Page 57 - Aamir Rehman Gulf Capital and Islamic Finance The Rise of the New Global Players

42 PART I Background and Context

Predicting oil prices in any era is difficult, and in volatile times
like the present, it is impossible to make a forecast with much cer-
tainty. A few things, however, can be stated with confidence. First,
oil prices will continue to be a driving factor in the wealth of the
Gulf and the key source of GCC surpluses. Second, there are funda-
mental forces at work on both sides of the price dynamic—some
trends exert downward pricing pressure, and others exert upward
pressure. How the two sets of pressures will balance is unknown.
Third, the future of commodity prices is likely to have a lot to
do with the perspectives of financial investors and commodity
traders, in addition to the fundamental questions of oil supply and
demand.

LASTING POWER: THE GULF’S “RESERVE ADVANTAGE” AND
LOW-COST PRODUCTION
The fact that the Gulf is pivotal to energy markets today is obvious.
What is less apparent is the fact that as long as oil and gas remain cen-
tral to global energy, the importance of the Gulf region to oil markets
will probably only increase.
The reason in rooted in two key statistics:

1. The GCC states combined provide 22 percent (between
one-fifth and one-quarter) of the world’s oil supply.
2. At the same time, these states hold 40 percent (two-fifths) of
the world’s known oil reserves. 33

The Gulf states therefore enjoy a huge “reserve advantage” over
other oil producers. Their long-term ability to supply is far greater
than their actual output amounts. As other producers either exhaust
their reserves or scale back production to preserve what they have
left, Kuwait, the UAE, and Saudi Arabia will have plenty of oil left
and will be even more dominant as global suppliers.
The scale of Gulf energy reserves is astounding. Consider the fol-
lowing estimates of how long Gulf oil and gas will last:

■ Kuwait’s oil reserves are expected to last for 105 years, and its
gas will last 169 years.
■ The UAE can continue exporting oil for another 97 years and
gas for another 130.