Sunday’s New York Times ran a headline story on energy consumption in oil-producing countries. The data-rich piece stressed how local demand is reducing the level of oil exports and therefore the quantity available in international markets. This is seen a troubling trend for non-OPEC countries that import more oil than they ship abroad.

Observers of the Gulf should note a fundamental reality: the strategic implications of increased oil demand disproportionately benefit the GCC states more than other oil-exporting countries.

When the price of oil goes up, all sellers capture incremental revenue per barrel. From a strategic perspective, however, the GCC states grow in importance more than other oil exporters do. The reason in rooted in two key statistics:

  1. The GCC states, combined, provide 22% – between a fifth and a quarter — of the world’s oil supply.
  2. At the same time, these states hold 40% – two fifths – of the world’s known oil reserves.

(Source: BP Statistical Review of World Energy 2007)

The Gulf States therefore enjoy a huge “Reserve Advantage” – their long-term ability to supply is far greater than their actual output amounts.

So, while the Gulf states play a central role in oil markets today, their role grows even more central as time goes by. GCC member states – and especially Saudi Arabia, Kuwait, and the UAE – are better positioned to increase output and meet global demand than are other countries are. In good times, they can raise their production with least risk of “running out.” In bad ones, their cost of production is remarkably low, protecting their profit margins more than those of other competitors. In the natural gas sector, Qatar alone (with the world’s third largest reserves) it by itself a formidable supplier.

(For more on projected oil demand and prices, see Chapter 8 – “Capable Capital: The GCC as a Source of Capital” of Dubai & Co.)

The “Reserve Advantage” means that as oil grows more scarce, the Gulf states will proportionately have more of it. As long as oil is precious, the Gulf can expect sustained prosperity. It’s no wonder, therefore, that countries with booming demands for energy – namely, China and India – are building ties with the Gulf like never before.