Oil price fall could constrain projects expenditure
7 April 2025
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The sudden fall in oil prices following the imposition of worldwide import tariffs by the US could have severe consequences for the GCC projects market.
In the five days since US President Donald Trump’s tariffs announcement on 2 April, the price of West Texas Intermediate (WTI) has fallen from $72.1 a barrel to $60.5 a barrel, a drop of 16%, as stock markets plunged across the world and fears over future crude demand increased.
Despite some successes with economic diversification in recent years, the region’s projects market is particularly sensitive to oil price changes given that the majority of projects are funded directly by the state or government-related entities.
Historically, this is reflected by a strong correlation between oil prices and contract awards. After reaching record highs in 2013 and 2014, the sharp fall in prices in late 2014 from more than $100 to as low as $26 a barrel in early 2015 led to a sustained slump in project activity in the ensuing seven years. It was only when oil started to rise after the 2020 pandemic that projects expenditure started to recover.
The most direct historical comparison was the period 2016-21, when annual average crude prices were $57 a barrel. Over those same years, excluding Covid-hit 2020, annual contract awards averaged just $117bn, less than half the record value of work let in 2023 and 2024, when the oil prices were more than $80 a barrel.
However, the same data from regional projects tracker MEED Projects highlights that there tends to be a 12-month lag between declines in oil prices and a visible impact on new contract awards. This is presumably due to the time it takes for falling revenues to filter through to state budgets in the following financial year.
It remains too early to tell whether the recent fall in the oil price will be sustained or whether some softening of the US’ tariff policy will alleviate demand concerns. But if crude continues to drop, it is inevitable that spending on projects will have to slow, even if not immediately.
Data source: MEED Projects
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