According to the global Monetary Fund, oil exporters from the region could face a total budget deficit of $1 trillion over the next five years if there is no change in the price of oil and urgent economic reforms are not carried out. There’s no exception to Saudi Arabia, the leader of Organization of Petroleum Exporting Countries (OPEC), Oman and Bahrain.
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The IMF’s Middle East Director Masood Ahmed told reporters in Dubai that falling oil prices have caused the region’s exporters to count a loss of $360 billion in this year alone, reports Al Jazeera.
The World Bank weighed in, lowering its 2015 forecast for crude oil from US$57 a barrel in its July report to $52 a barrel for the rest of the year.
The question, however, is whether the drop in oil prices, which remain more than 50% below mid-2014 levels, has overtaken the ability of Saudi Arabia and other OPEC members to pump their way out of the fiscal hole.
The depressed oil prices have come at a time when spending has gone up as many of these countries are grappling with regional violence and turbulence in financial markets.
Saudi authorities are already planning spending cuts as the world’s biggest Crude Oil exporter seeks to cut its budget deficit.
Massive foreign currency reserves will prop the current regime for years, but unless the government acts now, the economy is likely to hit a wall in five years down the line.
Saudi Arabia’s war chest of cash is still humungous at almost $700 billion, but it’s shrinking fast.
“Some of the projects that are less economically essential are quietly being sidelined”, Smith said.
That is due to the current price of oil being far below the breakeven point fiscally for the government or the price they need to make their budgets balance.
The International Monetary Fund said if the fighting there continues, it “would reduce growth in the affected countries, with adverse spillovers to the region and beyond”.
Bahrain is also under great financial pressure, with the likelihood of also running out of options in less than five years. “They are going to have to undertake a more significant tightening”, said Jason Tuvey, a Middle East economist at Capital Economics. “It means pain now, but in the medium-to-long term they will reap the fruits of a more balanced market, moderated shale supplies, growing demand for oil and ultimately a higher price”.
Reuters reported this Friday that the price of oil had dropped once more to complete two weeks of decline. The magic number is believed to be $56 in Qatar, the host of the 2022 World Cup, while the UAE needs $73 oil.
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He also accused Western countries of using mainstream media to invent stories “in an attempt to explain why oil prices have conveniently fallen, just in time to pressure Russian Federation, Venezuela and Iran”. Still, if the government doesn’t develop sustainable non-oil revenue over the next 5 to 10 years, “then of course, they’re in big trouble”, he said. Qatar and Kuwait can sustain cheap oil for nearly 25 years.
