The ongoing slide in global oil prices – catalyzed by the novel Coronavirus and fueled by structural issues including excess supply from oil giants like the U.S., Russia and Saudi Arabia, and slowing demand growth – is creating a new imperative for hydrocarbon revenue-dependent states to diversify their economies. This is particularly true for the oil and gas- producing nations of Central Asia led by Kazakhstan, Turkmenistan, and Uzbekistan, who are reliant on fossil fuel revenues to balance their budgets.
This could be the start of a new trend for so-called petrostates, exacerbated by increasingly cost
On market open at 9:30 am Monday March 16, WTI Crude was down 8.38% at $29.07, while Brent Crude dropped nearly 10% to $31.92. Border closures in Europe and global travel bans – include those announced by the United States – have brought oil prices to lows not seen since the doldrums of 2016.
Economic Diversification Is the Way Forward
Oil producing countries, including Saudi Arabia, have been talking – and doing – a lot, as they recognize the looming dangers of hydrocarbon dependency. Suffice to mention Prince Mohammad bin Salman’s 2030 Program, and efforts in United Arab Emirates and Qatar to diversify into media and finances. Central Asia’s record is more mixed that the Gulf’s.
Kazakhstan, the wealthiest country in Central Asia, is an ideal candidate for an economic diversification in the face of falling oil prices and the rising viability of renewables. The country is home to the 11th largest oil reserves in the world. Energy revenues account for almost half of its GDP, and extractive industries are the primary beneficiary of foreign direct investment. But the landlocked country also boasts some of the highest wind potential on the planet, with moderate solar coverage as well.