The main focus in oil markets recently has been on the U.S. shale boom, OPEC members competing for market share, and Iran’s nuclear deal with world powers, but there may be a more important issue requiring critical attention: global oil demand growth.
Crescent Petroleum’s CEO Majid Jafar, in an exclusive interview with The Fuse, said that demand issues had a bigger impact than supply in causing oil prices to fall in the past year, and decisions made now regarding transportation policy can bring about major changes 10-20 years down the road.
“In terms of price dynamics, demand and its effects are often missed and underreported, and there seems to be a lot of focus on Middle East supply and U.S. shale,” Jafar told The Fuse after giving a speech at the Atlantic Council in Washington, DC Wednesday. “Focusing on economic growth and the energy intensity of that growth in places like China and India is perhaps more important.”
In terms of price dynamics, demand and its effects are often missed and underreported, and there seems to be a lot of focus on Middle East supply and U.S. shale. Focusing on economic growth and the energy intensity of that growth in places like China and India is perhaps more important.
During the third quarter of last year, when prices began their precipitous slide, global oil demand grew by an anemic 0.52 mbd year-on-year, or one-half of one percent.
China, which has been the largest contributor to oil demand increases over the last decade or so, is seeing slower economic growth at 7 percent, keeping demand in check. What’s more, fuel efficiency gains and the rise of megacities and metropolitan hubs are longer-term trends that could have significant effects on demand growth in the Asian country, which in turn would change global oil market dynamics.
Fuel subsidies in emerging markets are another key to future demand growth, according to Jafar, particularly in Middle East countries. Fuel efficiency is important in all parts of the world, but especially in the Middle East, where subsidies spur overconsumption and benefit the wealthy and large energy consumers. Those subsidies divert money from other areas, such as infrastructure investment, measures to improve efficiency, and outlays in alternative energy sources such as solar.
In a positive sign, the United Arab Emirates (UAE), OPEC’s third largest producer, said Wednesday that it will scrap its subsidies for consumers and link petroleum product prices to the global oil market. Jafar believes others should follow suit.
Youth unemployment in the Middle East
Right now, 30 percent of the region’s young people are unemployed, with the problem particularly acute in oil-producing countries, where the economies are not diversified.
One main topic of concern for Jafar is youth unemployment, which is the highest in the world in the Middle East and continues to rise. Crescent Petroleum, an independent and privately owned company, is based in the UAE and operates in a number of Middle East countries.
Right now, 30 percent of the region’s young people are unemployed, with the problem particularly acute in oil-producing countries, where the economies are not diversified and there’s too much reliance on oil and gas. The consequences of the Arab Spring have worsened the employment situation, with countries having failed to provide their populations with proper social safety nets.
Jafar said that the region has the capital to tackle this daunting challenge, but not the expertise and experience.
“We have the resources,” he said. “But how to direct those financial resources into infrastructure and other investments that will be growth-producing is the challenge.”
He added: “The right mechanism needs to be created. In my view, it needs to be ambitious and multilateral.”
To deal with the problem of youth unemployment, countries need to pour money into infrastructure development and other sectors to create growth and stable jobs. Another major issue is a large education and skills gap, with the region having an unusual situation of many of the highly educated being unable to find employment. At the same time, labor markets need to be reformed, Jafar said, in order to make it easier for new entrants to penetrate the workforce.
Jafar noted that youth unemployment is a problem in numerous parts of the world. But in other regions, such as Europe, welfare programs, public initiatives, and a deep history of private investment help cushion the effects on the unemployed and the overall economy.
Access to energy a ‘human right’
Jafar is also on the front lines in advocating for access to energy in impoverished parts of the world. He is the deputy chairperson of the board of directors for the Global Energy Initiative, a non-profit organization that supports sustainable energy, efforts to fight poverty, and initiatives to combat climate change.
In the interview with The Fuse, Jafar noted that almost 1.5 billion people do not have access to electricity, an issue that the World Bank has highlighted and is working to rectify.
“Access to energy is a basic human right,” said Jafar.