA) in New York on Friday, September 22nd.

SRMG Think’s mission is to bridge the knowledge gap by offering data-driven, fact-based analysis and insights on the MENA region. Its dedicated team of leading experts and analysts serves as a trusted source for governments, businesses and NGOs seeking to better understand and navigate the region. The MENA Forum represents how SRMG Think utilizes its experienced team and global network to foster dialogue, promote understanding and offer fresh perspectives on a region undergoing significant transformation.

The exclusive one-day policy forum will explore topics at the heart of the global conversation as world leaders and policy-makers gather to discuss global priorities during UNGA’s high-level week. The Forum’s theme “MENA: Reinforcing Global Resilience Through Sustainability” will facilitate constructive dialogue examining the ways in which MENA can work with the international community to develop sustainable, long-term solutions to critical regional challenges. It will also provide a unique lens on how the region is evolving into a dynamic hub driving new trends and contributing to the global agenda.

As the MENA region assumes a greater leadership role on the world stage, the Forum will deliver unparalleled insights and address the region’s pivotal role in the energy transition, global peace and stability efforts, and economic sustainability. The Forum will similarly explore how enhanced cooperation among key regional players is fostering sustainable development and stability.

The Forum will provide a collaborative environment for a diverse range of regional policy-makers, diplomats, leading experts and private sector decision-makers to deliver distinct perspectives through eight high-level keynotes, talks and panels. This year’s participants include Her Excellency Rania Al Mashat, Minister of International Cooperation, and Governor for the World Bank, European Bank for Reconstruction and Development, the African Development Bank, and other international institutions, Arab Republic of Egypt; His Excellency Dr. Ayman Al Safadi, Deputy Prime Minister and Minister of Foreign Affairs and Expatriates, Hashemite Kingdom of Jordan; Her Excellency Mariam Almheiri, Minister of Climate Change and Environment, United Arab Emirates; Ahmet Yıldız, Deputy Minister of Foreign Affairs, Republic of Türkiye; His Excellency Dr. Majed Al Ansari, Advisor to the Prime Minister and Minister of Foreign Affairs and Spokesperson, State of Qatar; Timothy Lenderking, U.S. Special Envoy for Yemen, United States Department of State; Dr. Amer Bisat, Managing Director and Global Head of Emerging Markets, BlackRock; and Dr. Sara Vakhshouri, Founder and President, SVB Energy International, among others.

Neil Quilliam, Director of Energy, SRMG Think, said: “As MENA continues to achieve its development aspirations and evolves into an engine for global growth, it has become increasingly important for governments, businesses and decision-makers to understand the region. However, there is currently a lack of actionable insights that these entities and individuals can rely on. In light of this, a MENA-focused UNGA side event, featuring invaluable perspectives from the region, is more crucial than ever. The MENA Forum fosters open and frank discussions on the economic, political, and environmental challenges and opportunities present in MENA through the lens of regional leaders and the brightest thinkers. SRMG Think’s mission is to provide independent research and advisory and this event, co-hosted with MEI, demonstrates how our deep regional and global network provides a roadmap to navigate a rapidly evolving region.”

Paul Salem, President and CEO, Middle East Institute, said: “MEI is proud to collaborate with SRMG Think on this year’s MENA Forum. As the world confronts challenges around energy transition, climate change, economic diversification, trade, and human security, the MENA region remains a focal point where all of these complex dynamics converge. It is critical to bring leaders and policy practitioners from the region to engage with the international community in order to build on common interests and opportunities for a better global future.”

Think Research – ‘MENA Forum Report: the case for cooperation beyond de-escalation’

This research report complements MENA Forum 2023’s dialogue concerning the evolving dynamics within the MENA region. The report explores MENA’s potential for promoting regional cooperation and contends that the de-escalation of tensions in the region has opened a window of opportunity for states to collaborate on pressing, shared issues in three key areas: geopolitics and security, economics, and energy. However, the report underscores that while factors such as the rapprochement between Saudi Arabia and Iran have helped create an opening for regional states to cooperate, this time-limited opportunity must be seized now to boost long-term stability and support energy transition.

