Need to cut dependence on oil – Kuwait’s govt sole source of income … is it sustainable?

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For how long will Kuwait depend on oil as its only source of income? Is it sustainable on a long term basis, especially since we know well that oil prices are unlikely to go beyond $70 per barrel in the coming years? This is not only because of the arrival of shale oil but also the arrival of electrical cars, alternative energy sources such as solar energy as well as the weakening of oil prices.

Oil prices are currently in the range of $50 per barrel and are unlikely to go higher in the coming years. Meanwhile, shale oil has been pushing for more cuts to reduce its production costs so that it can be competitive on a long term basis with the conventional oils. This means OPEC oils will no longer push for higher volumes and higher oil prices.

While our annual budget in Kuwait is based on an oil price of $65 per barrel, we are achieving an income of about $48 a barrel. This difference of $17 per barrel a day means a deficit of about KD 5 billion this year. The continuous deficit of an average of KD 5 billion for three years now means we will have to borrow from our internal reserve, and eventually either borrow from outside financial institutions or cash our overseas investments. Such measures are not sustainable on a long-term basis, as it will mean diluting our assets and degrading our international financial ratings eventually.

It’s been four years with deficits but the government is yet to address the issue of dependence on oil. It has not been seriously suggesting alternatives or taking cost-cutting measures to decrease our annual budget and then balance it.

Our Parliament has been busy with threatening, introducing legislation of all sorts, imposing taxes, and increasing the charges of government services including medical and hospital services. It has been introducing measures that cause further inflation and more uncertainties as well as fear among our expatriates.

Our main concern is that our governments will not do anything and will continue to depend on all our overseas investments, with the full support of the Parliament, until it dries up. Only then will it think seriously of a genuine alternative to oil. By then, the oil prices will not be more than $30 per barrel, if not lesser.

email: [email protected]

By Kamel Al-Harami

Independent Oil Analyst

 

 

This news has been read 5534 times!

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