One of the most significant economic impacts is the decline in oil demand and prices in the global market. Oil demand is predicted to decrease with the rise of alternative energy sources like solar, wind, hydro, nuclear, and biofuels.
According to the International Energy Agency (IEA), global oil demand will peak around 2025 and then gradually decline until 2040.
Meanwhile, oil prices will continue to decrease due to oversupply and competition among oil producers. IEA estimates oil prices to drop from an average of $62 USD per barrel in 2023 to $53 USD per barrel by 2040.
The decrease in oil demand and prices will negatively impact export revenues, trade balances, and foreign reserves of Middle Eastern countries. This will reduce their ability to finance public expenditures like subsidies, civil servant salaries, healthcare, education, and defense.
Moreover, the decline in oil revenues will increase budget deficits and public debt, potentially triggering fiscal and monetary crises.
Middle Eastern nations will also face challenges in creating jobs and reducing poverty and inequality, especially amidst high population growth and unemployment rates, particularly among the youth.
To address these economic impacts, Middle Eastern countries need to diversify their economies by reducing reliance on the oil sector and developing other more productive, competitive, and sustainable sectors like industry, agriculture, tourism, and services.
They also need structural reforms, enhancing efficiency and transparency in public financial management, eliminating detrimental subsidies, broadening the tax base, improving the investment climate, and promoting innovation and entrepreneurship.
Additionally, fostering regional and international cooperation, expanding trade, investment, and economic integration, and utilizing assistance and loans from international financial institutions are crucial.
