The continued struggle by Europe and the US to shrug off the malaise from the financial crisis of 2008 is likely to restrict growth - even in the buoyant Asian economies that supported high oil prices last year.
"Europe has now entered another recession, only a little more than two years after the last recession ended," says Joachim Fels, an analyst at Morgan Stanley, in a research note. "Our US base case remains anaemic growth of just over 2 per cent next year. Unsurprisingly against this backdrop, growth prospects for emerging-market economies have dimmed further."
Diminished global growth and the possibility of a double-dip recession in the euro zone are widely predicted to push the price of oil below US$100 a barrel at least in the first half of this year, with prices possibly rebounding later in the year alongside a recovering world economy and underlying supply risks.
A Reuters poll of analysts predicted Brent crude to average $105 a barrel, not far below the $111 average of last year.
Last year, the price of Brent crude rose above $120 a barrel as Europe was deprived of Libya's exports during the civil war that ended Muammar Qaddafi's rule, and the Arab Spring added a hefty risk premium to oil prices.
This year, Iran's sabre-rattling signals some potential to create a similar premium. In the unlikely event that it carried out its threat to block the Strait of Hormuz, choking off 40 per cent of the world's maritime crude flow, prices would probably spiral out of control. The subsequent lack of export options would deprive Gulf producers of the means to exploit any gains and would be likely to send the world economy into recession, undermining the long-term oil price outlook.
Economies in the Gulf should continue to benefit from healthy income from their crude trade. The Institute of International Finance predicts revenue from hydrocarbon export will hit US$725 billion (Dh2.66 trillion), down only slightly from last year.
A large proportion of this income would feed into the domestic economies, as regional governments have initiated huge infrastructure programmes and public-sector pay increases in response to the Arab Spring. Nevertheless, many analysts believe an average GDP growth of 7 per cent in the GCC will not be repeated this year.
"While sustained fiscal stimulus will continue to bolster non-oil sectors, a weaker global environment and reduced contribution from oil sectors will see growth dip to 3.7 per cent in 2012," says a report by the Saudi American Bank.
Abu Dhabi, the UAE's hydrocarbon powerhouse, should continue to earn handsomely from its exports in 2012. Efforts to increase production capacity to 3.5 million barrels per day by 2018 are likely to start bearing fruit and could help offset a decline in oil prices if the global economy contracts. Abu Dhabi National Oil Company says onshore production will increase by 213,000 bpd this year, with offshore fields also yielding more by the end of the year. The Emirates, and Dubai in particular, will also continue to benefit from inflows of capital and business as the Arab Spring has hurt some neighbouring countries' image as investment targets.
No other country will see economic growth driven up by oil more than Iraq this year. The country's GDP will grow by 8.4 per cent this year, the biggest growth in the region, according to estimates by the Institute for International Finance. Production increased to 3 million barrels per day last year, as the giant oil fields in the south were developed by international oil companies, and production will continue to rise in 2012. Iraq will account for 80 per cent of the increased capacity among Opec nations over the next five years, says the International Energy Agency. Downside risks remain following the withdrawal of US troops at the end of last year.
Devoid of significant hydrocarbon revenues and stripped of its business-friendly tag by unrest last year, Bahrain's outlook for 2012 is the least optimistic of the Gulf countries. The Institute of International Finance nevertheless estimates growth will stand at 3.3 per cent this year, an increase of more than 1 per cent on last year. While it will suffer in the long term from its demise as a regional base for international companies, Bahrain will benefit from a US$10 billion (Dh36.72bn) injection coming from a fund established by the GCC in the aftermath of the region's tumultuous spring, and assistance from neighbouring Saudi Arabia.
Kuwait should experience strong GDP growth on the back of its oil production, which peaked at 3 million barrels a day last year. Despite expectations that crude prices will decline this year on the back of the continued economic woes of the euro zone and the US, economists predict oil will help Kuwait's GDP hit a growth rate of 4.4 per cent. Outside the oil sector, the economy risks stagnation as a four-year development plan launched in 2010 is not being implemented at the required pace. The Emirate's political situation continues to weigh on the economy, as parliament obstructs policy implementation in its stand-off with the government.
