[dohboi]

https://www.foreignaffairs.com/articles ... g-meltdown

"Why have Arab governments consistently failed to diversify their economies despite tall promises and grand plans? The answer has more to do with politics than economics": http://ow.ly/UkJcL

Although Arab governments have long recognized the need to shift away from an excessive dependence on hydrocarbons, they have had little success in doing so. Iraq, for example, set economic diversification as a core policy objective in one of its first five-year development plans in 1965—yet the country has only become more dependent on oil over time. In Qatar, Kuwait, and Saudi Arabia, too, diversification has been a central, yet largely unrealized, development goal since the 1970s. Even the United Arab Emirates’ economy, one of the most diversified in the Gulf, is highly dependent on oil exports.

The trouble is that in many Arab economies, good economic policies rarely constitute good politics, especially for ruling elites. This is because the structural changes demanded by economic diversification—specifically, the production of a greater number and variety of high-value goods—promise to empower business constituencies that, flush with new income, could potentially challenge the ruler. In Kuwait, for example, the rise of an independent merchant class could undercut the power of the monarchy. If rulers in the United Arab Emirates have accepted diversification, meanwhile, it is partly because the Emirati private sector poses little political threat, since it is overwhelmingly reliant on foreign labor.

For diversification to succeed, its political costs for elites must be offset: they need to know that they will gain more than they will lose from the reforms. Any serious discussion of economic diversification must therefore begin by recognizing that resource-dependent elites will have to be compensated for the losses they will risk.

But what happens to elites of countries that have passed their domestic peak in oil production, and where domestic use of oil is now matching and exceeding domestic production? Suddenly, the one financial resource that the entire country depended on--money from oil exports--has vanished. In the mean time, the country's population has quadrupled or more during the boom times to levels far above what could ever be sustained by domestic agriculture...

[dolanbaker]

It doesn't look good for any of those "banana republics" (defined as a country that only has one product) when they consume all that they produce. The question should be, "what can they diversify into?"

Selling sand, perhaps, or more likely just exporting surplus people, someone's going to end up with a real problem at the borders in the not too distant future.

[Cog]

The live in a desert. What diversification do you have in mind?

[onlooker]

The Middle East along with parts of Africa and Asia are ground zero for the worse consequences. As this link accurately shows ME is living totally unsustainably. So the collapsing process will not be homogeneous either in time or space. But certainly those parts, I cited are by logic and inference the places most vulnerable to collapsing dynamics. In fact one can make the case that already collapsing processes and die-off processes have commenced in those regions though it is only the beginning at this point.

[dohboi]

"Selling sand"

Well, yes. In the form of solar panels, made from silicon!!

I think the model people think of is the 'Asian Tigers'--places like Japan, South Korea and Taiwan, where even though they had a very small land base, they managed to become major manufacturing powers.

ol: good points, as usual; and well put.

[Cog]

Hmm solar panels that can be used half a day in the best cases versus oil that can be used 24 hours a day. Yeah I can see the Gulf States getting right on that losing proposition.

[Tanada]

But what happens to elites of countries that have passed their domestic peak in oil production, and where domestic use of oil is now matching and exceeding domestic production?

Suddenly, the one financial resource that the entire country depended on--money from oil exports--has vanished. In the mean time, the country's population has quadrupled or more during the boom times to levels far above what could ever be sustained by domestic agriculture...

There is nothing sudden about it. Very few exporters do not have a steady increase in domestic demand on one side of the equation. On the other side of the equation they have income from export sales, and while those incomes vary with world price they are based on the known quantity of oil being exported. It is clear to anyone who projects out more than a year or two if the oil exports are going to have to stop because of Domestic demand.

My sympathy for people who can not balance a budget or do simple calculation is very limited, especially when the Islamic culture is the one that introduced the concepts of Zero and Algebraic mathematics to the world a thousand years ago.

[GHung]

It's not like the ruling elites in these countries will share the same fates as the millions of people they surely will leave behind when the time comes. I'm betting they'll have to depart for their compounds in London or Monaco well before the oil runs out, as their ability to buy compliance from the masses is diminished. Their jets, undoubtedly, are always fuelled and ready. In KSA, the House of Saud has indicated for years that they don't expect the party to continue forever ("his son will ride a camel" and all that). I doubt they or their sons will stick around for the camel auctions, and plenty of countries will be glad to adopt them and their extreme wealth. They've had a pretty good run for the last hundred or so years.

[onlooker]

Exactly G, they have nothing to fall back on. Their fate has always been linked to oil, when it runs out so does their ability to subsist.

[Keith_McClary]

NOVEMBER 6, 2015
What’s the Big Deal Between Russia and the Saudis?
by PEPE ESCOBAR

So let’s talk about oil. In energy terms, an oil deal with the House of Saud would mean a lot to Russia. A deal could produce incremental oil revenue for Moscow of around $180 billion a year. The rest of the GCC does not really count: Kuwait is a US protectorate; Bahrain is a Saudi resort area; Dubai is a glitzy heroin money-laundering operation. The UAE itself is a wealthy group of pearl divers. And Qatar, as ‘Bandar Bush’ famously remarked, is “300 people and a TV station,”plus a decent airline that sponsors Barcelona.

