However the government seeks to avoid cuts, that will affect ordinary Saudis, in order to maintain political stability. Low oil prices are not only shrinking the domestic budget, they impose austerity on a kingdom not used to hardships - cutting construction projects, energy subsidies and public sector wages, introducing new taxes and privatisations, and issuing debt etc. Even Saudi Arabia, despite its vast oil and financial reserves, has come under pressure, owing to a population hike and higher military expenditure linked to conflicts in the region. The author says many oil exporters are being forced to cut spending in the face of sharply falling revenues. History has also shown how record highs and lows in oil have affected international relations and political developments over the last four decades. A "recent uptick" will not change the trend, and oil prices remain "at current levels for the long term." The "macroeconomic shock" will have an impact on the economic outlook and geopolitics of the region. Between 2014-2016 they fell "by an average of one-third - or 15% of GDP" - resulting to double-digit current-account deficits. Ishac Diwan highlights the consequences of falling oil prices in the Middle East. Naturally, any country would prefer the latter, so the region’s governments are now trying to grow out of their problems by diversifying their economies. Oil-producing countries can either cut consumption, or maintain it by improving productivity. But, ultimately, each country’s economic fate will depend on the choices that it makes today. Low oil prices will hit Algeria, Bahrain, Iraq, Iran, Oman, and war-torn Libya and Yemen before the richer countries of the Gulf Cooperation Council. But countries with large external imbalances, low reserves, or high debts will increasingly feel financially constrained, if they don’t already. Most oil-producing countries have already started to cut expenditures, borrow, and draw down their reserves. If so, this will deliver a macroeconomic shock of historic proportions and profoundly change the Middle East. Notwithstanding a small recent uptick, most forecasts predict that oil prices will remain at current levels for the long term. CAMBRIDGE – Between 20, Middle Eastern oil-exporting countries’ revenues fell by an average of more than one-third – or 15% of GDP – and their current-account surpluses have swung violently to double-digit deficits.
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