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The Gulf’s lifeline
GCC nations have built their fortunes on oil. We look at how they’re reacting to the drop in oil prices.
January 15, 2009 9:59 by Aarti Nagraj
The GCC made approximately $300 billion in oil profits in 2008, about $70 billion more than their 2007 profits, reports the Associated Press, quoting The Council on Foreign Relations report.
“For each dollar the oil price declines, Arab oil revenues fall between $4 and $10 billion annually,” the Organization of Arab Petroleum Exporting Countries said in its report.
With crude oil currently trading at around $38 per barrel, what are the six countries hoping for?
Saudi Arabia has announced that it is cutting its oil production by more than its agreed Opec limit; Opec members agreed to cut a record 2.2m barrel a day last month, but oil prices have continued to slide downwards.
“Let me tell you this. We are working very hard to bring balance. . . We will do what it takes to bring [the market] back to balance,” Ali Naimi, Saudi Arabia’s oil minister, told the Financial Times.
The world’s largest oil producer, Saudi Arabia had said in November that $75 a barrel was a fair price for oil.
Earlier this week, Qatar’s oil minister, Abdullah al-Attiyah said that a price of $70 a barrel is right for oil.
“$70 will be an incentive to companies and oil producers to keep investing. Oil prices over $100 are not logical. I also don’t appreciate low oil prices,” Attiyah said.
According to Kuwait’s Petroleum Council member Mousa Marafie, oil prices will rise to an average of $60-$80 a barrel by mid-2009. Full compliance among members of Opec would boost prices significantly, he said.
“We’re well on our way to making sure that [oil] price fluctuations, whether they’re big or small, do not affect the overall economic livelihood of the UAE,” Yousef Al Otaiba, UAE’s ambassador to the US told Bloomberg last week.
According to reports, the UAE has budgeted for an average oil price this year of between $40 and $45 a barrel.
Earlier this month, Oman’s economy minister, Ahmad bin Abdul-Nabi Macki said that the country would cut public spending this year if the average oil price slipped below the $45 per barrel it budgeted for 2009.
Late last month, Bahrain’s Finance Minister Sheikh Ahmed bin Mohammed Al Khalifa said that a benchmark oil price of $40 per barrel was adopted for the estimated revenues in the 2009-2010 draft budgets. It had initially been estimated at $60.
“The reduction won’t be detrimental to the projects depending on the state budget,” he said.
However, the International Monetary Fund said in November that Bahrain’s fiscal break-even oil price stood at about $75 a barrel.
A recent report from Dutch bank and insurance group ING states that surpluses accumulated by the GCC states over the years will hold them in good stead in the unlikely scenario of oil averaging at $30 in 2009.