As the US careens towards the "fiscal cliff," I thought I would take a brief moment to give you a little insight on how countries in the Middle East balance their budgets.
The countries of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates - are all major oil exporters. And not surprisingly, oil revenues make up a large proportion of their governments' income.
In order for these countries to balance their budgets, they can work through OPEC (the Organization for Petroleum-Exporting Countries) to set the price of oil at a level high enough to balance their budgets. The list below shows where each of the GCC countries needed to keep the price of oil in 2012 in order to break even on their budgets.
Bahrain - $110
Kuwait - $60
Oman - $90
Qatar - $55
Saudi Arabia - $85
United Arab Emirates - $80
So as you can see, there's no complicated political wrangling in these countries when it comes to putting together a government budget. The US and the EU countries may have problems ironing out their budgets, but not the countries in the GCC. The governments here write whatever budget they need or want - then set the price of oil in order to be sure the rest of the world can fund all of their expenditures. Simple.
[As a final note on all of this, the "shale oil boom" in the US and other countries has the potential to change the shape of global petro-politics, but that won't happen until production increases substantially. And that will take several years. In the meantime, I would say we should all look for oil prices to remain about where they are now - north of $85 per barrel].
The countries of the Gulf Cooperation Council (GCC) - Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates - are all major oil exporters. And not surprisingly, oil revenues make up a large proportion of their governments' income.
In order for these countries to balance their budgets, they can work through OPEC (the Organization for Petroleum-Exporting Countries) to set the price of oil at a level high enough to balance their budgets. The list below shows where each of the GCC countries needed to keep the price of oil in 2012 in order to break even on their budgets.
Bahrain - $110
Kuwait - $60
Oman - $90
Qatar - $55
Saudi Arabia - $85
United Arab Emirates - $80
So as you can see, there's no complicated political wrangling in these countries when it comes to putting together a government budget. The US and the EU countries may have problems ironing out their budgets, but not the countries in the GCC. The governments here write whatever budget they need or want - then set the price of oil in order to be sure the rest of the world can fund all of their expenditures. Simple.
[As a final note on all of this, the "shale oil boom" in the US and other countries has the potential to change the shape of global petro-politics, but that won't happen until production increases substantially. And that will take several years. In the meantime, I would say we should all look for oil prices to remain about where they are now - north of $85 per barrel].
I'm sorry, I can't let this stand.
ReplyDelete1. The GCC does not "set the price of oil". The price of oil is set on the market. The GCC countries produce only 20.8% of the world's oil output, which is far too small a market share to control the price.
2. If the GCC can set whatever price it wants, why stop at $90? Why don't they sell it for $1000? Why did they let it go south of $40 a barrel in 2009 if all they have to do is sit down and set a new price whenever they want?
3. While OPEC does collude about pricing, not all GCC countries are in OPEC. More importantly, OPEC is a notoriously ineffective cartel (in fact, it is THE case study in principles courses of how cartels don't work).
4. The GCC countries are not "all among the major oil producers in the world". Bahrain produces 0.06% of the world's oil output and Oman produces 0.95%. The US and Canada both produce more oil than any GCC country except Saudi, and in fact the US exceeds the total GCC oil output excluding Saudi.
1. I never said the GCC sets the price of oil. OPEC, however, is a major player in the price of oil. I maintain that OPEC pricing is arguably the single greatest factor in the global price of oil. Even non-OPEC members (like Oman and Bahrain) benefit from OPEC pricing and gain influence through their cousins in the GCC.
ReplyDelete2. OPEC deliberately sets their price targets at levels that will not significantly decrease demand. This is why we don't have $1000 per barrel oil. At that price, major importers like the US and China would start to shift away from oil. So OPEC prices to maximize revenue while protecting demand.
3. Agreed - OPEC is an inefficient cartel. They do, still, however, have a major influence on the price of oil.
4. Point taken. I have amended the post to read that the countries of the GCC "are all major oil exporters."
Thanks for the feedback. It's good to see that there are thoughtful, intelligent folks reading and commenting. Thanks again.