DUBAI (Reuters) – Countries in the oil-exporting Persian Gulf will remain heavily dependent on hydrocarbon production for at least the next 10 years as efforts to diversify economies have made limited progress since the 2014-15 oil price shock, Moody’s said.
The rating agency said the 2020 pandemic-induced shock to oil demand and prices highlighted GCC sovereigns’ very high exposure to oil market fluctuations as oil and gas accounts for over 20 percent of gross domestic product (GDP), more than 65 percent of total exports and at least 50 percent of state revenues for most Persian Gulf countries.
“If oil prices average $55/barrel ... we expect hydrocarbon production to remain the single largest contributor to GCC sovereigns’ GDP, the main source of government revenue and, therefore, the key driver of fiscal strength over at least the next decade,” Moody’s said in a report on Monday.
Alexander Perjessy, VP and senior analyst at Moody’s and the author of the report said economic diversification away from hydrocarbons remains the most frequently stated policy objective in the region but will likely take many years to achieve.
“The announced plans to boost hydrocarbon production capacity and government commitments to zero or very low taxes make it unlikely that heavy reliance on hydrocarbons will diminish significantly in the coming years,” Perjessy said.
Despite ambitious governments’ plans, diversification efforts since 2014 have yielded only limited results and will be held back by lower oil prices. Plans to launch new economic sectors have often overlapped, creating competition among GCC states and constraining room for growth, the report said.