Why regional business leaders should not dream of a higher oil price

Will the oil price increase now when Saudi Arabia and Iran have agreed to reduce their oil output? The preliminary deal represents a breakthrough between the two countries and the first such move in OPEC since 2008. The surprise might be less shocking for oil price optimists as the last many months have brought so little good news that something radical had to happen.

At the beginning of the year, the consensus amongst the optimists was that the price would reach $70 per barrel Brent by New Year, which is equivalent to an increase of more than 40 per cent by the time of the announcement.

The reality is, however, that the region has already changed forever, regardless of whether the oil price recovers.

The extraordinarily high oil prices from 2010 through to mid-2014 lured any company with just the slightest international aspirations to try their luck in the rich Gulf countries. It also motivated local investments that duplicated each other in one industry after the other. While the regional economies have been growing at breath-taking speed since the big oil money started to flout in the early 1970s, the supply side has finally caught up with demand. The competition is getting much more serious across industries.

This has implications on leading a business, which nowadays has less and less to do with keeping pace with the insatiable growth in demand. The market buoyancy that compensated for almost any mistake made over the last four decades has now started favouring the leaders who are able to offer customers exactly what they want in the way that they want it and at a reasonable price.

For people who see the world as they like to see it, as we all tend to do, the differences between the “before” and “after” picture can be hard to notice – not least for those who have taken their past success very personally. A perfectly natural initial reaction is to deny any wrongdoing, which can be done by dreaming about prices returning to $70 per barrel by the end of the year, and to start blaming others, including customers, competitors and colleagues, when reality hits.

A lot of this is happening right now inside the region’s boardrooms. Executives may have a hard time explaining why their safe hands are suddenly so uncertain, while representatives of the owners do not know whom and what to trust. Even worse during difficult times, the executives of an organisation can end up focusing on internal power games instead of paying attention to what is going on outside in the marketplace.

And what a pity that is. A time of change offers plenty of opportunities. Those leaders who make an aggressive effort to strengthen their business, consolidate their industry across the region or position for the upcoming privatisation in Saudi Arabia are able to shape a different future for their companies.

The oil price will always be a source of speculation in the GCC countries as they are sited on top of more than 40 per cent of the world’s known resources. That said, the fall in the oil price since the summer of 2014 and its delayed ripple effects should be a wake-up call and an occasion to ask yourself whether you are working with the right people in the right ways. They, like you, should be able to see opportunities in difficult times, instead of just dreaming about better times.

Effective Business in the Gulf is published by Motivate and is available in all major bookstores and at booksarabia.com