Fears Of Instability, Violence Rise From Venezuela To Iraq To Russia
Oil, the lifeblood of many countries that produce and sell it, appears to be rapidly turning into an ever rapidly turning into an evercheaper economic curse.
A year ago, the international price per barrel of oil was about $103. By Monday , the price was about $42, roughly 6% lower than on Friday .
In oil-endowed Iraq, where an Islamic State insurgency and fractious sectarian politics are growing threats, a new source of instability erupted this month with violent protests over the government's failure to provide reliable electricity and explain what has been done with all the promised petroleum money. In Russia, a leading oil producer, consumers are now paying far more for imports, largely because of their currency's plummeting value. In Nigeria and Venezuela, which rely almost completely on oil exports, fears of unrest and economic instability are building. In Ecuador, where oil revenue has fallen by nearly half since last year, tens of thousands of demonstrators pour into the streets every week, angered by the government's economic policies.
Even in wealthy Saudi Arabia, where the ruling family spends oil money lavishly to preserve its legitimacy, the government has been burning through roughly $10 billion a month in foreign exchange holdings to help pay expenses, and it is borrowing in the financial markets for the first time since 2007. Other Arab countries in the Persian Gulf that are dependent on oil exports, including Kuwait, Oman and Bahrain, are facing fiscal deficits for the first time in two decades. While the price has been declining for months, fore casts have always been hedged with the assumption that oil would eventually sta bilize or at least not stay low for long. But new anxieties about frailties in China, the world's most voracious con sumer of energy , have raised fears that the price of oil, now 30% lower than it was just a few months ago, could remain depressed far longer than even the most pessimistic projections, and do even deeper damage to oil exporters.
“The pain is very hard for these countries,“ said Rene G Ortiz, former secretary general of the Organization of Petroleum Exporting Countries and former energy minister of Ecuador. “These countries dreamed that these low prices would be very temporary .“
Ortiz estimated that all major oil exporting countries had lost a total of $1 trillion in oil sales because of the price decline over the last year.
David L Goldwyn, who was the US state department special envoy and coordinator for international energy affairs in the first Obama administration, said if the Brent global oil benchmark price stays below $45 a barrel, that is “a red flag for stability issues across the oil producing world“.
Meghan L O'Sullivan, di rector of the geopolitics of energy programme at Harvard's Kennedy School, said she was most immediately concerned about the impact of extended low oil prices on Iraq. “Not only is fighting the Islamic State terrorists an expensive endeavour, but many of the political deals that need to be done to keep different groups supportive of the Iraqi government require money to sustain,“ she said.
Saudi to trim budget by billions of dollars
Saudi Arabia is seeking to cut billions of dollars from next year's budget because of the slump in crude prices, two people familiar with the matter said on Tuesday. The government is working with advisers on a review of capital spending plans and may delay or shrink some infrastructure projects to save money, they said, asking not to be identified as the information is private. The government is in the early stages of the review and could look at cutting investment spending, estimated to be about 382 billion riyals ($102 billion) this year, by about 10% or more, the people said.Current spending on areas such as public sector salaries wouldn't be affected, the people said. The Arab world's largest economy is expected to post a budget deficit of almost 20% of GDP this year, according to the IMF. With income from oil accounting for more than 90% of revenue, a more than 50% drop in prices in the past 12 months has put pressure on the nation's finances. BLOOMBERG
