Gulf oil investment ‘can weather price slump’

• Gulf exploration plans continue
• Resilient to short-term shifts
• Mena regions exposed

International oil prices may have fallen to their lowest in four years but that is unlikely to disrupt the exploration and production investment plans of Gulf national oil producers, energy analysts have said.

But Middle East and North Africa producers outside the GCC may not be so lucky.

Crude oil fell below $60 a barrel this month, for the first time since 2021, after President Donald Trump nearly tripled effective tariffs on US imports, hitting markets and economic growth forecasts.

Shares in oil and gas companies shed an average of 15 percent between March 28 and April 8. 

“Spending by national oil companies in the Gulf region on projects is unlikely to be impacted because they have long-term strategies for growth and also to maintain their production capacities,” says Amena Bakr, head of Middle East energy and Opec+ Insights at Kpler and an AGBI columnist.

This is consistent with the region’s approach in earlier downturns, when Gulf national oil companies took on debt on sovereign balance sheets to sustain capital programmes and deliver on capacity targets.

Saudi Aramco, Abu Dhabi National Oil Company (Adnoc) and QatarEnergy are maintaining multibillion-dollar upstream and liquefied natural gas expansion plans, according to Goldman Sachs. 

Gulf Arab producers were expected to invest around $170 billion in upstream development in the seven years to 2030, according to the US bank. The investment picture is less rosy outside the GCC bloc.

UK-based research and consultancy company Wood Mackenzie expects global upstream development spending to shrink this year for the first time since the first decline since the pandemic-driven slump in 2020.

According to Wood Mackenzie 10 percent of global production will have to face investment cuts if oil falls to $50 per barrel.

“$50 oil is not sustainable for producers,” Chris Wright, the US energy secretary, said this week after a visit to the region.

• Iraq to cut oil spending after fall in crude prices
• Kuwait starts merging state oil companies to cut costs
• Oil markets are vulnerable to Trump’s turbulence

Outside the Gulf, Mena producers – with less fiscal room for manoeuvre or where they are more dependent on private versus public sector companies – are more exposed.

“Prices aren’t yet low enough to warrant dramatic cuts, but operators may take extra caution, trimming flexible spending,” Wood Mackenzie said in a report.

Iraq, which holds the world’s fifth-largest oil reserves, is reviewing its oil development budgets in the wake of a 9 percent plunge in the Brent crude oil price since President Trump’s April 2 “Liberation Day”.

Last week, Mohammed Shia Al Sudani, Iraq’s prime minister, ordered the oil ministry and state-owned companies to review operating and investment spending, and postpone or cancel non-essential projects, including licensing rounds.

Iraq aims to boost capacity from 4.5 million barrels per day to more than 6 million bpd, but officials have said the country’s $49 billion budget deficit will widen if Brent stays below $70. It hovered around $66 on Friday.

Other producers, including Algeria and Libya, face similar pressures. 

“Projects in countries that are more sensitive to lower oil prices might be affected and that includes countries’ producers in Africa,” Bakr says.

In the longer term, analysts warn of a potential supply gap. 

The International Energy Forum and S&P Global estimate that annual upstream capital expenditure needs to rise 22 percent to almost $740 billion by 2030 to meet demand and offset decline rates. 

The Opec group of oil producers, where Saudi Arabia is the biggest, has said at least $500 billion a year is needed through 2045 to avoid future shortfalls.

“Chaos is not good for long-term investment planning,” says Iman Nasseri, Dubai-based managing director at oil and gas consultancy FGE. 

“Access to capital will tighten, and decisions will slow, but a lot of upstream investment in this region is insulated from short-term fluctuations,” he says.

“For an upstream investment, you have to look at the next 10 to 20-year horizon, beyond Trump.”