  • Geopolitics and Security: The shift towards multipolarity in the global order, driven by factors such as rising great power competition between the United States and China, and the reprioritization of US interests towards the Indo-Pacific, has allowed ‘middle powers’ in the MENA region to rise in importance. MENA countries are responding to global power shifts by pursuing de-escalation and greater intra-regional cooperation. Factors motivating this shift include both the ‘great power’ competition, the Iranian threat, and the need for economic sustainability. As a result, the region is acting as a bridge in an increasingly fragmented global political order and MENA states have also adjusted their approaches towards each other on issues such as regional security, investment and financial aid, and trade relations. However, the report emphasizes that the progress made in de-escalation and regional cooperation must be fortified by more robust foundations to ensure its endurance.
  • Economics: MENA’s economic performance is divided into two contrasting regions: high-income GCC countries and middle-to-low-income economies. This disparity has been exacerbated as high oil prices have supported GCC growth and economic diversification. Oil revenues for GCC countries amounted to more than US$570 billion in 2022 (Saudi: US$311 billion, the UAE: US$119 billion, Kuwait: US$98 billion, and Oman: US$42.9 billion). While lower-income nations in the region grapple with high public debt levels, and difficulties accessing capital markets, GCC countries, buoyed by high oil prices, are advancing robustly with their economic diversification policies, offering the prospect of financial support to their lower-income neighbors. However, the GCC’s new investment strategy focuses on profitable investments and attaches conditions for financial support, including often painful IMF reforms. The GCC’s change in approach from delivering financial aid to MENA countries to focusing on strategic investments that deliver financial returns reflects their aim to secure and grow their wealth – in full recognition of the eventual shift away from hydrocarbons – while still influencing regional development and underpinning stability. This approach provides a newfound opportunity for lower-income MENA countries to implement structural reforms for positive economic development.
  • Energy: As the MENA region embarks on a journey to redefine its energy landscape, it confronts a series of challenges from rising energy demands to the urgent need for integrating renewable resources into existing infrastructural setups. The technical and financial requirements of these increasingly complex energy systems require regional collaboration on multiple fronts: in electricity grid interconnections and exchange markets and cross-border renewable energy investments, and in knowledge and technology sharing. The abundant yet unevenly dispersed renewable energy resources in the region which sees varying levels of wind and solar resources for instance, further underscores the need for a strategy rooted in cross-border collaboration to achieve ambitious energy targets. Both the ambitious strides towards energy diversification and the region’s extreme vulnerability to the impacts of climate change mean that this collaboration is increasingly essential.

The report finds that MENA is at a critical juncture and must capitalize on the current momentum and lay the foundations for the long-term cooperation in geopolitics, economics, and energy that is essential for addressing common challenges and mutual gain in the region.

About SRMG Think Research and Advisory:

SRMG Think Research and Advisory is an independent research and strategic advisory firm focused on the MENA region, helping entities navigate a complex global landscape and support decision-makers with unique insights and data. The firm’s leading advisory industry talent, comprising experts and analysts from top institutions, such as the United Nations, the World Bank and Chatham House, has a deep understanding of the region, which Think leverages for its strong suite of services providing unique insights, analysis, and evidence-based views in the areas of energy, geopolitics, macroeconomics, and media. Think’s deep regional knowledge is further bolstered by being a firm born out of the Saudi Research and Media Group (SRMG), the largest integrated media group from the MENA region, with a 50+-year legacy of independent coverage on the MENA region.

For more information, please visit: http://www.thinkresearchandadvisory.com and http://www.srmgthink.com.

About the Middle East Institute:

Founded in 1946, the Middle East Institute is the oldest Washington-based institution dedicated solely to the study of the Middle East. MEI has earned a reputation as an unbiased source of information and analysis on this critical region of the world, a reputation it has meticulously safeguarded since its creation. Today, MEI remains a respected, non-partisan voice in the field of Middle East studies. http://www.mei.edu.

