Oil has been the prime industry in Middle East ever since it was discovered in Iran in 1911 by a British Company, the Anglo-Persian Oil Company (APOC).  It was not until the 1950s that Middle Eastern countries started enjoying the riches from their oil business. Foreign investments and revenues flowed into Middle East consisting of Saudi Arabia, UAE, Qatar, Bahrain, Iran and the surrounding areas and contributed to quick growth and construction of modern civilization and other infrastructural developments.

As Middle East grew to become the biggest source of oil, almost achieving monopoly status, America hit upon a new technique to reach the harder-to-reach oil reserves. Around 2007-2008, they discovered a technique known as hydraulic fracturing or “fracking”, used to crack the surface of the shale rock formation in the earth’s crust, thus allowing the oil and gas to flow to the surface. This accelerated the oil production in the US, threatening to give the oil moguls of the Middle East serious competition in terms of oil production.

The Middle East, privileged by its cheap cost of production and generous government wealth reserves, sharply reduced the price of the oil to counter the development in the US. Since fracking is a comparatively more expensive technique, it raises the overall cost of production. Thus, if the price of oil plummets too low, it shall no longer be economically viable to produce oil.

While the US is feeling the stress of low oil prices, Middle East is depleting its financial reserves in order to sink the US oil and gas industry. It is widely believed that if the US oil and gas segment falters, the US government will step in to fulfill its aim of attaining “energy Independence”. With Middle East having little else besides oil and gas to rely on, what will happen when the funds are exhausted and the oil sector crashes? Herein lies the significance of diversification for Middle East.

Aluminium is one commodity that is gaining demand all over the world for its strong, lightweight and ductile qualities, especially in the automobile and aerospace industries, and is slowly creeping into the Middle East economy. Bahrain is leading the flock by building the first aluminium smelter in the Middle East with Aluminium Bahrain or Alba which became operational as far back as 1971, followed by Dubai as UAE commenced Dubal in 1977.  Since then, aluminium has gradually gained in prominence and has now taken a firm toehold in the Middle East.

During the past decade, the aluminium boom really hit the Middle East regions with Alba producing nearly 1 million metric tons in 2014 (931,427 metric tons as per company statements). During the first quarter of 2015, they have already managed to produce 237,774 metric tons, jumping 2.4% Q-on-Q. The GCC (Gulf Cooperation Council) consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE, has produced 432,000 metric tons in March 2015 alone. GCC has been the highest contributor to the global aluminium production barring China, according to World Aluminium Statistics.

The following figures explain how aluminium production in the GCC has risen over the years.

Source: Gulf Aluminium Council website

There are six primary smelters in the GCC region; Alba in Bahrain, Sohar in Oman, Qatalum in Qatar, Ma’aden in Saudi Arabia and Dubal and Emal (together known as EGA) in UAE. The six together produced over 4.9 million tons of primary aluminium in 2014 with an expected production of up to 5.3 million tons in 2015, which would be equivalent to 10 percent of the total world production, according to Abdulla J M Kalban, Managing Director & Chief Executive Officer of EGA. EGA has a combined capacity of 2.4 million tons per annum, securing its place among the top five primary producers in the world by volume.

In their own ways, other Middle Eastern countries are also trying to break free of their oil dependence and create a more diversified economy. Dubai, amongst all its neighbors, has seen the sharpest growth over the years as it was quick to realize the transient quality of oil. It was swift to begin diversifying its economy, including International Trade, Airlines and Manufacturing (with aluminium as a major contributor) to the economic mix. As a result it has been able to reduce its oil dependence from 25% in real GDP in the early 1990s to around 1.5% in 2014 (Investopedia). This low dependence on oil means Dubai will possibly remain mostly insulated from the oil price crash while most of the other Middle Eastern countries suffer.

Saudi Arabia, although secured with sufficient government treasury, also feels the need to diversify. With petroleum sector accounting for roughly 80% of its budget revenues, 45% of GDP and 90% of export earnings (according to Forbes), it is almost hopelessly oil-dependent. Although late, it too has entered the world of aluminium as it prepares to initiate the $10.8 billion aluminium complex, Ras al-Khair, which will include an alumina refinery, smelter and rolling mill. While the smelter has seen some action, the rest of the project is expected to be commissioned soon, making the kingdom a site for end-to-end aluminium production chain. The project is a joint venture between Alcoa, a leading aluminium producer from USA, and the Saudi Arabian Mining Company (Ma’aden), which is quickly becoming the third pillar for Saudi Arabia after oil and petrochemicals.

At the moment, Middle East is evolving into a lucrative destination for developing aluminium. Its oil and gas resources are still abundant, leading to a situation where it should be able to fuel the energy-hungry aluminium industry. The cheap labour is always a boon in the industrial sector while the convenient, midway position between Asia and the US means a good trading point. The only detriment in the way of investments seems to be the strict rules applicable to foreign industries. The region’s demand for hiring a high percentage of locals, coupled with conservative social and religious surroundings, prove to be a deterrent for many investors. One hopes that the building of new, more liberal economic cities in Saudi Arabia, a country known to be amongst the most conservative in the gulf region, will open up opportunities for more foreign investments to pour in.