The oil price fall since the anti-US terror attacks has cut short the joy of major crude producers in the Middle East, putting their economic development programs at risk, experts said on Wednesday, October 24.
The world economic slowdown in the wake of the crisis has sent the reference price for OPEC's basket of crudes tumbling below $20 a barrel, the lowest level since August 1999. An oil price bonanza for top producers such as Saudi Arabia which produces almost eight million barrels per day (bpd) and Iran with 3.4 million bpd lasted two years.
Saudi Arabia, the world's leading exporter, in 2000 recorded a first budget surplus in 17 years and the price decline, if prolonged, risks pushing it back into the red. The fallout will also be harsh for other Gulf Arab petromonarchies and Iran as their budgets, shackled with high population growth rates, depend on oil for more than 70 percent of revenues.
In Saudi Arabia, the state budget accounts for almost one third of gross domestic product (GDP), estimated at $170 billion. In Iran, a one-dollar fall in oil prices costs almost one billion dollars in lost earnings.
"It will affect government spending on social programs, health programs, education and poverty reduction programs," said Saudi economist Ihsan Bu Halaiga. In 2001, Gulf budgets are still expected to emerge in decent shape, as prices hovered around $25 a barrel for most of the year up until September 11.
The main impact has been felt on Gulf stock markets, which have fallen since the terror attacks by between five and 15 percent, according to Beshr Bakheet, director of Bakheet Financial Advisors in Riyadh.
"Most expectations are that (Gulf) budgets will record a small surplus for the year. But next year will be harsh if the situation continues," warned Bu Halaiga, a member of Saudi Arabia's consultative council.
"OPEC needs to shoot for $25 per barrel but it cannot move now because it will be perceived as taking advantage of a war situation. We can hope things will improve as of the second quarter of next year," he said. And "when the economy goes down, you cannot ask for more taxes and fees."
Bu Halaiga said, "We need three decades of continuous surpluses in order to make up for the debt," accumulated since the 1980s because of previous shortfalls, and to finance public sector spending. For the non-Gulf producers, the price fall is having only a moderate impact because oil makes only a modest contribution to GDP.
The fall is "half bad, half good" for Egypt, which exports 300,000 bpd of lower quality oil while importing a smaller amount of higher quality crude, explained an energy expert in Cairo, asking not to be named. He said the budget was calculated on the basis of a price of $15-16 per barrel.
In Syria, the budget was based on $24, a figure which is still attainable due to the higher levels of the first three quarters of 2000, said economist Samir Seifan. Syria produces almost 600,000 bpd of which 320,000 bpd of oil is exported. Oil accounts for 50 percent of state revenues and 10 percent of GDP. — (AFP, Dubai)
© Agence France Presse 2001
© 2001 Mena Report (www.menareport.com)
