BEIJING – One clear lesson for oil-exporting countries in recent years, and especially in 2016, was that they should be adjusting their public policies to promote innovation and diversify their economies. Their agreement in late November to cut production – the first such OPEC accord in eight years – didn’t change this, regardless of the short-term increase in prices.
To be sure, oil revenues appear to have magically boosted oil-exporting countries’ GDPs over the last quarter-century, especially in the Gulf region. And bustling, cosmopolitan cities – featuring dazzling skylines, world-class infrastructure, and higher-than-average living standards – have emerged in many of these countries.
But the world in 2017 and beyond will be very different. Downward pressure on oil prices reflects not just lower global energy demand, owing to slower economic growth; it also stems from technological changes in hydrocarbon production, the recent rise of renewable-energy sources, and global commitments to fight climate change, not least the December 2015 Paris climate agreement.
As a result, many oil-producing countries’ sole growth engine – hydrocarbon revenues – is running in low gear, and could continue to do so for a long time, if not permanently. Yet, as their recently agreed production cap suggests, oil-exporting economies remain overly dependent on it.