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A MERCANTILE MIDDLE EAST

A MERCANTILE MIDDLE EAST

Sep 1, 2023

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The Gulf states can catalyze trade within the Middle East and North Africa region and the region’s integration into the global trading system

The world has witnessed a tectonic shift in global economic geography and trade toward emerging Asia in the past two decades. However, the Middle East and North Africa (MENA) region has remained one of the least dominant, accounting for just 7.4 percent of total trade in 2022. The region’s trade is characterized by a relatively high concentration of exports in a narrow range of products or trading partners, limited economic complexity, and low participation in global value chains.

Even so, commodity-dependent nations in the MENA region have made substantial gains over time, specifically in trade diversification, as shown by the Global Economic Diversification Index, which tracks the extent of economic diversification from multiple dimensions, including economic activity, international trade, and government revenues.

The MENA region’s total trade in goods as a percent of GDP (an indicator of openness) was 65.5 percent in 2021, indicating a relatively open regional economy. Yet, as shown in Chart 1, intraregional trade is low, representing only 17.8 percent of total trade and 18.5 percent of total exports, despite a common language and culture as well as geographic proximity. The six oil-exporting Gulf Cooperation Council (GCC) nations—Saudi Arabia, Bahrain, Oman, Qatar, Kuwait, and the United Arab Emirates—account for the bulk of intraregional trade.

Trade

Their dominance of intraregional trade suggests that the Gulf nations could become a catalyst for regional trade integration, helping lower barriers to trade, improving trade infrastructure, and diversifying the region’s economies. Greater integration of non-GCC Middle East nations with the GCC will lead to more intraregional trade and greater global integration (via the GCC’s existing global linkages and participation in global value chains). With the growing global economic integration of the GCC nations and their concerted effort in supporting the region’s other nations (via increased trade and investment deals with Egypt and Iraq, for example), they can be a conduit for greater integration of the rest of the region into world trade.

Region’s laggards

Why have non-GCC countries lagged when it comes to intraregional trade? In part it is a failure of the MENA region’s multiple regional trade (and investment) agreements. The share of intragroup exports in the Arab region, excluding the GCC, has remained below 2 percent of their trade flows, partially a reflection of regional fragmentation, violence, and wars since the mid-1990s and following the Arab Spring in 2011. The region comprises a group of nations characterized by significant political differences, and this is reflected in trade patterns as well. For example, the orientation of the Maghreb nations of North Africa has been toward Europe, with the regional Euro-Med program and agreements supporting such linkages.

A contributing factor to the stagnation of intraregional trade is the lack of growth of trade in services. MENA services trade has ranged between 4 and 6 percent of global services trade in the past two decades. This pales in comparison with the Organisation for Economic Co-operation and Development countries, which account for more than two-thirds of global services trade. Within the MENA region, the GCC accounts for the bulk of services trade, with the largest shares in relatively low-value-added sectors like travel (and tourism) and transportation. The services trade is held back by restrictive policies that limit entry in sectors dominated by state-owned enterprises, such as telecommunications, or that impose high fees and license requirements, especially in professional and transportation services.

Such restrictive policies, along with structural deficiencies, encumber MENA nations’ trade both within the region and globally.

MENA nations apply more, and more restrictive, nontariff measures than in any other region. These almost doubled between 2000 and 2020. Lack of uniform standards and harmonization, pervasive red tape, and corruption compound the effects of these barriers. Business and investment barriers include cumbersome licensing processes, complex regulations, and opaque bidding and procurement procedures.

MENA as a region underperforms on trade facilitation measures to ease the movement of goods at the border and reduce overall trade costs, though there are wide disparities across the region. The quality of trade- and transportation-related infrastructure is significantly lower in the non-GCC MENA nations. Furthermore, delays at the port result in excessive “dwell times” (delays of more than 12 days) for imported goods in some MENA countries. Algeria and Tunisia delays average about 20 days versus less than five days in the United Arab Emirates (among the top three globally).

Knocking down barriers

Overcoming these impediments to wider trade for the region requires removing barriers to trade and investment, diversifying the region’s economies, and improving infrastructure.

A new generation of trade agreements, including more knowledge-intensive services, would not only support export diversification policies but would also help bridge gender gaps, improve women’s economic empowerment, and subsequently result in more inclusive economic growth and integration.

