THERE are indications of a compromise prior to the OPECPlus meeting next month, as some hard discussions are taking place behind closed doors. An overall agreement will be achieved, considering there are plenty of oils in the markets and the demand will remain strong. The stumbling block is the spread of the COVID-19 virus and its variants that will just not allow the world economy to open up so soon. The number of COVID-19 cases almost globally is on the rise. In the USA, Europe, and some Asian countries, the numbers are increasing again, threatening the possibility of an economic recovery in the immediate future in industrial countries.
There is no doubt that the oil prices are bound to go up eventually. A level of $80 is not far away, with the global demand on the rise, estimated to reach 99 million barrels and more next year. Strong oil prices are undoubtedly expected but can oil producing countries do something about building a stable economy by moving away from a single source of income, just like us here in Kuwait?! Certainly, the latest report on Kuwait’s financial rating by Standard & Poor (S&P) states that Kuwait has failed to come up with a long-term strategy for organizing its long-term debts, and its outlook in this regard is still negative, due to which its overall ratings was reduced to A+.
We have been stating repeatedly that Kuwait must move away from oil and come up with a long-term strategy to sort out its future shortage and deficits in its annual budgets. It has been more than six years in a row now, and our expenses are increasing every year. There are no solutions at sight or even being thought about. Even though the oil price has jumped again, which gives hope to reduce our deficits, we do not know if even $95 a barrel is enough to meet our ongoing appetite for increasing our expenses. At the same time, there are new graduates knocking hard on the doors in pursuit for employment.
They are estimated to be between 25,000 to 30,000 per year, but no action has been taken in this regard, not even in any five-year plan. Improvements in the oil prices are temporary situations. Our neighboring countries are taking positive steps to move away from oil and introduce local measures to reduce state deficits such as Value-Added Tax on goods except for food items. For example, choice is given to buy lower-priced goods such as cars instead of opting for very expensive cars. Educated consumers are aware that they need to be careful with their spending and monitor it. This is not going to be the last article that seeks the government’s attention to find a solution to our ongoing dependence on oil. It has to face the reality of the hard times that are to come if it fails to address the need to find jobs for the upcoming fresh graduates. Oil prices will keep going up and down, but will not stay at a level that can ensure breakeven budget! PS: “Kuwait In The Time of The British Empire” is the title of a newly published book written by young Kuwaiti citizen Muhsen Khajah who worked in Kuwait’s oil sector. It covers two periods – time of treaty between 1899 and 1961, and the time of oil from 1913 to 1976, as well as the time of nationalization of the oil industry in Kuwait. This book is highly recommended for its simple wordings and an insight into the on-hand experience in the field of oil. It also has historical facts obtained from reliable Kuwaiti sources.
By Kamel Al-Harami Independent Oil Analyst