Coronavirus pandemic takes a huge toll on oil economies across West Asia

Oil economies across West Asia have been hit by a novel coronavirus. The shift away from oil was already underway, and the pandemic accelerated it.

Arab monarchies could lose nearly $2 trillion in the next 15 years. Once the oil demand peaks this dire prediction from the international monetary fund came in February.

But -- as the coronavirus spread to more than 100 countries in the following months. The pandemic wiped out oil demand like never before.

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By May, lockdowns and travel restrictions had wiped out almost a third of the global oil demand. Gulf Cooperation Council (GCC) countries are set to lose 270 billion dollars in revenue this year.

Oil was the ultimate cash cow for the gulf. But, the pandemic has precipitated the end of the oil age.

Even the richest kingdoms are struggling to balance their books... Thanks to the fluctuations in oil prices. Saudi Arabia is the largest producer of oil. Going by one estimate --- 70 per cent of its budget comes from oil revenues.

To meet its expenses Saudi Arabia needs an oil price of 80 dollars a barrel. As of today --- oil is selling at less than 50 dollars per barrel.

Smaller oil producers are hurting more. In May, Algeria announced that it would cut its spending to half. Iraq, another leading oil producer, is staring at an economic collapse. For most of 2020, Iraq has been unable to pay salaries to government employees.

Oman has the widest budget deficit among Gulf Arab economies. The country has been rated junk by three major credit rating companies. Its deficit stands at almost minus 17 per cent of its GDP.

Its the over-dependence on oil --- that triggered this crisis of cash for the Gulf economies and the crisis is here to stay. Oil prices are expected to remain low in the future. Due to oversupply and the improving availability of clean energy resources. If the Gulf economies don't wean away from oil, their coffers could run dry. The IMF predicts oil demand to peak around 2040.

To account for this, oil economies must start substantial reforms now. Else, their financial wealth will deplete by 2034. West Asia runs the risk of running out of money, well before it runs out of oil.