The pandemic has underscored the need for trade diversification (both of products and partners) and development of new supply chains. Although the GCC’s oil trade remains dominant, its members have embarked on various policies and structural reforms, such as increasing labor mobility and opening capital markets across borders, to diversify away from overdependence on fossil fuels and associated revenues. This has resulted in diversification of both the output mix (for example, increased focus on manufacturing) and the export product mix (for example, more services exports) alongside an evident shift in trade patterns toward Asia and away from the United States and Europe. More recently, the war in Ukraine further highlighted the plight of food-importing nations in the Middle East in the context of food security. (Ukraine and Russia accounted for a third of global wheat exports; Lebanon and Tunisia were importing close to 50 percent of their wheat from Ukraine.)

The Global Economic Diversification Index trade subindex shows that the commodity-dependent nations with the most improved scores over time have either reduced dependence on fuel exports, reduced export concentration, or witnessed a massive change in the composition of exports. An example of the latter is Saudi Arabia’s increased focus on medium- and high-tech exports, which rose as a share of overall manufacturing exports, to almost 60 percent right before COVID from less than 20 percent in 2000. The MENA region as a whole has already made some headway toward diversification, as shown in Chart 2.

Trade 2

The GCC nations have benefited from the recent rise in commodity prices, but the pandemic reinforced strategies, including the development of free zones and special economic zones, to diversify into new sectors. These policies range from attracting investment (including foreign direct investment) to higher-value-added, higher-tech manufacturing; investing in new sectors (renewable energy, fintech, artificial intelligence); and opening markets to new investors and investments (as is evident in the recent spate of initial public offerings in both the oil and non-oil sectors). These reforms help expand markets (within the MENA region and toward Africa, Europe, and South Asia), while up-and-coming sectors like renewable energy and agritech offer sustainable ways of expanding the extensive and intensive margins of trade and generating new job opportunities.

Engine for regional integration

Full achievement of the benefits of regional trade integration requires a reform of trade policies to break down barriers, including restrictive nontariff measures, complex regulation, corruption, and logistical roadblocks.

Integrating the MENA region’s trade infrastructure (ports, airports, logistics) with that of the GCC would lower costs and facilitate intraregional trade, leading to greater regional integration and generating gains from trade for all parties. The GCC can lead the economic integration and transformation of the region via investments in hard infrastructure and trade-related infrastructure and logistics, in addition to developing an integrated GCC power grid. A GCC renewable-energy-powered, integrated electricity grid could extend all the way to Europe, Pakistan, and India.

The GCC nations have an opportunity to benefit from global decoupling and fragmentation with their unfolding strategy of pursuing globalization as a regional group through new trade and investment agreements, foreign aid, and direct and portfolio investment. The ongoing disengagement from long-standing regional conflicts, in Israel, the West Bank and Gaza, Yemen, the Islamic Republic of Iran, Libya, and elsewhere, and the forging of new links (diplomatic opening such as the Abraham Accords) reduce the geopolitical risks of promoting regional trade and investment. The GCC can use this as an opportunity to shape the MENA region into an interlinked trade and investment hub. The GCC’s accelerated new free trade negotiations with key partners in the MENA region, including Egypt and Jordan, and in Asia, including China and South Korea, could become the cornerstone of this transformation. The United Arab Emirates have already signed comprehensive economic partnership agreements with India, Indonesia, and Türkiye covering services, investment, and regulatory aspects of trade.

There are two complementary ways to move forward. One is to implement the GCC Common Market, invest in digital trade, lower tariff and nontariff barriers, and reduce restrictions on trade in services, along with reforms to facilitate greater mobility of labor and enhance financial and capital market linkages. Second, the GCC should develop new deep trade agreements with the other MENA countries, going beyond international trade to encompass agreement on nontariff measures, direct investment, e-commerce and services, labor standards, taxation, competition, intellectual property rights, climate, the environment, and public procurement (including mega projects). The GCC nations, which have historically used foreign aid and humanitarian aid to support MENA nations, should opt for an “aid for trade” policy to support their partners in implementing trade-boosting reforms that lower business and investment barriers, improve logistics infrastructure, and facilitate the movement of goods.

