Fall in oil prices forces oil-producers with deficits to sell assets or borrow

18/01/2026

Fall in oil prices forces oil-producers with deficits to sell assets or borrow

Oil prices have fallen again, creating a shortage of income to meet the year-end budgets of most oil-producing and exporting countries. Their options are largely limited to borrowing from international banks on favorable terms, unless they have substantial owned assets, including oil, gold, silver, and other minerals, that can be monetized over the medium and long term.

This is the case for most OPEC+ countries, where international banks readily provide support. Oil prices have been weak over the past three years, averaging below $70 a barrel, while budget needs and expectations exceed $80 to $90 a barrel. This gap risks end-of-year deficits in the range of billions of US dollars. We in Kuwait are fortunate to have oil reserves estimated between 90 billion and over 100 billion barrels, making it one of the top holders of oil reserves with relatively easy production. This is in contrast to countries like Venezuela, where heavy or tar-like oil is difficult and costly to extract, with production costs close to $80 a barrel, which is uneconomical at today’s North Sea Brent price of $64 per barrel.

While it is uncertain how long oil prices will remain weak or when they will reach our breakeven point of $80 to $90 per barrel, borrowing or selling part of our long-term assets seems to be a viable option to generate cash for daily business operations. Bridging this gap to reduce deficits should always be considered as a long-term strategy. Furthermore, Kuwait is fortunate to have wealth and long-term investments spread globally, mainly in the banking and investment markets of the USA, Britain, Europe, and gradually in Asia. This refl ects the wisdom and long-term vision of our rulers, who established the Kuwait Sovereign Fund, the first of its kind in the world.

The fund’s model is now being emulated by other oil-producing countries, particularly Norway, which seeks to replicate Kuwait’s success and become one of the largest sovereign wealth holders. Kuwait also used part of these funds to cover expenses related to the liberation of the country following Iraq’s invasion. The question and challenge remain unresolved for most oil-producing countries that rely heavily on a single source of income, which in our case is oil. Any sharp decline in oil prices forces oil producers to rush to banks to borrow in order to meet annual budget requirements, either through borrowing or by selling underperforming assets that generate low returns, following established mechanisms and criteria.

This makes the decision relatively straightforward and necessary. It is uncertain how long oil prices will remain weak and when they will provide the healthy returns needed to meet our annual budget goals as they have in the past. Meanwhile, our population continues to grow, increasing inflation pressures, creating the need for new jobs, and driving higher salary demands.

This inevitably forces an increase in annual expenditures, making budget management increasingly challenging. Despite these pressures, a glance at our region shows that we remain better off than most, thanks to the foresight of our sovereign wealth fund and its visionary founders.

By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]