Are We Too Pessimistic?

At the risk of making comparisons of news stories and opinions a theme of this blog, two articles caught my eye today: Tom Friedman's op-ed in today's New York Times, "Win, Win, Win, Win, Win..." and an op-ed by Patrick Seale in Gulf News last Friday entitled, "Arab world faces uneasy new year." Friedman's piece basically bemoans a bit of news he caught on CNNMoney about truck and SUV sales picking up in December and America's failure to honestly face its gasoline addiction absent price signaling in the markets. In it he argues that the only ones who benefit from this are the large oil producers. He uses the phrase "It's a new morning in Riyadh." Seale, a British citizen and long time observer of the Gulf, has a much different outlook on things. Seale argues that the day of the oil producers is drawing to a close as the incoming Obama administration appears to be serious about developing renewable energy alternatives to hydrocarbons. These policies coupled with the global recession and precipitous drop in oil prices stand to cause some havoc for the Persian Gulf. So which view is right or are they both? One could argue that Friedman's frustration is understandable but represents a more long term view. Industry consensus is that oil prices (and therefore demand) are not likely to recover until 2010. IEA is now forecasting a return to $100/barrel by '10 but not before a further price erosion in 2009. Friedman's pessimism also ignores the the likely albeit gradual decline in SUV production and sales being forced on US automakers in the wake of the US government bailout of the big 3. Add on to this US automakers' wrestling with scrapping popular lines because of declining sales (Salon ran a somewhat humorous article on Hummers recently, linked here), and the probability of a return to "normal" grows somewhat slim.

Still, Seale's equal but different pessimism also seems somewhat misplaced. There is little doubt that 2009 is shaping up to be a difficult year almost universally with the decline in developed world having a significant impact on the export capabilities of the developing world (and here, both goods and commodities producers are likely to suffer equally.) But any conversion to alternative energies will be a slow, many decade process. Even if the new administration is able to keep its promise on patronizing and developing green technologies, fossil fuels are not going to disappear overnight. And, as the IEA forecast suggests, prices are likely to favor the oil producers in the medium to long term, not work against them.

More than Friedman's qualms (which mirror many of those in the fledgling but growing green community in the US that low oil prices are actually bad for us as a nation overall), the pessimism in Seale's article as well as the press accounts going into the GCC ministerial beginning today in Muscat surprise me by the level of defeatism. This was a region of the world who a scant few months ago was really beginning to feel its oats internationally. Riyadh was at the forefront of pushing for diplomatic efforts in the Middle East, hosting religious dialogues, invited to attend the G-20 meeting in Washington in recognition of its status as a growing international financial player, and being heralded by the British Prime Minister as being a strong candidate for a wider role in global financial institutions. The tide has turned since then with the decline in oil prices, but it isn't as if the region is suffering in isolation. No one, not even the formidable China, is optimistic about its economic future at this point. But reading the list of things that the GCC can't control in the run up from today's meeting (the global recession, the fall in the price of oil, inflation, piracy in the Gulf of Aden, the recent Israeli aggression in Gaza), according to an Omani analyst with a local paper, one wonders why the group bothers meeting. I am not suggesting that the GCC can work miracles, but going into a meeting with no hope of adequately addressing any of the problems on your agenda seems a doomed way to begin. Or in this case end 2008.

All of this makes me wonder how far the region has really come in the past seven years. I admit to being frustrated that the region would rather continue to view itself as a passive recipient of events rather than as an actor. I have no doubt that GCC intervention might be of limited utility in global events, but they are still players and should see themselves as such.