Research Paper Example on Petroleum Economics

Introduction

Petroleum mining and oil production have been the backbone of Oman economy ever since they started commercial production back in 1967. The oil industry over the past decades has been the supporting base for Oman's ever expansive and modern infrastructure which includes roads, improved medical services, better public education, and electrical utilities. The reduced oil prices over the past few decades have forced firms and other private institutions in Oman to improve their services deliver to the Oman citizens due to the low cost of operations. The reduced oil prices have also forced very influential market players within Oman to decrease the cost of products. According to the Oxford Business Group report, fewer wells are being drilled currently in Oman. Industrial operators are prioritizing containment of value in an environment with low oil prices, therefore, forcing oil field service companies and other contractors to step up their efficiency and optimize their efforts to lower their cost of production so as to serve the Oman people better.

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Petroleum Development Oman (PDO), the largest hydrocarbon producer in Oman has been more focused in cost reduction enhancing savings by taking part in efficiency initiatives and working with contractors who have its interest at heart, therefore, taking out unnecessary cost off the financial budgets and books. Recent media reports all over Oman are indicating that PDO is aiming at being a 24/7 fully fledged Energy Company over the next few years especially in renewable energy and hydrocarbon generation and water management. Currently, the company focused on investing heavily in solar power for the production of steam Enhanced Oil Recovery which is done by burning natural gases. Oman is also rich in natural gas reserves which are expected to play a role in the running of the Sultanate's industrial growth in the coming decades.

Political Issues Affecting Petroleum Production in Oman

The uncertain health status of Oman's Sultan has put the future of the country at a heightened concern. It should be noted that Oman is the most personalised Monarch in all of the Gulf monarchies. Many Omanis had pledged their loyalty to their ruler Qaboos bin Said Al Said, who had built the state and national identity based on himself (Katz, 2004). There has been, however, mounting frustration among the people who criticise the ruler's regime. The mounting frustration has put a lot of pressure in the reign of the sultan. Such political instability leads to a lot of negative pressure in the economy of Oman. Oman's government is linked to the Qaboos making it very difficult for institutions to create sound policies since they are affected by the people in power. Over the years the young Omanis have felt that they are not indebted any more to their ruler, and this has led to the formation of very vocal civil societies that have been mounting pressure and complaining about the deeply rooted flaws in the sate the Sultan built after seizing power in the year 1970 (Eickelman, 2001).

In the year 2011 and 2012 peaceful protests were done in major towns all over Oman demanding better wages, health services, education, substantial reforms in politics and the end of the deep-seated corruption in government institutions. This was met by the detention of activists, firing of top government officials and a combination of economic gestures that were short-lived. This act followed with the enactment of strict measures that have become more common over time, with the government investing more insecurity and cracking down on outspoken voices in Oman. All these occur because the power of the entire nation is in the hand of one man. The Sultan is unwilling to allow any form of political dialogue especially concerning succession politics in the country.

Sultan Qaboos hold many administrative offices which include the office of the prime minister, ministry of defence, the ministry of finance, the ministry of foreign affairs among others (Katz, 2004). Acquisition of absolute power means that the royal family owns many oil fields all over Oman and their say is final even if it is politically and economically wrong. Qaboos has not allowed anyone else in the al-Said family to take the mantle of power ever since he made it to the helm of the county (Eickelman, 2001). This has made the task of succeeding him very difficult because he is the ultimate power. Unlike other monarchies in the Gulf that are family enterprises, Oman is a sole proprietorship form of business and the stability of the Qaboos leadership is critical in for Oman's stability.

Recommendations

Oman should relax civil society limits. Instead of depressing the voice that fights for the people, the government should allow the public organisations to thrive, a step towards realising dialogue with the government.

Providing answers to political uncertainties is essential. The government's reluctance is appointing a crown prince with some executive powers awaiting post-Qaboos Oman is not healthy as it puts the citizens especially those opposing him to a lot of anxiety that might lead to distress causing both political and economic instability of the country.

Oman's leaders should realise that we are in the 21st century and things are rapidly changing. Young citizens of Oman are not feeling indebted to the royal family, and they are not ready to accord the Qaboos regime with a lot of control as their parents did.

The government should allow the formation of independent institutions which can form policies without the influence of their supreme leader. This will enable better service delivery to the citizens of Oman cooling off the rising political temperatures.

The government should also be ready to embrace change by allowing multiparty democracy in Oman.

Economic Issues

Most of the Gulf countries including Oman have been hit by the reality of low oil prices in the global market. This saw the balance sheets of Oman constrained in the year 2015. Flat revenues from petroleum products have led to the reduction of annual revenues in the petroleum sector. This has culminated to the contraction of the nominal GDP by around 13.8%, the largest country's deficit to ever been recorded. The most top priority of most governments all over the world including Oman is always closing the fiscal gap. This is always met by a reduction in government expenses, tax reforms and by boosting the activities of the private sector. Oman's net revenues in oil reduced 14.7 billion US dollars despite a 5.4% increase in export volumes. Oman is going to be forced to adjust to a life without oil due to its depleting oil reserves. This calls for total diversification of the economic activities in Oman.

According to KMPG's corporate tax reports, Oman corporate tax rates have been constant from the year 2003 up to the year 2016. This tax rate has been at 12.00 for over a decade. This meant that most businesses primarily in the private sector enjoyed a good business environment. But, come 2017, the tax rate rose to 15.00 a value that has crippled most companies. This was caused by the fact that the government needed to meet its expenses and deliver services to its people. The only way to keep its budget intact was for the government to dig deep in its private sector to meet this deficit. Another explanation is the reduction in oil prices, a significant industry that funded the budget of Oman. Since 2014 the country has experienced the effects of sinking oil prices which is now very clear to the national accounts. The government has, therefore, ran into a fiscal deficit of 2.8 billion US dollars.

It is also evident that this economic problem has been caused by the simmering political unrest in the country that diverts funds to be used in `improving the lives of the people to security sector that even needs more funding. This political instability has made other countries that buy oil from Oman to cut ties with it.

Conclusion

In summary, the Oman government needs to set up institutions tasked with the responsibility of forming policies based on specific decision-making methods to prevent the country from being plunged into fiscal deficits by a single ruler who does not give his people priority (Clemen & Reilly, 2013). For this to take place, the government must be open to the idea of dialogue for purposes of public participation.

References

Clemen, R. T., & Reilly, T. (2013). Making hard decisions with DecisionTools. Cengage Learning.

Eickelman, D. F. (2001). Kings and people: Information and authority in Oman, Qatar, and the Persian Gulf. In Iran, Iraq, and the Arab Gulf States (pp. 193-209). Palgrave Macmillan, New York.

Katz, M. N. (2004). Assessing the political stability of Oman.