Oil, COVID-19 and Muslim State funding of Fundamentalism

This briefing is provided by a friend of RZIM.

@Interested_in_Islam

Key Facts

  • In 2019, Saudi Arabia was the world’s second largest producer of oil (11.81 million barrels a day) – The first is America at 19.51 million barrels per day. (US Energy Information Administration, 2020)
  • US oil production overtook Saudi Arabia in 2013.
  • Global oil consumption per capita in 2015 (the last year for which there is data) was about the same as in 1965.
  • The average American uses about 10 litres of oil, or oil products per day. (David, 2020)
  • Five of the top ten largest oil producers are Muslim majority states.
    • Saudi Arabia, Iraq, United Arab Emirates, Iran and Kuwait
  • The Organisation of the Petroleum Exporting Countries (OPEC) was founded in 1960 in Baghdad with the initial members being Iran, Iraq, Saudi Arabia, Kuwait and Venezuela.
    • It now has 14 member countries accounting for approximately 44% of global oil production
    • Its formation arose from a desire to protect their natural resources from exploitation from outside interests.
    • Brazil was asked to join OPEC in October 2019, but has not made a decision about that as yet.
    • Mohammed Barkindo is the current Secretary General - He is a Nigerian who was educated in Nigeria and then the University of Oxford (Diploma in Petroleum Economics) and Washington University (Masters in Business Administration). He was also a Fellow at George Mason University (2014-16)
  • Oil and Gas production has been in steep decline since 2000 (Ritchie and Roser, 2020)
  • The Gulf Cooperation Council (GCC) has estimated that oil prices will not rebound until 2022, meaning that they will see a significant income decline in the short to medium term. (Azezki, Fan and Nguyen, 2020)
  • Of the Muslim majority states who are in the top 10 list of OPEC states, Nigeria and Iraq are believed to be the worst hit by the oil price crash as, for example, Iraq’s fuel exports are 98% of their total exports, leading to an income shortfall of approximately $50 billion. Saudi Arabia is believed to have a shortfall of $100 billion with the downturn, but it has been diversifying its economy significantly since 2014 when global demand last dropped sharply. (David, 2020)
  • The UAE central bank has announced a $27 billion dollar stimulus package for the country and Saudi Arabia has announced a $13 billion stimulus package as well.
  • Amusement arcades, shops and amusement parks have been closed. Tourism has been seen as an important alternative revenue stream for many of the Gulf monarchies as oil demand had been declining.
    • Dubai parks and resorts announced its closure until the end of April – the resort had cost $3 billion to construct but has been losing money significantly since its opening.
  • Iran was already suffering under international sanctions and water shortages before Covid-19 struck, but oil production in the state has now dropped to just one-eighth of where it stood in 2011. (Anon, 2020a)
    • Iran has asked for a $5 billion loan from the International Monetary Fund (IMF), the first time they have asked for such help since the 1979 Revolution.
  • Gulf states are amongst those who have been using the Covid-19 outbreak to tighten their grip on authority.

