The COVID-19 crisis delivered a shock to the global energy system, with the impact strongly felt in the GCC countries, which have long been supported by the hydrocarbon sector. With Brent crude prices nearing $20 a barrel as of late March 2020 (the lowest price in nearly two decades), governments face a number of challenges. Despite its severity, energy players in the GCC — including governments and their national oil, gas, petrochemical, and utilities companies — can treat this crisis as an opportunity to refocus on long-term sustainability. Rather than waiting for the crisis to pass, these entities can take bold action today and reinforce long-discussed reforms to become more resilient and prepare for a world that relies far less on fossil fuels.
In a worst-case scenario in which oil remains at $20 a barrel for a year, we estimate that GCC governments could lose up to $500 million a day in state oil revenue. Energy players in the region must now walk a fine line between urgent and important decisions, balancing short-, medium-, and long-term trade-offs to navigate through the crisis.
Already, many energy organizations have taken impressive steps to mobilize, by maintaining business continuity and supporting national response plans in the face of immense challenges. Some more forward-looking players are seeking to stabilize, building their resilience in the medium term through cost reduction programs, employee development initiatives, and other measures to prepare for the recovery.
Those are critical areas of focus. The most transformative changes will come through longer-term strategic assessments. Broadly, the energy sectors of the GCC have three options against which to start taking immediate action: retrench, rethink, or repower.
This is a bold vision, but we believe it represents the best path forward. Oil-dependent governments in the GCC must do more than merely hope for the past to return. Instead, they must seize the opportunity to transform.
This article originally appeared in April 2020 on The National.