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NASSER SAIDI is the president of Nasser Saidi and Associates. He was formerly chief economist of the Dubai International Financial Centre Authority, Lebanon’s economy minister, and a vice governor of the Central Bank of Lebanon.

AATHIRA PRASAD is director of macroeconomics at Nasser Saidi and Associates.

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Climate change puts sovereigns at downgrade risk, study finds

Climate change puts sovereigns at downgrade risk, study finds

Aug 7, 2023

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Climate change puts sovereigns at downgrade risk, is found in a study that simulated the economic impact of climate change on current sovereign credit ratings.

Climate change puts sovereigns at downgrade risk, study finds

By Mark John

 

The above-featured image is of  A man walks past a coal-fired power plant in Shanghai
A man walks past a coal-fired power plant in Shanghai, China, October 14, 2021. REUTERS/Aly Song/File Photo

 

Summary

  • Rising emissions scenario leads to 59 downgrades
  • Paris Agreement path would minimise credit impact
  • Heatwaves already seen damaging global economy

 

Aug 7 (Reuters) – A global failure to curb carbon emissions will lead to rising debt-servicing costs for 59 nations within the next decade, according to a study that simulated the economic impact of climate change on current sovereign credit ratings.

Among them, China, India, the United States and Canada could expect higher costs as their credit scores fall by two notches under a “climate-adjusted” ratings system, the study published in the Management Science journal on Monday found.

“Our results support the idea that deferring green investments will increase costs of borrowing for nations, which will translate into higher costs of corporate debt,” researcher Patrycja Klusak said of the study led by the University of East Anglia (UEA) and the University of Cambridge.

Rising debt costs would be just one extra facet of the overall economic damage which climate change is already causing. Insurance giant Allianz estimates that recent heatwaves will already have shaved 0.6% points off global output this year.

While ratings agencies acknowledge the vulnerability of economies to climate change, they have so far been cautious in quantifying those risks in their ratings exercises because of uncertainties about the likely extent of the damage.

The UEA/Cambridge study trained artificial intelligence models on S&P Global’s existing ratings and then combined that with climate economic models and S&P’s own natural disaster risk assessments to create new ratings for various climate scenarios.

A downgrade to 59 sovereigns emerged from a so-called RCP 8.5 scenario of emissions that keep rising. By comparison, 48 sovereigns experienced downgrades between January 2020 and February 2021 during the turmoil of the COVID-19 pandemic.

If the planet manages to stick to the goal of the Paris Climate Agreement, with temperatures held under a two-degree rise, sovereign credit ratings would under the simulation see no impact in the short-term and only limited long-term effects.

A worst-case scenario of high emissions through to the end of the century would on the other hand result in higher global debt-servicing costs, rising up to the hundreds of billions of dollars in current money, the model found.

While developing nations with lower credit scores are seen hit hardest by the physical effects of climate change, nations with the highest ranking credit scores were likely to face more severe downgrades simply because they have furthest to fall.

“There are no winners,” Klusak said in an interview.

The findings come as regulators around the world seek to better understand just how much damage to economies and the global financial system to expect from climate change. A European Central Bank paper last year urged greater clarity in how those risks were being built into credit ratings.

S&P Global Ratings has published the environmental, social and governance (ESG) principles used in its credit ratings which include reference to the risk of economic damage from climate change and the costs associated with mitigating it. It declined to comment on the UEA/Cambridge study.

Fitch Ratings pointed to its system of “ESG Relevance Scores” as including factors such as exposure to environment impacts as one component in its assessments.

“These are longstanding and increasingly important rating factors which we continue to weigh in our analysis and publish frequent research and commentary upon,” it said in response to a request for comment.

Climate change puts sovereigns at downgrade risk

Reuters Graphics

Writing and reporting by Mark John; Editing by Hugh Lawson

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Stop Categorizing North Africa With Middle East

Stop Categorizing North Africa With Middle East

Jul 18, 2023

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Stop Categorizing North Africa With Middle East, advises PeacePro telling Global Peace Index it diminishes the chances of Africa being seen as one continent. So here is the argument.