[kublikhan]

The article talks about Bostwana diversifying it's diamond dependent economy into a strong agriculture economy. Saudi Arabia tried that. They poured enormous amounts of money and non-renewable water into trying to become self-sufficient in agriculture. Turns out, growing wheat in the desert is not such a good idea. Saudi Arabia's adventure in agriculture turned into a massively expensive failure. It's not that the elites didn't try to diversify.

Beginning in the early 1980s, however, Saudi Arabia spent enormous amounts of money and exhausted massive volumes of water from mainly nonrenewable aquifers in an ostensible effort to achieve food self-sufficiency. On January 8, 2008, the Saudi government abandoned its food independence strategy and decided instead to import the country’s entire wheat needs by 2016.

Farming is alien to the desert habitat and the culture of its peoples. Scant rainfall of only 70-100 millimeters a year constrained Saudi food production and population growth. Having almost no expertise in settled farming, Saudi investors were induced by huge government subsidies to import the technology, equipment, seeds, fertilizers, engineers, and the farm workers required by these projects. As may be expected from a strategy declared in the name of food independence, wheat growing was emphasized. Within 12 years, between 1980 and 1992, wheat production grew 29-fold–from 142,000 tons in 1980 to 4.1 million tons in 1992.

Beginning in 1993, however–under pressures from low oil prices since the second half of the 1980s, heavy spending on defense and security, the cost of the Iran-Iraq (1980-1988) and 1991 Gulf wars, and the cost of maintaining the expensive lifestyle of some 4,000 immediate members of the al-Saud ruling family–the government had to scale down its wheat-growing subsidy program. Within four years, by the end of 1996, 76 percent of the new wheat-growing surface added between 1980 and 1992 were abandoned–650,000 hectares out of the 857,000 hectares. Wheat production dropped during the same period by 70 percent. On January 8, 2008, Reuters and other news agencies, quoting officials from the Saudi Arabian agriculture and finance ministries, reported that purchases of wheat from local farmers would be reduced by 12.5 percent, with the aim of relying entirely on imports by 2016.

THE FINANCIAL COST
For the sixteen years between 1984 and 2000, it may be estimated that the assessable cost of Saudi agricultural development could be put at about $85 billion, representing 18 percent of the country’s $485 billion in revenues from oil exports during the period. This huge investment produced wheat at an average cost of more than US$500 per ton. During the same period, the international market price for wheat averaged about $120 per ton. When the waste resulting from abandoning the newly reclaimed and irrigated lands plus four unquantified government subsidies are added, the cost might more than double.

THE WATER COST
In the searing desert sun, the water needed to irrigate a hectare of land to grow agricultural produce is twice to three times the volume needed to grow the same produce under temperate conditions. Between 1980 and 1999, a gargantuan volume of water–300 billion cubic meters (m3), the equivalent to six years’ flow of the Nile River into Egypt–was used in Saudi Arabia’s agricultural adventure. Two-thirds of the water thus used is regarded as nonrenewable, according to estimates by the Ministry of Agriculture and Water (MAW). At this rate, Saudi nonrenewable water reserves will sooner or later be depleted if the extraction does not stop.

Saudi Arabia’s Agricultural Project: From Dust to Dust

Video: Agriculture in Saudi Arabia: failure of Saudi agriculture policy

[Cottager]

But what happens to elites of countries that have passed their domestic peak in oil production, and where domestic use of oil is now matching and exceeding domestic production?

Suddenly, the one financial resource that the entire country depended on--money from oil exports--has vanished. In the mean time, the country's population has quadrupled or more during the boom times to levels far above what could ever be sustained by domestic agriculture...

There is nothing sudden about it. Very few exporters do not have a steady increase in domestic demand on one side of the equation. On the other side of the equation they have income from export sales, and while those incomes vary with world price they are based on the known quantity of oil being exported. It is clear to anyone who projects out more than a year or two if the oil exports are going to have to stop because of Domestic demand.

My sympathy for people who can not balance a budget or do simple calculation is very limited, especially when the Islamic culture is the one that introduced the concepts of Zero and Algebraic mathematics to the world a thousand years ago.

Zero and Algebraic was introduced by Chinese and Indians, they were just transferred to Europe by Arab people. Arab language was language of science in Europe for several hundred of years. But what we have now in Arab/Islam countries is that real men (macho) can either trade or fight. No culture of hard work. In the worst case - move to Europe, spread Islamic culture, live on benefits. Sad story, sister

[Peak_Yeast]

Could be its the world thats in for a meltdownn and not just Gulf economies...

http://www.dw.com/en/oecd-says-growth-o ... a-18836517

The OECD has raised the red flag on the global economy, saying international trade this year is expected to fall to levels not seen since the 2009 financial crisis.

[shortonoil]

The ramifications of this scenario are worse than most people image. At $40, oil prices are not high enough to fund most of the oil producing states budgets. Most of them put large amounts of receipts into sovereign wealth funds when prices were high. Unfortunately, they invested heavily in US Treasuries. Since the US doesn't actually have the money to redeem those bonds it will have to print. That will flood the market with excess liquidity, and some of it will go into oil production. Production will be expanded, and prices will go down even further; much like what has happened in shale. Cashing in their nest eggs is going to make one big omelet!