21/09/2024
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21/09/2024
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It is a must for these states to balance their annual budgets; otherwise, they may need to consider short-term solutions such as borrowing or selling off valuable assets, including natural resources or cash reserves. However, the timing for such measures is not favorable, which leaves the governments in a state of uncertainty. The pressing question remains - How long will they have to wait for oil prices to recover? Oil prices are currently between $72 and $74 per barrel, far below the minimum desired price of $90 per barrel for most oil-producing countries, including Kuwait, Saudi Arabia, Iraq, and Iran.
Some countries in the region and Africa want the oil prices to be above $120 per barrel. For these countries, oil is the primary source of income. At the same time, they face heavy burdens from international debts and must comply with global regulations to secure further borrowing. This situation increases their financial strain amid the rising domestic inflation.
In contrast, the Arabian Gulf states are not yet under such external regulatory pressures and interferences. They can use their oil reserves as collateral, which is positive. However, these nations need to invest in value-added assets to enhance their economies and generate additional revenue. In Kuwait, we are facing the reality of budget deficits that make it challenging to balance our budget. While we have explored many solutions, our focus must be on the most efficient and cost-effective alternatives. Options such as borrowing or selling parts of our international investments are on the table, but the worst-case scenario would be selling our “jewel in the crown,” which is our crude oil assets. This should be our last resort.
A simpler solution is privatizing some government-owned companies in various sectors, including oil services and petrochemicals. Also, some foreign oil companies can be invited to participate in our market, which could provide valuable expertise and benefits from their long-term experience. Kuwait has not yet reached such a critical position of acute shortages or deficits in our annual budgets, as we have several cash solutions available. However, it is important to consider both immediate and long-term strategies. We should remain prepared and have potential solutions ready for implementation. While we hope for an improvement in oil prices, it is important to note that expenses in Kuwait and other Gulf states continue to rise, creating instability.
By Kamel Al-Harami
Independent Oil Analyst
Email: [email protected]
