Oil producers falling on tough times

Press, 22 March 1986, Page 11

Oil producers falling on tough times

By

ROBERT REID of

the Associated Press (through NZPA) Cairo

The oil price collapse, hailed as a blessing in the industrial world, is bringing economic hard times to the Middle East and is teaching high-rolling oil States a lesson in thrift. Gone are the heady days of overnight oil wealth and boom-town construction that transformed mud-walled backwaters: such as Kuwait, Riyadh, and Muscat into gleaming, modern cities. The spectacular oil price increases of the 1970 s brought unfathomed riches to the desert lands of the Gulf. The boom created markets and job opportunities for people from countries without vast petroleum reserves such as Egypt, Sudan, Syria, and Jordan. Oil money fuelled economic activity, much of it based on construction, in countries that otherwise lacked the diversity of resources, industrial bases or large, skilled populations to match development patterns of the industrial world. .

But the price of oil is now about SUSIS ($2B) a barrel — half that of four months ago — and hundreds of thousands of workers are losing their jobs or taking pay cuts. Construction projects are being cancelled, and payments to other contractors are being delayed. The slump began in the early 1980 s because the oil market was glutted. It accelerated after the Organisation of the Petroleum Exporting Countries decided in December to defend its share of the market and lift production

controls. As prices tumbled Oman devalued its currency and delayed announcing its new five-year plan. Kuwait asked the International Monetary Fund and the World Bank to draw up plans for restructuring its economy. The United Arab Emirates, which in 1982 boasted the world’s highest per capita income at $U523,000 (currently $43,470) for each of its 1.1 million residents, struggled to overcome a projected Budget deficit of SUS99S million ($lBBO million). Even in Saudi Arabia, the Kingdom that holds 25 per cent of the world’s proven petroleum reserves, King Fahd issued a warning last week of “extremely critical circumstances” if petroleum prices remained low. Gulf economic sources estimate that Saudi Arabia’s Budget for the 1986-87 financial year, which has been delayed for five months, will be about SUS4O billion ($75.6 billion) — 25 per cent less than in 1985-86. Petroleum exports account for more than 90 per cent of the Kingdom’s Budget revenue.

The price collapse is forcing the oil giants to tighten up. Most Western and Arab economists believe the wealthiest producers, such as Saudi Arabia and Kuwait, will weather the crisis by practising frugality. “A few years ago, I would buy a television set and a video for each of my servants,” said a Saudi Government official who owns a construction company in Jeddah. “Now, I buy one and let them all watch it to-

gether.” Kuwait, with a population of about 1.6 million people, is still believed to have financial reserves of more than SUSBO billion ($151.2 billion), most of it invested abroad. Economists fear the price collapse could spell serious economic trouble for the less prosperous Middle East countries.

Officials in Egypt, which is not an O.P.E.C. member but produces more oil than some O.P.E.C. members, say that recent production cut-backs because of the price slump will cost the Government SUS7OO million ($1323 million) this year. Western diplomats expect the Egyptian Government, struggling to repay $U532.5 billion ($61.4 billion) in foreign debts, will have to impose economic austerity measures and possibly seek to reschedule some of its foreign debt. Before the price collapse North Yemen had expected to earn about SUSI billion ($1.89 billion) a year from oil sales after new reserves were discovered. Economists now believe the Government will have to rely for years on foreign aid and remittances from workers abroad to pay its bills. Last year Jordan, which trades heavily with Iraq and Gulf producers, was forced to impose import restrictions after foreign currency reserves fell so low the country had only enough for 40 days of purchases.

Western economists estimate that Libya’s financial reserves fell last year to about SUS 3 billion ($5.67 billion) from a high in 1980 of SUSI 3 billion (currently $24.57 billion).