Stop Categorizing North Africa With Middle East – PeacePro Tells Global Peace Index

By ForeFront NG Admin II, 18

…Says MENA categorization makes it difficult to see Africa as one continent

A peacebuilding think tank in Nigeria on the aegis of ‘Foundation for Peace Professionals’ also known as PeacePro has urged global bodies, academic institutions and research groups to stop categorizing North African countries with the Middle East under the acronym of MENA  Middle East and North Africa).

PeacePro noted that such conflicting categorization by global bodies such as the World Bank, World Health Organization and others was creating none existing barrier between North African countries and the rest of Africa, thereby making it difficult to see Africa as one and to create social, economic and psychological integration in the continent.

Executive Director of PeacePro, Mr Abdulrazaq Hamzat, who stated these while engaging Institute of Economics and Peace (IEP), the producer of global peace index on popular social media platform Twitter, questioned the rationale for using such categorization in the global peace index report.

Hamzat said; “Why is Africa usually divided into 2 on the global peace index report? This division has consistently raised questions in our sessions at Foundation for Peace Professionals (PeacePro)”.

The IEP ambassador also said that his organization is currently working on an African based enlightenment report, which is an extract from the global peace index, to create further awareness on GPI report and the extraction of North Africa to Middle East in the Global Peace Index report has been a major point of contention, making it difficult to visualize Africa as one continent, with its data scattered across different regions.

Responding to Hamzat’s inquiry on Twitter, IEP Global Peace Index noted that, for regional analysis, IEP splits Africa into sub-Saharan Africa and MENA, adding that it was consistent with the World Bank grouping.

However, Hamzat stressed that even though, it was consistent with other categorization including that of the World Bank, Peacepro was yet to understand the rationale for such categorization thus, open for enlightenment on the subject.

Hamzat further said that it was important to note that, in politics and academia, North African countries are commonly grouped with the Middle East under the umbrella of MENA, a development which has been questioned by many people, including in North Africa.

As a regional identifier, MENA is often used in academia, military planning, disaster relief, media planning (as a broadcast region) and business writing.

However, Hamzat noted that there was no MENA region amongst the United Nations Regional Groups, nor in the United Nations geoscheme used by the UNSD.

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Global economic uncertainty means oil prices will continue to surprise

Apr 26, 2023

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Global economic uncertainty means oil prices – and your fuel bill – will continue to surprise us all this year.  Let us hear what Carole Nakhle says about it.

The image above is on Oil price uncertainty. Holmes Su/Shutterstock

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Global economic uncertainty means oil prices – and your fuel bill – will continue to surprise this year

By Carole Nakhle, University of Surrey

Oil prices have confounded expectations in the first quarter of 2023. Brent – a major global benchmark – hit a low of US$72 (£58) a barrel on March 17, while the world’s other main benchmark, WTI, dropped to less than US$66 a barrel. This is a far cry from the nearly US$114 and US$103 a barrel, respectively, reached on the same day a year before following the invasion of Ukraine by Russia, a major oil producer.

These unexpectedly low prices remain even as the war in Ukraine continues with no clear end in sight. Other developments have also failed to boost prices as expected. China, the world’s largest importer of crude oil, abandoned its zero-COVID policy in December 2022, creating expectations that Chinese oil demand would quickly return with a vengeance, propelling prices higher. A couple of months before this, OPEC+ (the cartel of certain oil-producing nations) had announced a production cut of 2 million barrels a day (mb/d) – roughly 2% of world supply and the largest cut since 2020.

A surprise announcement of 1.1 mb/d of cuts by OPEC+ on April 2 did boost prices. On top of a 0.5 mb/d decrease announced by Russia in February, this has brought the group’s cuts to 1.6 mb/d. And by mid-April Brent reached US$86 and WTI US$83 per barrel.

But oil has now started to retreat again, an unexpected development during a war involving a major oil exporter, and at a time when a giant consumer like China is reopening after three years of economic isolation.