Oman managed to overcome the turbulence of the Arab Spring and end the year with a healthy fiscal surplus, which Saudi American Bank estimates at about 10 per cent of GDP. While this is forecast to fall this year, the government nevertheless has the financial means to increase spending should the economy start to lag. BP has been exploring tight gas reserves in the sultanate, and is set to make its final investment decision on the multi billion-dollar project. Should the project go ahead, it is likely to ease Oman's gas shortage by the middle of the decade, eliminating the main constraint on industrial development.
Qatar enters the new year on the back of a huge growth in gas exports. Having achieved its target to increase liquefied natural gas (LNG) production capacity to 77 million tonnes a year in 2010, the country grew that by 30 per cent last year, analyst say. A moratorium on further extraction from the enormous offshore North Field will probably slow production growth this year, and gas prices could take a hit if Asia is affected by the economic malaise in Europe and the US, and shale gas starts finding its way out of North America to the global markets. GDP growth is likely to remain at about 8 per cent as the government steps up infrastructure spending.
Latin American oil and gas production has been bolstered by Brazil's continuing efforts to invest in new production capacity. Venezuela, the subcontinent's largest producer, is set to maintain its current crude production of 3.01 million barrels per day this year, according to Rafael Ramirez, its oil minister. But, like Iran, Venezuela's oil industry is hampered by a lack of foreign investment, and the country will be keen to see prices high this year while output can be maintained. Brazil's crude imports are set to rise as motorists are turning away from biofuels. Economic growth in Latin America is likely to be aided by stagnant or falling oil prices this year.
Iran will be the big loser among the major oil producers in 2012, as its intransigence over its nuclear programme led to a fourth round of sanctions by the US and Europe. As it becomes increasingly hard for international oil companies to operate in the country, and Iran finds it more difficult to get access to modern technology to rejuvenate its ailing production infrastructure, output is forecast to drop. The International Energy Agency says Iran's oil production could be cut by as much as 890,000 bpd to just under 3 million bpd by 2016. In the near term, the EU may impose an embargo on nearly 600,000 barrels per day of Iranian crude imports.
Saudi Arabia doubly profited from the shock to the oil markets caused by the Arab Spring and the outage of Libyan crude. It increased production to make up the Libyan deficit, and has profited from prices kept well above the US$100 a barrel mark for most of the year due to geopolitical uncertainty and continued demand from the Asian growth markets. The kingdom's production peaked at a 30-year record in November, and is set to remain high this year after Opec amended its production ceiling. The government has launched a US$385 billion (Dh1.41 trillion) infrastructure programme, in part to address the root causes of regional social unrest.
Russia's economy would suffer greatly from a meltdown of the European economy, losing out on both exports and investment flows. This would exacerbate a potential revenue loss from oil production, which could go into decline if investment is not stepped up sufficiently, says the International Energy Agency (IEA). Russia is now increasing investment into the sector. Rosstat, a state statistics agency, estimates investment in the oil and gas sector hit US$40 billion (Dh146.92bn) in 2010. Investment levels are likely to remain steady, although Russia will require $1.5 trillion for developing the extraction of oil before 2035, the IEA said in November.
Libya's oil sector is recovering beyond most expectations, with production reaching 1 million barrels per day (bpd) last month. Pre-war production of 1.8 million bdp is likely to resume by the middle of the year. In addition, funds amassed by Muammar Qaddafi during his time in power and stored abroad should help the economy. With the National Transitional Council recognised internationally, a significant proportion of those funds could be used to expand infrastructure. "Assuming a smooth political transition … Libya's medium-term prospects for sustainable, high economic growth should be good," says the Institute for International Finance.
The US economy is forecast to grow by 2 per cent in real terms by a number of investment banks, with a lack of fiscal stimulus preventing better growth despite a reduction in unemployment. Moderate growth will lead to moderate consumption of fossil fuels, and the price for natural gas is expected to decline further. After being the worst performing commodity index last year, the Nymex Natural Gas index could tumble by another 8 per cent this year, as a growing supply of domestic shale gas is not met with comparable demand. Shale oil production could reach 3 million bpd by 2035 and is accelerating, with the US Energy Department predicting at 37 per cent increase this year.