Last reviewed 21 September 2021
A familiar and established market in the Middle East Gulf, Oman is a country ready to do business with UK exporters as its economy diversifies and expands.
Located in the south of the Arabian Peninsula, the Sultanate of Oman is one of the more traditional countries of the Middle East Gulf region, with an economy similarly skewed heavily toward oil and gas. A country of 2.9 million people, it is one of the oldest independent states in the Arab world and a close and long-standing regional ally of the UK. As a member of the Gulf Cooperation Council (GCC), it also offers access to a much larger market of some 55 million.
Oman has long provided a politically neutral voice in a region prone to diplomatic tension, a major draw for foreign businesses and investors. Though its economy is dominated by energy — the sector accounts for 75% of export earnings — it has perhaps worked harder than most to maximise benefits from this key regional industry.
Its domestic reserves are small in comparison to peer states like Saudi Arabia, Kuwait and the United Arab Emirates (UAE) — crude oil reserves in Oman are estimated at around 5.3 billion barrels, compared to Saudi Arabia’s 266 billion barrels. Yet the Sultanate is the largest Middle Eastern crude oil exporter outside of the OPEC group, producing around 700,000 barrels per day (bpd). Tourism, services, agriculture and industry are other important economic sectors.
Geographically, Oman occupies a strategically vital position at the south-eastern corner of the Arabian Peninsula, facing out toward the Arabian Sea. The capital is Muscat, on the country’s eastern coast, a thriving city home to traditional markets, ancient mosques as well as sky-rise office buildings. Its neighbours include Saudi Arabia and the UAE to the north, and Yemen to the west.
Oman’s territory also includes a thin strip of land, Musandam, surrounded by the UAE, that juts out into the Straits of Hormuz, a key waterway through which much of the world’s traded oil passes through. As well as hundreds of tankers each day, war ships also patrol this narrow channel in order to keep routes open and maintain stability, even when tensions in the region rise.
On the other side of the Straits lies the Islamic Republic of Iran, another key energy producer, which has at times of high tension threatened to block the channel. This is, in part, behind Oman’s close military and defence ties to the UK and other allies.
As the only GCC member state outside the Straits of Hormuz, Oman offers assured Gulf access and shorter shipping times along major maritime routes — its deep seawater ports and airports provide a gateway to Indian, Asian and African markets.
Like most other countries, Oman has been squaring up to the challenges posed by lockdowns and reduced economic activity triggered by the Covid-19 crisis. The overall economy shrank by 2.8% in 2020, according to the International Monetary Fund (IMF), but it is expected to rebound to 2.5% growth in 2021.
While diversification has long been a priority for Oman’s rulers, the energy sector will most likely drive this forward momentum for now. Petroleum Development Oman (PDO), the nation’s oil and gas champion, already has production nearing record highs, but has been taking steps to place its business on a sustainable and secure footing for the future. That includes signing US$4 billion worth of contracts in March 2021 for long-term services support covering project delivery, maintenance and integrity work in the north and south of its vast Block 6 concession area.
The agreements, with Arabian Industries Projects (AIP) and Special Technical Services (STS), encompass the design and execution of more than 200 on-plot projects and will run for up to 10 years. Block 6 is Oman’s largest oil field producing about 650,000 barrels per day (bpd). At the same time, the economic turmoil of 2020 will take some time to unwind fully.
Central government debt rose to 81.2% of gross domestic product (GDP) in 2020, the IMF noted, with financing needs covered by domestic and external borrowing and asset drawdown, though this is expected to decline sharply over the medium term. Total government debt is expected to decrease to 70.7% of GDP during 2021 and to decline further until about 47% of GDP in 2026.
Oman has also accumulated large amounts of debt since the oil price crash in 2014, which has only served to highlight the need to diversify away from oil as well as reduce spending on a bloated public sector. It also means a number of strategic changes to the energy sector with Oman studying plans for streamlining some of its state firms and assets.
They include a possible initial public offering (IPO) in OQ SAOC, an integrated state energy company formed through the merger of Oman Oil Co with several other businesses, including Oman Gas Co, refiner Orpic, and Oxea, a chemicals business.
There’s no doubt some of Oman’s diversification efforts have been impressive. In the energy sector, this has meant investment in higher value areas such as refining and processing, as well as building up the gas industry.
Oman LNG (liquefied natural gas) is a major industrial gas complex in Qalhat, near Sur, owned by the Government and a consortium of investors, including Shell. Commissioned in 2000, it now operates three LNG liquefaction trains with a capacity of 10.4 million tonnes per year.
A key thrust of the diversification drive is to open new opportunities for Omani workers. Again, PDO has shown leadership in this area, nurturing local employment and skills training throughout its vast network of businesses for many years.
In May 2020, it launched a new venture, PDO Services (PDO-S) to leverage the talent, knowledge and skills base of PDO staff to offer niche technical and non-technical services to clients in areas ranging from engineering and design to logistics.
There has also been substantial investment in Oman’s ports and free zones at key sites like Salalah, now a major international transhipment hub close to the Yemeni border, and Sohar, an emerging industrial pole on the eastern coast below the UAE. Here, the country is undertaking its first foray into aluminium with Sohar Aluminium, one of many major industrial undertakings.
This area has also become a magnet for international trade, with activity bustling despite the lingering impacts of the pandemic. Sohar Port and Freezone reported that its throughput for the second quarter of 2021 was up 14% over the same period in 2020, while ship-to-ship cargo increased by an impressive 16%.
The number of handled containers came in at 190,000 TEU (tonne equivalent units), up by 18%, while land occupancy at the freezone has grown by 10% during the year. Sohar boasts an abundance of energy, raw materials and world-class logistics, coupled with incentives for local and international investors and a one-stop-shop system for government clearances.
With Oman’s economy opening up and expanding once more, the UK is ideally placed to capitalise on emerging opportunities as the biggest foreign investor to date. English is widely spoken in business circles and there is a long history of military and defence co-operation between the two nations, while many Omanis choose to study overseas in the UK.
According to the UK Department for International Trade, there are opportunities for British exporters ranging from security and infrastructure to mining and healthcare. UK firms already operating in the market include Mott McDonald, Babcock, Rolls-Royce, Carillion and Taylor Woodrow, as well as number of banks, law firms and other service providers. There is also a large expatriate community of around 7000 UK residents, making it the biggest single Western expat segment in Oman.
Shell’s integral links to all strands of Oman’s energy sector, from PDO to Oman LNG, amply underscore this broader bilateral relationship that extends far beyond trade and investment. Indeed, the recently appointed new managing director of PDO, Steve Phimister, was formerly Shell’s vice president of upstream in the UK.
UK-based energy firms are deeply involved right across the oil and gas industry. London-listed engineering group Petrofac was recently awarded US$300 million worth of work by PDO for two new projects.
They include the Marmul Main Production Station (MMPS) Gas Compressor project to eliminate permanent flaring and manage associated gas at a site about 800km from Muscat, and engineering support for AIP at selected concessions in the north of Oman.
Petrofac has a long history in Oman, investing US$30 million in a technical training centre with its partner Takatuf Petrofac Oman to develop the local skills base.
Going forward, it is likely that much of this expertise will be brought to bear as Oman steps up its interests in new and alternative energy sources, a step into the future and another strand of the diversification effort.
Recent initiatives include the formation of a national hydrogen alliance, named Hy-Fly, made up of 13 private and public sector organisations, including local units of BP and Shell, in order to exploit the development of clean hydrogen.