The Big Q: How Long Can The Middle-East Producers Suffer Low Oil Prices

The Big Q: How Long Can The Middle-East Producers Suffer Low Oil Prices

$OIL

The International Monetary Fund (IMF) predicts Saudi Arabia could be broke and have a fiscal deficit of 21.6% of its gross national product in 5 years as Crude Oil prices continue at low levels.

In a gloomy regional outlook report, the IMF said the region is suffering from long-running regional conflicts, such as violent unrest in Iraq, Syria, Libya and Yemen, along with shrinking Crude Oil prices.

If Crude Oil stays around 50 bbl, most countries in the region will run out of cash in 5 years or less, warned a dire report from the International Monetary Fund. That includes OPEC leader Saudi Arabia as well as Oman and Bahrain.

Saudi Arabia, the world’s largest Crude Oil producer, needs to sell it at around 106 to balance its budget, according to IMF estimates. The Kingdom barely has enough fiscal buffers to survive 5 years of 50 Crude Oil, the IMF said.

Saudi Arabia’s war chest of cash is huge, at nearly $700-B, but it is shrinking fast. And the IMF did not see the situation improving anytime soon for Saudi Arabia.

“Because the oil price drop is likely to be large and persistent, oil exporters will need to adjust their spending and revenue policies to secure fiscal sustainability, attain inter-generational equity, and gradually rebuild space for policy maneuvering,” the IMF said, adding that current plans by the region’s Oil exporters “are currently insufficient to address the large fiscal challenge.”

The IMF said if the fighting there continues, it “would reduce growth in the affected countries, with adverse spillovers to the region and beyond.

The IMF said that along with this year’s budget deficits, the Saudi’s could see another budget deficit of 19.4% in Y  2016 if they keep spending at the current rate.

“For the region’s Oil exporters, the fall in prices has led to large export revenue losses, amounting to a staggering $360-B this year alone,” Masood Ahmed, the IMF’s Middle East director, told reporters in Dubai.

The IMF report stated that Bahrain and Oman could face the same fate as Saudi Arabia, but Gulf members like Kuwait, Qatar and the United Arab Emirates have more secure assets that could support those countries for more than 20 years.

Saudi authorities are already planning spending cuts as the world’s biggest Crude Oil exporter seeks to cut its budget deficit.

“Officials have repeatedly said that the Kingdom’s economy, the Arab world’s biggest, is strong enough to weather the plunge in Crude Oil prices as it did in similar crises, when its finances were under more strain.”

Stay tuned…

HeffX-LTN

Paul Ebeling

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