If one thought a global pandemic is not enough to saturate humanity’s focus; then think again, as realpolitik does not cease even for a global crisis.
Never let a crisis go to waste, is a maxim global power player(s) know very well. The Saudi-Russia standoff in which their oil pricing mechanism talks broke off, led Saudi Arabia to flex its muscles and flood the market with oil.
The global oil storage facilities are at its brim, and oil prices have plummeted by 30% to lowest levels since the Gulf War. The oil demand has shrunk due to the global COVID-19 lockdown where marine transportation and aviation have paused, and transport of any sort has been minimised.
This move is counterintuitive as Crown Prince Mohammed bin Salman or popularly known as MBS, has led a reform program to move the country’s dependence on oil by 2030. Paradoxically, any move away from oil will need oil revenues to create alternative capacity in tourism, logistics and entertainment.
The oil prices currently are far below the budgetary break-even, leave alone the bandwidth for spare cash to fuel diversification plans. Saudi Arabia, a country with a large youth bulge has sent back hundreds of thousands of low skilled expat/migrant workers under a nationalisation program to create jobs for its own citizens which until a few years back would have been unthinkable.
A Saudi National, working in a café as Barista? Or driving an Uber? The answer is an affirmative. Saudi Arabia’s Public Investment Fund (overseas investment arm) through the Soft Bank’s Vision Fund has invested in Uber.
How does this tectonic shift in West Asian Petro politics matter for India? On the positive end of the spectrum, India saves on crude import costs, which according to veteran journalist Shekhar Gupta, each dollar decrease in oil prices has a phenomenal saving of ten thousand crores.
This saving is not translated at the pump for the retail consumer as taxes fund welfare schemes for the poor. The spare cash also helps to plug in gaps at the other end of the fiscal balance sheet.
The low oil price environment in West Asia, triggered by Saudi Arabia is bankrupting economies such as Bahrain and Oman who depend on higher oil prices to balance their books. UAE and Saudi Arabia have deeper pockets for such adventurism as they have shown in the Yemen civil war.
Wealthy Qatar has issued an international bond to plug in a budget deficit in the light of the low oil prices and the global economic slowdown. Dubai, with a non-oil economy but a tourism and aviation play is under a lockdown to contain the COVID-19 virus.
As per a game theory analysis report by Financial Times, Saudi Arabia is playing for long term market share by decimating rivals who have a much higher cost of oil extraction such as shale oil producers in the United States, who are highly leveraged.
This power play impacts Russia severely as the country’s reach in Syria and Libya is heavily pegged to its oil revenues. Saudi Arabia-UAE coalition are on the opposite side to Russia in the decade long Syrian Civil War to dislodge Bashar Al Assad.
India gets the bulk of annual remittances from its worker diaspora in the Gulf, which feeds millions of families particularly in southern states. In recent years, the Hindi belt states had been sent workers as well to the Gulf.
Workers travel to the Gulf after paying humongous agent commissions often to experienced workers who act as informal manpower agents. These agents connect them with local citizens who as a form of rent seeking act as ‘Arbab’ or ‘the sponsor’ under the infamous Kafala system of labour governance in the Gulf.
The workers on these ‘free visas’ then do all sorts of tasks in order to recover the investment which comes from mortgaged wedding jewellery or agricultural land so that the non-college educated person can act as a breadwinner.
Loss of employment from shrinking projects in the oil and gas sector impacts the entire value chain in the Gulf, and the reverberations are felt in a far away village in Kannur or Kapurthala. In the past few years workers have begun to come back in droves, as jobs have been lost due to nationalisation or the sheer lack of opportunities.
The expats also comprise the retail sector into which the gulf states are wishing to diversify into. As the expats leave, so do other avenues for economic diversification. Apart from Kerala, no other Indian state has a structured mechanism to help the Gulf migrant get back on its feet.
As India along with the world reels under a global economic slowdown, migrants coming back from the Gulf should be anticipated. COVID-19 has reduced the need for the migrant in the region. In a slow global economy, remittance riyals assist in the balance of payments term sheet. In this current scenario, our non-fashionable worker diaspora in the Gulf has a renewed salience.
India’s foreign policy with Saudi Arabia has been a spectacular success in the Modi era. In the era of climate change commitments with renewables taking prominence, India is seen by Riyadh as a long-term oil consumer.
The Saudi Aramco-ADNOC led Oil Refinery in Ratnagiri is on hold due to land acquisition concerns. Saudi Aramco was supposed to pick up a substantial stake in the refinery business of Reliance Industries as well. With the massive correction in valuations in the Indian bourses, and the low oil prices, pre pandemic calculations will have to be seen if they stand the same or are recalibrated.
In the post pandemic reality, Saudi Arabia is playing for pole position in the oil market sacrificing or delaying the economic diversification program. India would have to work closely with the Saudi authorities to gauge the condition of its diaspora in this economic climate in order to prepare for any short fall in remittances and to alert state governments for a potential deluge of returnees.
The views and opinions expressed in the article are those of the authors and do not necessarily reflect the official policy or position of The Tilak Chronicle and TTC Media Pvt Ltd.