Oil prices not seen to rise beyond $70 this year or next
The lower the oil price falls, the worse the economic scenario will become for Kuwait, Saudi Arabia, Oman, and Bahrain, as well as the United Arab Emirates but with lesser impact, and probably very little impact or perhaps even good news for Qatar.
The bad news indeed is that oil prices will not rise beyond $70 per barrel this year or next. At the same time, the USA shale oil business is booming and growing at a high rate that can surplus all expectations. Basically, shale oil is leading and influencing the oil prices now and no OPEC and its partners can have any influence over this situation.
The role of oil in the economy of Gulf countries is so important that any drop in its price to any level below $75 per barrel will just not help their annual deficits. The absence of other sources of income is pushing the deficits higher and higher. At the same time, the annual budget of the Gulf countries is on the rise and allocated mostly for salaries and subsidies. In the case of Kuwait, over 80 percent of the annual budget is allocated for the two elements.
The moment the oil price goes beyond this level, the governments open up their treasury for expenditures left and right. For example, Kuwait has lifted its celling of expenditures without any restrictions, reaching $70 billion or KD23 billion. The concern was made clear by Kuwait government that to have breakeven budget, the oil price should reach and remain at the level of $80 for the rest of this year and until the end of the first quarter of 2020. However, this is going to be near impossible.
Fortunately, Moody’s report is open to all governments, and just reading its summary conveys to its readers the bad news. The question is – What actions will our governments take to rectify our future economic problems and how will they be corrected? The biggest problem that the Gulf countries will be facing today and in the incoming years is creating new jobs opportunities. Finding jobs for our young engineering graduates is the first sign of the problem that the Kuwaiti government will face.
Meeting the annual deficit is a huge problem that the governments of Gulf countries will face in the coming years especially with oil prices to remain below $70 for years to come. Hard days are indeed ahead of us.
By Kamel Al-Harami Independent Oil Analyst