JEDDAH — Over the past 25 years, the Gulf cooperation council (GCC), led by Saudi Arabia, has been the main energy-exporting region in the world. According to the US Energy Information Administration (EIA), Saudi Arabia exported 8.9 million barrels of crude oil per day in 2012, the most by any country. The United Arab Emirates and Kuwait were the third and fourth largest exporters, with 2.5 and 2.3 million barrels per day respectively. But, while the GCC's role in supplying crude oil to markets worldwide hasn't changed throughout the period, the composition of the demand has changed substantially, Asiya Investments said in its latest report. Only 25 years ago, the US, EU and Japan (G3) were buying around half of all GCC exports, while Asia excluding Japan made up only about 15 percent. it noted.
Asiya said that today, the situation almost reversed: the G3 buys only a quarter of the region's exports, while emerging Asia nearly tripled its share of GCC shipments.
This shift is the result of multiple factors. Energy demand rose very rapidly in Asia. Global manufacturing production moved to the East, and investment in infrastructures expanded, increasing the level of consumption. The rise of the middle-income class increased demand for energy intensive goods such as motor vehicles, air transport, air conditioning and lighting. Energy consumption remained high in developed economies, but growth was substantially weaker than elsewhere. In parallel, the richest economies followed a policy of diversification, increasing imports from Africa and shifting gradually to renewable energies. More recently, the increased reliance in domestic oil supplies in the US, due to a surge in the extraction of shale energies, has reinforced the trend further reducing ties between developed countries and the GCC. Emerging Asia is now the main driver of oil demand and the Gulf's most important trade partner.
The price of oil, which fell sharply in the last six months due to the oil supply glut and the slowdown in global demand, is not expected to recover any time soon. Supply rose in 2014, often coming from very unstable sources, such as Libya – which collapsed recently – or Iraq, which increased its production by 300,000 barrels per day in spite of the complicated security situation.
The greater impact however came from the surge in US shale production. The growth is expected to continue to maintain its trend in the short term in spite of low prices, as investors need to minimize losses for investments already made even if prices are below their breakeven price.
Demand also adds pressure, Asiya further pointed out. The European economy is still weak, growing under 1 percent last year while facing deflationary pressure. Euro zone sovereign risks, as the upcoming Greek elections have shown, may also further deteriorate the bloc's outlook. Additionally, strong monetary loosening expectations have pushed the euro to lows which will hurt the bloc's opportunity to benefit from cheaper oil imports. Japan is in a similar position of stagnation and currency depreciation.
The rest of Asia however has not suffered as much, in terms of both economic growth and currency depreciation, placing it in a better position to take advantage of cheaper oil imports, while also implementing much needed energy sector reforms. Asia will play an even greater role in GCC's trade in 2015. — SG
