Making the most of higher oil revenues
According to Goldman Sachs, oil prices are getting close to $80 (Dh293) per barrel after much of the surplus was withdrawn from the markets and US inventories fell to low levels thanks to price improvements since the fourth quarter of 2017 to the present. This is indeed enough to leave a positive impact on the economic situation in the oil producing countries. However, this remains limited to date and will require further studies.
The reasons are numerous and vary from one country to another, although there are common factors related to repercussions on oil prices sharp decline over the course of the past years on one hand and the geopolitical developments in the region and the world on the other.
The oil price increase this time is different from the ones over the decades. There is a clear difference between the rate of price rise and the large financial commitments by many of the producing countries, which have suffered budget deficits and issued successive debt instruments to meet their development and ongoing expenses.
This means additional oil revenues will mainly be directed to cover deficits in budgets and to pay off some of the financial obligations on these countries. This will strengthen their financial conditions despite the modest volume of new liquidity expected to be injected.
Moody’s, the credit rating agency, announced Russia’s ability to deal successfully with the new sanctions imposed by the US and the European Union on it, thanks in part to higher Russian oil revenues and which would facilitate an easier dealing in international markets and help diversify their foreign trade.
As for most Arab oil-producing countries, the abovementioned applies to them especially with regard to their approach to reduce budget deficits and pay off some financial obligations. Others such as Iran and Qatar will not benefit greatly from higher oil revenues due to their commitments such as supporting militias and extremist organisations and which negatively affect their economies.
The Iranian economy is suffering from growing difficulties and corruption as well as a general collapse of its currency, despite the large increase in its oil revenues. Corruption is gobbling up large parts of the oil revenues in Iraq, Venezuela and Nigeria, which means these economies will not benefit a lot from high oil prices. In contrast, various credit rating agencies have set the bar high for growth rates in the UAE and Saudi Arabia this year and for the short-term thanks to their economic policies and ambitious programmes. This is the situation so far, but a continuation of high price levels will contribute to changing the current situation, especially in economically prosperous countries such as the Gulf. They will be able to inject additional liquidity into the markets and announce implementation of development projects. They will also restore some projects that had been put on hold due to falling prices.
These will reflect on growth rates in the coming years, as many expectations correctly indicate. And the suffering will continue for those countries that have plunged themselves into mazes and the financing of militias and regional conflicts at the expense of their peoples’ living standards.