By Dr. Samuel Greene and Kiani Raets
December 18, 2015
Global oil prices have decreased significantly since their 2014 peak on June 19, when the price of Brent crude stood at USD 115.19 per barrel of oil. Only six months later, the price fell to just USD 58.87 on December 19, 2014. Throughout 2015, the price of a barrel of Brent crude has ranged from about USD 45 to USD 65, closing at USD 49.45 on October 9. Futures prices for delivery of Brent crude in October of 2020 show that the markets expect oil prices to remain low for the following five years. Its October 13 price of about USD 64 stood in the middle range of expected 2020 prices between USD 60 and USD 70 per barrel in September and October. Thus, in the near term, low oil prices are expected to be the new normal.
Low Oil Prices and Budgeting in the Gulf
These prices will put considerable pressure on the budgets of most Gulf Cooperation Council (GCC) members, given their dependence on oil revenue. Although most states in the Gulf have attempted to diversify their economies, funds from oil remain a vital component of government budgets. In 2014, every state except for Qatar, which also has large reserves of natural gas, relied on oil revenue for more than 75 percent of government revenue.
Further, most states in the region have increased their public spending over the past six years. Fiscal break-even prices, which refer to the price of oil required for a balanced budget, have risen significantly in most Gulf States since 2009. In 2009, Kuwait and Qatar both had breakeven points below USD 30 per barrel. Currently no Gulf state has a projected 2016 breakeven price below USD 60 per barrel, with the exception of Kuwait’s projected breakeven price in the USD 47 range, while three states, Bahrain, Oman, and Saudi Arabia, have projected breakeven prices of USD 89 per barrel or higher in both 2015 and 2016.
Dr. Samuel Greene is Assistant Professor of Political Economy and Strategic Studies at the UAE National Defense College and the Near East South Asia Center for Strategic Studies. Kiani Raets is Research Intern at the Near East South Asia Center for Strategic Studies. The views expressed in this piece are the authors’ own and do not pertain to any other entity.