Oil Price Drop Below $70: A Threat to Balanced Budgets in Arab Oil-Dependent Economies

Oil Price Drop Below $70: A Threat to Balanced Budgets in Arab Oil-Dependent Economies

- in Releases
69
Comments Off on Oil Price Drop Below $70: A Threat to Balanced Budgets in Arab Oil-Dependent Economies

 

 


 

BY: Shatha Kalel

On Tuesday, oil prices fell below $70 per barrel for the first time in two years, posing significant risks for several Arab oil-producing nations. Countries like Algeria, Bahrain, Saudi Arabia, Iraq, and Kuwait are heavily reliant on oil revenues to balance their budgets, and this decline could severely impact their fiscal stability in 2024.

According to data, Algeria and Bahrain require oil prices of $125.7 per barrel to achieve budgetary equilibrium. Similarly, Saudi Arabia needs $96.2, Iraq $93.8, and Kuwait $83.5 per barrel to avoid deficits. With current prices dropping below the $70 mark, these countries now face the daunting task of managing potential budget shortfalls.

The Economic Impact: Revenue and Spending Imbalances
For countries such as Algeria and Bahrain, where oil revenues form the backbone of the economy, a prolonged period of low prices could force significant adjustments to spending plans. This could mean cuts to public investments, subsidies, and even the halting of essential infrastructure projects. Saudi Arabia, which has embarked on ambitious economic diversification plans under its Vision 2030, may also need to reconsider certain programs if oil prices continue to fall short of the required level.

Iraq, already grappling with economic challenges and heavy reliance on oil exports, faces heightened pressure. Lower oil prices could not only strain the government’s ability to fund public services but also exacerbate social unrest due to potential delays in wage payments or public sector cuts. Similarly, Kuwait, which has historically used its oil wealth to maintain a generous welfare system, will need to tap into reserves or take on additional debt if prices remain suppressed.

Balancing Acts and Future Strategies
The drop in oil prices emphasizes the vulnerability of economies overly dependent on oil exports. Countries like Oman and the UAE, which require lower breakeven prices of $58.1 and $56.7 per barrel respectively, are better positioned to handle this downturn. However, they too must maintain caution, as sustained low oil prices could erode their fiscal buffers over time.

Qatar, requiring only $43.1 per barrel to balance its budget, is in the strongest position among these nations. Nevertheless, even Qatar must remain vigilant, as global demand uncertainties and potential shifts in energy markets could affect future revenues.

Looking Forward: Economic Diversification as a Solution
This latest price drop underscores the urgency for these countries to continue their economic diversification efforts. While many have launched initiatives to reduce dependence on oil, the pace of change remains slow, particularly in countries with larger breakeven points. Accelerating reforms in industries such as technology, renewable energy, and tourism could help cushion the impact of future oil price volatility.

In conclusion, the fall in oil prices below $70 is a wake-up call for oil-dependent Arab economies. It highlights the necessity of diversifying revenue streams and building more resilient economies capable of withstanding global market fluctuations. As 2024 approaches, these countries will need to make difficult choices regarding spending, investment, and economic reform to avoid budget deficits and maintain fiscal stability.

 

Economic Unit/North America Office
Al Rawabet Center for Research and Strategic Studies