Giorgio Caifero writes: Tumbling oil prices are upsetting political equations all over the globe, especially for governments that depend heavily on oil revenue to provide services for their populations. Governments in the oil-rich Middle East are also being forced to tighten their belts.
The slide in oil prices has hit the Sultanate of Oman. The sultanate’s vulnerability was underscored late last year when Standard & Poor’s cut its outlook for Oman’s sovereign rating from stable to negative. Last month, the economic and financial committee for the lower house of the Majlis al-Shura (Oman’s legislative body) proposed a ‘fair tax’ on liquefied natural gas exports, estimated to generate $509 million. The Majlis al-Shura has also approved legislation to impose a 2 % tax on goods the Oman’s 1.9 million expatriates send overseas. The Majlis al-Shura also proposed a 12% levy on telecommunications revenue, which Oman News Agency reports would bring in $80.5 million. Meanwhile Oman Cement and Raysut Cement announced that the Ministry of Oil and Gas would double the priceof natural gas for the two firms.. State spending in health, housing and training will remain the same.
Oman’s unique stability is largely attributed to the state’s high domestic spending, making budget cuts a politically risky solution to the shortfall in oil revenue. Oman’s ability to increase government services in times of unrest has been a crucial lifeline for the monarchy in the recent past.
After the rulers of Tunisia and Egypt stepped down under public pressure, Omani youths held demonstrations idemanding political and economic reform.
Sultan Qaboos bin Said ordered the government to create 50,000 jobs and pay every job-seeker $386 each month. Omani protesters demanding reform actually pledged allegiance to Qaboos, showing their support for the monarchical system while demanding changes within it.
Throughout the Arab Spring, Qaboos has maintained a degree of popularity enjoyed by no other Middle Eastern leader of the 21st century. Oman’s monarchical political system has not democratized, and power remains staunchly in Qaboos’ hands. Observers conclude that as a rentier state, the government has been successful in quelling the citizenry’s democratic aspirations in exchange for material benefits.
At this juncture, the Omani government’s challenge is to maintain this unwritten agreement with its citizens as sliding oil prices create new fiscal pressures.
Oman’s crude oil reserves are expected to deplete far sooner than those of neighboring Saudi Arabia and the United Arab Emirates, putting greater pressure on Oman to increase the role of non-oil sectors in its economy. The sultanate’s unique stability will be tested if future economic reform triggers unrest and the government lacks the lifeline it used before.
