Dubai (AFP)

The new coronavirus epidemic has exacerbated the decline in oil prices, threatening the Gulf economies, of which China is one of the main trading partners, which were already struggling to sustain prices and get out of their dependence on black gold.

China, which absorbs a fifth of the oil production of the six Gulf nations (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates), reduced the rate of its refineries and saw its demand and imports of oil fall faced with the de facto confinement imposed on Chinese cities of several million inhabitants.

Oil prices on Monday reached their lowest level in a year, with China accounting for more than a third of the growth in global demand. Since the beginning of January, the two reference barrels have lost around 20%.

According to Bill Farren-Price of Petroleum Policy Intelligence, "the virus will have a significant impact on demand for Chinese oil" and "if the containments continue in the second quarter, (...) the consequences for the real economy will be more profound" .

Trade in non-petroleum products between Beijing and the Gulf Cooperation Council (GCC) has exploded in 20 years, from a few billion dollars to nearly 200 billion. China has also invested massively in the Gulf countries and the sovereign funds of the latter have returned the favor.

If the impact of the epidemic, which has killed more than 1,100 people since December, is not yet felt on investment, the tourism sector has started to suffer.

More than 1.6 million Chinese tourists visited the Gulf in 2018, the majority in Dubai hoping to exceed one million in 2020. But most flights from China having been suspended, the objectives of the city- State could be revised downwards.

- Obscured perspectives -

In the Gulf, whose revenues depend on more than 70% of black gold, the repercussions of the epidemic only add to the gloomy prospects if reforms are not undertaken to accelerate the diversification of the economy. Oil revenues can allow CGG countries to invest in other sectors.

The IMF published a report last week in which it warns the GCC that its financial wealth (more than 2,000 billion dollars) could run out within 15 years.

The fall in oil prices in 2014 had already damaged the finances of the GCC countries, forcing them to borrow and draw on their assets to make up for their persistent budget deficit.

Major producers are now facing "two simultaneous hardships," according to Ellen Wald, author of "Saudi Inc.".

"These (price) cuts, in the context of reduced production, risk leading to economic shocks which, if they last, could lead to political and regional instability," she said in a comment for Bloomberg. .

"The fears surrounding the epidemic (...) have clouded the short-term prospects for the Gulf," said a report in Capital Economics.

"Lower prices and an amplification of cuts in production will cause growth to advance in the face of a headwind in early 2020," he added.

- "Political consequences" -

In response to the spread of the virus, OPEC's Joint Technical Committee (JTC) - which brings together the thirteen members of the Organization of the Petroleum Exporting Countries and ten other oil powers, including Russia - recommended the week last an additional reduction in production of 600,000 barrels per day.

These countries have been linked since the end of 2016 by an agreement to limit their production intended to support crude oil prices in the face of an abundant supply.

Russia, reluctant to this new drop which must be added to a reduction of 1.7 million barrels per day, promised to take position quickly.

If this reduction is not implemented, a barrel of Brent could fall to 40 dollars, against about 54 currently and more than 65 at the beginning of January, warned on Tuesday Mohammed al-Sabban, former senior official of the Ministry of Energy of Saudi Arabia, leader of OPEC.

According to Ellen Wald, the difference between the current and previous fall in prices is that it is linked to a factor beyond the control of the oil producers, who at the time were pumping to the limit.

If the fears surrounding the coronavirus are confirmed, "Saudi Arabia, Russia and the Emirates will simultaneously face low production and low prices," said the historian.

"If the situation lasts, economic instability could have political consequences."

© 2020 AFP