Analysis
The downturn in economic outlook for the Muslim states that make up the GCC and the Muslim majority states of OPEC has been exacerbated, rather than facilitated, by the COVID-19 crisis. As highlighted in the ‘key facts’ section, the Saudi’s had been overtaken by the US in oil production back in 2013 and there had been a growing recognition amongst the GCC that diversification away from oil was increasingly urgent due to growing competition along with largely flatlining demand. (Arezki, Fan and Nguyen, 2020; Anon, 2020a) Iran had been in trouble financially anyway as the international sanctions were biting and the impact of COVID-19 both on their internal economy and their oil production has only exacerbated their problems.
It is this combination of long-term structural problem and short -term COVID-19 shock which is having significant effects on, amongst other things, the ability of the Gulf states to fund Salafism and Islamic Fundamentalism. But to what extent it is the longer-term issues and to what extent it is COVID-19 alone is difficult to decipher. One might argue that it doesn’t really matter which is the more important factor, but actually, the difference is quite important. For, if the economic downturn is simply a COVID-19 problem, then, as the global economy begins to pick up again towards the end of 2020 and into 2021 their funding for Salafism could ‘normalise’ in 2022. (David, 2020) If, however, the problem is long-term and structural, then funding for Salafi and Islamic Fundamentalist activities would be more permanently damaged.
A recent article in the Middle East Monitor suggests that it is latter rather than the former: a long-term rather than short-term COVID-19-driven issue. For it notes that, in January 2020, the former Saudi Minister of Justice (Mohammed bin Abdul-Karim Issa) stated that Saudi Arabia would not be funding mosques in foreign countries. (Anon, 2020b) Furthermore, Issa added that they would be handing over control to the local administrative councils of each mosque. Saudi Arabia’s prestige in the Sunni world is, in large part, based upon it’s funding of international Salafism through mosque-building and da’wa initiatives. So the fact that it was making this announcement was significant indeed. Furthermore, it was something which the Saudis had seemed to be contemplating over two years ago, for back in 2018, the Saudis announced that funding for a number of Mosques in Belgium was ending. At that time there was no suggestion that this would be a global ending of funding and foreign mosque control. But it seems that the strategic course had been set some time ago. (de Carbonnel and Kalin, 2018)
This significant move is almost certainly the result both of the need to relieve some financial burdens, but perhaps also, to help relationships with governments such as those in North America and Europe for whom the Saudi funding of mosques have been a consistent concern. (Shane, 2016)
Saudi Arabia and Iran are by no means the only funders of Salafism: Qatar, Turkey, Malaysia and Pakistan are also becoming ever more important players in the export of Salafism, but the importance of the impact of slowing oil exports from these two states, the traditional chief exporters of Salafism and Islamic Fundamentalism, cannot be overestimated. For the fact that Saudi Arabia is ending its funding and control of foreign mosques will be immensely damaging to its ‘soft-power’ and its prestige in the Sunni Muslim-majority world. In the long-term therefore, the impact of oil-price drops and COVID-19, might very well be to speed up the shift of the centre of power and influence amongst Muslim-majority states from the MENA region towards South and Southeast Asia.
In that connection, the growth of Islamic Finance as described in the brief on Southeast Asia might very well become the principle way in which Salafi and fundamentalist activities are financed in the long-term. But, at least for the moment, the funding from Islamic Finance does not appear to be enough to compensate for loss of oil-revenue funding. With that in mind therefore, the battle to ensure that Islamic Finance does not gain a long-term footing in the financial markets of either the West or any other region will be strategically vital in helping to combat the spread of Salafi and Fundamentalist activities. COVID-19 therefore, whilst being a short-term shock, will not be the key long-term factor in determining the funding-level of Salafi and fundamentalist activities going forward. It is instead likely to be Islamic Finance, as the oil revenues drain away.

References

Anon, (2020a) ‘Iran battles coronavirus amid dramatic slump in oil income’ www.al-monitor.com 31st March

Anon, (2020b) ‘Saudi Arabia to stop funding mosques in foreign countries’ www.middleeastmonitor.com 25th January

Arezki, Rabah, Rachael Yuting Fan and Ha Nguyen, (2020) ‘Coping with Covid-19 and oil price collapse in the Gulf Cooperation Council’ www.blogs.worldbank.org 21st April

David, Dharshini, ‘Who wins and who loses when oil prices fall’ www.bbc.co.uk 22nd April

de Carbonnel, Alissa and Stephen Kalin (2018) ‘Giving up control of Brussels mosque, Saudi Arabia sends a signal’ www.reuters.com 12th February

Ritchie, Hannah and Max Roser, (2020) ‘Fossil Fuels’ www.ourworldindata.org

Shane, Scott (2016) ‘Saudis and Extremism: “Both the arsonists and the firefighters”’ www.nytimes.com 25th August.

www.eia.gov (2020), US Energy Information Administration, 1st April

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This is very encouraging. Thank you so much for all the work put into creating these briefs. I am new to RZIM Connect but find this incredibly helpful and insightful.

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