Gloomy times ahead for Gulf Arab oil
states
06:29 a.m. Dec 06, 1998 Eastern
By Barry May
MUSCAT, Dec 6 (Reuters) - The Gulf Arab
monarchies which depend on oil for three-quarters of
government revenues are battening down the hatches
for heavy weather.
A dramatic plunge in world oil prices in the past year
has slashed the region's total oil revenues in 1998 to
an estimated $55 billion, 31 percent down on $80.9
billion earned in 1997.
The price collapse is set to dominate the annual Gulf
Arab summit which begins in Abu Dhabi on Monday.
It's a long way from the glory days of the mid-1970s
when oil was king and Saudi Arabia and the other big
producers of the Gulf could name their price.
The numbers tell the story: Brent crude, the
international benchmark pumped from the North Sea,
now trades at around $10 a barrel and has averaged
$13 during 1998. Last year the average was $19, and
in 1996, nearly $21.
Henry Azzam, one of the Middle East's most
respected economists, paints a gloomy picture.
He forecasts negative rates of growth this year in
three of the Gulf's biggest oil countries -- Saudi
Arabia, Kuwait and the United Arab Emirates (UAE).
''The aim of eliminating budget deficits by the year
2000 as stated in the five-year plans of several Gulf
countries is unlikely to be achieved,'' said Azzam, who
is chief economist and managing director of
investment bank Middle East Capital Group in Beirut
and Amman.
Budgetary expenditures in some countries are being
trimmed by up to 35 percent this year and several
major construction projects across the region are
either being delayed or stretched, he told an
international economic conference in Muscat over the
weekend.
Defence budgets in some of the world's biggest
customers for high-tech Western armaments are being
sharply reduced.
''Gulf governments used the sudden rise of oil income
in the past two years as an excuse for inaction when it
came to trimming government expenditures and
boosting the role of the private sector,'' Azzam said.
''While the rest of the world has been busy cutting
state subsidies, selling government assets and opening
stock markets to foreign investors, much of the Gulf
countries maintained the status quo.''
Privatisation, long talked about, had been very slow
to materialise. Selling government-run companies
would mean laying off state employees, adding to
rising unemployment problems among a growing
population of Gulf Arab nationals, half of whom are
under 16 years old.
Maintaining the high, heavily subsidised standard of
living of populations pampered by lavish state welfare
and cut-price services and utilities is one of the
challenges thrown up by the oil price crisis.
But Azzam believes the cost of supporting inefficient
state industries and the ensuing foreign competition
when access to markets for goods and services is
opened up under the World Trade Organisation may
eventually force governments to act.
Azzam thinks oil has gone about as low as it can go,
even though the 11 members of the Organisation of
the Petroleum Exporting Countries (OPEC) failed to
take any action to halt the slide when they met in
Vienna last month.
''The general feeling in the market is that crude prices
are unlikely to sustain a decline much below $10 a
barrel,'' he said.
''A fall below this level cannot be tolerated financially
by most oil producing countries, and therefore would
tend to compel them to agree a production reduction
agreement.''
Azzam forecasts that sluggish growth in oil demand
next year will be outpaced by an abundance of oil
supply, resulting in a period of weak oil prices.
''How weak would be hard to predict, but a price
range of $10-$15 in nominal terms for spot Brent
would be a good guess for 1999.''
Across the Gulf Arab states -- Saudi Arabia, the
UAE, Kuwait, Qatar, Oman and Bahrain -- spending
is being cut by up to 35 percent.
Copyright 1998 Reuters Limited. |
