The Arithmetic of Surplus: Implications of Lower Oil Prices

In a late September piece, I argued that the Gulf would not be immune from the current global financial crisis. One reason cited was the volatility of oil and gas prices as a result of the crisis. This month, oil prices remain volatile and show a strong downward trend, dipping well into the $60s per barrel and closing yesterday around the $70 level. While it remains unclear where the oil price will settle, the implications of a cheaper barrel are evident for GCC economies and their role in capital markets. A key framework for understanding the effect is the “arithmetic of surplus.”