Crude oil prices worldwide have tumbled around 70 percent over the past 18 months to around $35 a barrel, leading sharp declining profits for the world's top oil companies. In Oman and the rest of the Gulf countries, crude oil prices have dropped around 40 percent from their peak last year. Saud Al Salmi, chair of the trade union at Petroleum Development Oman, has noted that many oil companies are not digging new wells and many workers are facing unemployment due to the crisis.
Employees' contracts used to be automatically renewed, but that's not always the case anymore. "The companies basically started laying off staff," Saud said. But the impact of the crisis isn't limited to those working in the oil industry.
Reducing public spending
2016 is set to be a year of important adjustments for Oman. The reduction in government spending will ripple through the economy as officials work to keep the economy on track.
Oman is heavily dependent on oil to fund their national budget. The Omani government made $4.35 billion from oil sales in the first quarter of this year, which is 35 percent less than last year.
Oman is now planning to reduce its spending on the defense sector by a quarter and to split social spending.
"We need to learn from previous ups and downs of the oil price and not sleep when the prices are high," Al Salmi told Times of Oman. "Keep that money for the dark days when prices go down."
But with the current crisis, it’s clear that hasn't happened. During the economic boom, the Omani government didn’t have financial limits on sponsoring gasoline or the social spending to appease Arab Spring demonstrators, as reported by Times of Oman.
Billions have also been drained from the national budget because of the corruption and luxury spending on the country's autocratic power.
"We should never forget the fact that the government is a major spender in any economy which produces a multiplier effect," a financial expert told Times of Oman. "Obviously, the decline in expenditure may mean reduction in investment expenditure which constituted roughly one third of the total budgeted public expenditure in 2015."
One major disadvantage of the budget cut is that it will have the biggest impact on the middle class, because the rich can easily survive with what they have. It will also lead to less projects in both the private and public sector, which could lead to less profit as well as less employment.
Diversifying the economy
About 77 percent of the country's budget comes from oil revenue, so low oil prices are Oman's biggest fear.
Oman's government has been discussing the importance of diversifying the economy since 1990, but the country still has almost no manufacturing or agricultural production. Some sources state that the country is planning to develop manufacturing, transportation and the tourism sector.
A member of the executive committee of Oman's Shura Council, Tawfeeq Al Lawati, told a local newspaper the first step is to develop refineries to process oil into diesel and other petrochemicals. "We have a business plan," he said. "Rather than exporting an oil barrel for $100, adding value to it by refining it and having different derivatives, which could also lead to different chemical products."
Ships exporting oil from Iran or Iraq must pass through the Straits of Hormuz, and ships carrying manufactured goods cross the Straits in the other direction. Political instability between the neighboring countries have closed the Straits, and the Duqm port could become an alternative shipping route.
Oil producers could store their product in Duqm and then load it onto tankers. Other ships could off-load in Duqm and transport their goods by land to the nearby countries of the Gulf Cooperation Council, or GCC.
This could make Oman the main logistics hub for the region, leading to added focus on infrastructure, transportation, and even the introduction of a railway linking it with the GCC countries. Still, similar plans for economic development have been discussed in Oman for years. Whether or not this one will be put into action remains to be seen.
Omanis blame Saudi Arabia
Many Omanis believe Saudi Arabia holds at least part of the blame for their economic woes. They suspect their neighbor of maintaining high production in a deliberate bid to drive down prices, dealing a blow to Iran and Russia while grabbing market shares from U.S. oil producers. Locals also believe that Saudi Arabia keeps production high to fund its current war with Yemen; since their security needs have increased, they produce more to spend more.
Cover credit: Times of Oman