COVID-19: We mustn’t let this crisis go to waste

COVID-19 has affected Middle East economies, societies and even politics in an unprecedented way. A stinging economic shock, with three times the losses incurred during the 2008 financial crisis, has shut down potential paths to recovery. The climate of uncertainty has exacerbated political fractures, giving rise to tensions in society, especially among unemployed young people facing a bleak futures. This situation is not helped by dilapidated health care infrastructure and cultural norms not accustomed to social distancing, lockdowns and quarantines. Pandemic recovery is not the only challenge facing the Middle East. As climate change takes center stage in the world’s legislatures, the region’s oil-and gas-dependent economies will have to adjust projections of peak demand and how to emerge from it unscathed. Fortunately, for the wealthy Gulf region, much of the foundations for transformation have already been laid, so there is still room to fund generous stimulus packages and mount an effective pandemic response. The rest of the region, however, is doomed to coping with low energy prices over the next few years, plugging holes where necessary and weighing the economically prudent but politically suicidal option of increasing taxes during a recession. It will require careful planning and management, with little room for error, to guide economies through a rocky and unpredictable recovery path. Failure to do so will result in a number of countries facing the realities that now beset Iraq. Oil revenues fund more than 90 percent of Iraq’s essential expenditure. However, sustained low oil prices have left a 40 percent gap in the budget, meaning critical needs are either underfunded or face painful cuts. The ramifications increase exponentially when factoring in Iraq’s high levels of social unrest and political uncertainty, the pandemic and a mostly stalled postwar recovery.

All is not all doom and gloom, however. A few bright spots offer opportunities for the region to reshuffle its priorities. For instance, China’s growing demand for hydrocarbons, petrochemicals and fertilizers is a welcome reprieve for

Gulf region economies seeking to obtain crucial export revenues from East Asia’s pandemic recovery. China’s economy is projected to grow by 1.9 percent this year, which elevates its profile as an important trade partner and a means for some of the region’s economies to recover. In Washington, a Biden administration would undoubtedly shift US policy in the region, given a presidential election platform that emphasized climate change priorities and making the US carbon neutral by 2050. Should a Biden White House reduce or eliminate fossil fuel subsidies and spearhead an aggressive reduction in hydrocarbon investments, Middle East oil and gas economies would benefit in the short term from the drop in US supply.

Over the long term, investment in renewables could boost funding in Gulf economies already investing heavily in the industry, particularly in solar power, green hydrogen and green ammonia. Additionally, multilateralism is a better guarantee of the region’s peace, security and stability — far better than the transactional foreign policy of the outgoing administration. Ultimately, rosy projections not grounded in reality will not serve the Middle East well or make the job of Arab governments easier. The greatest asset to climbing out of this crisis is to confront ugly truths and uncomfortable realities. It also offers opportunities often missed because of the relative ease and convenience of exporting hydrocarbons.

COVID-19 has severely diminished the capacity of the region’s external partners to arrive and “save the day.” The Middle East must not only work on surviving the pandemic and dealing with its side effects. The region needs more integration to build resilience and remain globally competitive, which means solving regional issues internally instead of looking to troubled and often uncommitted partners. There is still hope.