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No hope for any increase in oil prices

Who will lead the cost-cutting program?

Kamel Al-Harami Independent Oil Analyst

KUWAIT CITY, July 20: Kuwait’s total reserve of gold and cash is close to KD 12 billion ($36 billion) as of end of last month. Our total deficit in this year’s budget is close to KD 8 billion.

Our estimated oil price for the current budget is $55 per barrel. The crude oil production is at 2.7 million barrels per day, with approximately 700,000 barrels set aside for domestic consumption.

Our estimated breakeven point to balance our budget is about $75 per barrel. Most international financial institutions estimate that the oil barrel will not exceed $66- $68 for the coming two years.

This means that we will shortly be running out of any current reserve, perhaps by the end of 2021, if not earlier.

What is the government doing to remedy the coming situation? There is no proper serious guidance to streamline its expenses through serious actions. In other words, a dedicated team must be tasked with searching for solutions and finding alternative sources of revenue instead of oil. Surely, such a mission seems impossible, but we somehow need to start doing something.

Cost-cutting programs, reduction of subsidies, imposing tariffs on expatriates, or taxing their income are not serious solutions, as they will backfire and will lead to higher inflations. It will also lead to exodus of professional managers and executives who are needed here.

Serious cost-cutting program should be part of our daily lives with a fixed target to achieve. A limit must be set for government expenses, and necessary routes must be determined to attract investors and privatize some of the government-owned businesses and industries. It must create its own cash and let the private sector take over some of its commercial activities particularly the oil sector, refining, overseas upstream, marine transportation, and the postal and mail service.

Doing nothing is not an option; continuing with the current mode of expenditure and appeasing our MPs by asking for more benefits should stop. Oil prices are not going to go up.

A level of $70 a barrel is impossible to reach. Finding other means of income is the only solution along with privatizing some of its non-sovereign activities so that they are run by the private sector like in the 1950s and 1960s, with the privately owned Kuwait oil tankers, Kuwait petrochemical business, Kuwait Airways and Kuwait National Petroleum Corporation. It is the only way forward; if not, Venezuela can be considered as the live example of the day.

By Kamel Al-Harami Independent Oil Analyst

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