Oil back on track – Kuwait likely to skip reforms

January 7, 2018

Oil is definitely on track, provided the Russian- Saudi oil agreement is intact. Both countries will do everything in their power to maintain the oil price at a comfortable level within the range of $60 or higher as long as this does not encourage other non-conventional producers such as Brazil and sand oil producers to increase their production, especially since OPEC and Russia are now able to handle shale oil producers.

The year 2018 looks positive for some oil producers with high possibility of higher prices for their oil that could reach more than $70 per barrel. However, this is not to the liking of some OPEC producers and Russia, as it defeats their longterm strategy of allowing the rate of demand to increase, and eventually catering for bigger shares in the oil markets, as the owners of huge oil reserves and the cheapest oil.

In countries, which are solely dependent on oil for revenues, higher oil prices will negatively impact the reform programs that are aimed at finding other sources of income instead of depending on just oil. This is the concern that we should have here in Kuwait. Our Parliament will be the first to refuse any amendments and increase the gasoline and electricity prices, so that it is left untouched. We are unlike our neighboring Arabian Gulf states that had increased fuel prices from the beginning of the year and pushed for more economic reforms, including the introduction of Value Added Tax (VAT) system.

Any price range above $65 is good news for the economy of Kuwait as it will result in breakeven level for the budget of the current fiscal year which is ending in March 2018. Our concern is that the government and the Parliament jointly will start introducing various bills to encourage spending and cancel economic reforms such as increase bills related to fuel and electricity, which represent the core of our economic reform. At the same time, they will ignore the calls for finding alternative sources of revenues besides oil revenues and investing in creating jobs for new graduates.

With the increase in oil prices and anticipated surplus in our budget, we in Kuwait should aim for returning the money that the government withdrew to the reserve in the Central Bank of Kuwait. Stable oil price is good globally and a blessing for oil-producing countries in this time.

The current level of more than $65 per barrel will help in reducing the deficit in the budgets of those countries and decrease their financial exposures. It would still be better if this is implemented on a long term basis to try and minimize the dependence on oil as much as possible. This should be our final goal in Kuwait and we can achieve it if we try hard.