Home' