Should We Be Worried About A Glut? - Gulf Business
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Should We Be Worried About A Glut?

Should We Be Worried About A Glut?

At times like these, the countries should draw from lessons learnt during hard times.

These days asking “How’s business?”is almost like a secret handshake – the kind that is used to gain permission to enter a private club – indicating it is time to discuss privately the oil price and its impeding speculative impact on business.

So, how is business? With a slow deep breath and a subtle shake of the head from right to left, comes the reply – “We’re not sure what is happening. We are taking a wait and see approach.”

Most conversations between business leaders signal it might be a tough year. But it doesn’t have to be.

These market conditions sound awfully reminiscent of 1985, the year Emirates Airline was launched. That year, Time magazine wrote, “The world was floating in a glut of oil.”

The very next week, The New York Times warned that the “glut” was misleading and that in reality, temporary surpluses brought the prices down. Was there a glut or not?

The year 1985 was also right in the middle of the Iran-Iraq War, which was not kind to the Gulf. It’s sounding like 1985 was the perfect storm – war, falling oil prices, and the very few tourists staying away. Not surprisingly, this lead to decreased demand for flights. So when the spring/summer schedules came out earlier that year, Gulf Air flights to Dubai drastically dropped by 84 per week to just 39 causing Dubai airport to lose valuable capacity.

Many of today’s business leaders, at least those under 45, don’t really remember the economic crisis of the 1980s as anything other than a history lesson. But rulers across the GCC certainly do. Look across Saudi Arabia, the UAE, and Kuwait, and you will see that the rulers in place today were in positions of authority in the 1980s.

In the midst of those conditions, Dubai unveiled a significant development plan including a new airline. Having thought about launching an airline in Dubai, Sheikh Mohammed asked, “When is the next appropriate date on which you can launch?”

Maurice Flanagan replied October 25, the date when the autumn/winter schedules start. And so did Emirates Airline, with only six months notice.

Is the word glut just an example of exaggerated language? Coupled with the constant reminder “despite the falling oil price”, it’s definitely emotive. Doing nothing but reminding people to be cautious.

You shouldn’t be surprised or reactive to the oil price. When the price goes up, the trend says consumption decreases causing supply to outstrip demand.

Of course this results in a rapid decline in the prices, a natural reaction following the highs. This has happened every time oil exceeded $100 per barrel. To our advantage, this time we are following the longest run in history of high oil prices lasting from 2011 till last summer.

This isn’t the first time the world has experienced an oil glut and in-fighting regionally, so why all of the worrying over coffee? Perhaps it’s because negative speculation is contagious, supporting the growing premise that the response to the oil price fluctuation is psychological.

Without really examining the historical context, the picture I had in my mind of the time of the launch of Emirates was that the economy was strong, Dubai was flush with cash, and there was built up demand. But the reality was the opposite, oil prices were plummeting, a war was happening in the backyard and passenger traffic was down markedly.

There is a valuable history lesson for us to follow today. Sticking with its strategy, Dubai created an environment for others to succeed.

The rulers made a bold leadership move, giving confidence to others to proceed with business as usual. When times are uncertain, even, gloomy, it is not the time to stand still and tread water waiting for stability to return. Rather, it is the time to be confident and act.


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