Tom Friedman points out in his new book that many oil countries’ people lose freedoms as oil prices go higher and these countries’ leaders tend to get very cocky. Lower prices like we are experiencing now should reverse that, taking a little pressure of the USA and the world.
The recent sharp decline in the price of oil is now starting to hit the fiscal bottom line of key oil exporting economies, meaning some of them could run fiscal deficits next year, if oil prices remain at yesterday’s ($55) level. On average, Middle Eastern oil exporters require a $50-55 a barrel oil price to balance their budgets – and countries like Russia, Iran, Iraq and Venezuela require a higher price. As a result, to maintain current spending (a likely political necessity) several oil exporters might have to issue more domestic debt or spend their accumulated savings. Oil output cuts only raise the break-even price, a fact of which OPEC members are no doubt very aware, as they prepare for yet another meeting later this month. Further production cuts seem (again) to be almost a foregone conclusion though. Meanwhile, with current oil prices, oil exporters may no longer be a surplus region next year. The erosion of their current account surpluses, sparked in part by the pressure to spend more at home to support domesticasset markets, should reduce their purchases of foreign assets. It may be no surprise that GCC oil exporters have been lukewarm in their support of Gordon Brown’s IMF fundraising.