This shows that oil price forecasts continue to be unreliable. The economic outlook and Chinese consumption growth are key to demand expectations, while Russia is the wild card in terms of supply. Until uncertainty around these three factors dissipates, global oil markets will not have a clear direction.

Oil price movements:

US Energy Information Administration, Bloomberg, Author provided

Economic outlook

Oil demand is closely linked to economic growth because a slowing economy shrinks income, leading people to curtail expenditure and travel less, and slowing down manufacturing that uses oil. Various economic forecasts have recently highlighted the major challenges facing the global economy, but widely prevailing uncertainty seems to top the list.

In its April 2023 World Economic Outlook, the International Monetary Fund (IMF) emphasised a high level of uncertainty “amid financial sector turmoil, high inflation, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID”.

The World Bank has also warned that “a lost decade could be in the making for the global economy” as “nearly all the economic forces that powered progress and prosperity over the last three decades are fading”.

April’s OPEC+ Monthly Oil Market Report kept its forecast for economic growth and oil demand largely unchanged from previous reports, but said: “The global economy will continue to navigate through challenges including high inflation, higher interest rates particularly in the Eurozone and the US, and high debt levels in many regions.” It stated that “these uncertainties surrounding current oil market dynamics” were behind its decision to cut production.

Prince Abdulaziz bin Salman Al Saud (centre), minister of energy, industry and mineral resources of the Kingdom of Saudi Arabia, speaks at an OPEC press conference in Vienna, Austria, October 5 2022. Christian Bruna/EPA-EFE

The China factor

China is the world’s second-largest oil consumer and the second-largest economy after the US. So all eyes have been on its oil demand since the country ended the nearly three-year zero-COVID policy that severely restricted its peoples’ mobility and economic activity.

Today, it is the main bullish factor in many global economic forecasts. The IMF’s managing director recently said:

China this year is going to contribute about one-third of global [economic] growth. We calculated that 1% more growth in China translates into 0.3% more growth for the economies that are connected to China.

The IEA believes China will account for half of the global increase in oil demand this year. Goldman Sachs expects China’s oil demand growth to boost Brent by roughly US$15 per barrel.

However, such enthusiasm is not universally shared. A Citibank report says China’s post-COVID recovery seems slower than expected. Being an export-driven economy, the Asian powerhouse is exposed to the health of the rest of the world. A weakening global economy will reduce demand for Chinese exports, with negative repercussions on its economy and therefore oil demand.

Similarly, China’s National Bureau of Statistics said “the external environment is even more complex, inadequate demand remains prominent and the foundation for economic recovery is not solid yet”. Or, as the Saudi energy minister reportedly said when asked about an oil demand rebound recently: “I’ll believe it when I see it.”

Russia: not done yet

As a major oil producer and exporter, Russia also has a massive influence on global oil markets. Despite sanctions since the beginning of the war in Ukraine (and following the annexation of Crimea in 2014), Russia continues to be the world’s third-largest oil producer after the US and Saudi Arabia.

When Russia invaded Ukraine, oil prices spiked due to fears of a loss of Russian supply. The IEA warned the resulting 3 mb/d loss (around one-third of Russia’s total and almost 3% of world production) could produce “the biggest supply crisis in decades”. Analysts from investment bank JP Morgan said Russia could cut up to 5 mb/d of production driving global oil prices to a “stratospheric” US$380 per barrel.

Such gloomy scenarios did not materialise. Russian oil continued to flow but changed direction from Europe to Asia, helping to ease price pressure for consumers everywhere. And Russia’s cuts in retaliation for sanctions have so far been smaller than expected. Of course, it could cut more, especially if this would put more economic pressure on the west and affect support for Ukraine.

This cocktail of uncertainties should encourage a more cautious stance when it comes to predicting oil prices, this year at least. Some analysts have already reduced their 2023 price forecasts, with estimates varying between US$81 and US$100 a barrel.

Expect more revisions. As one study that tracked the evolution of oil prices over four decades said: “all price expectations are subject to error”.

Carole Nakhle, Energy Economist, University of Surrey

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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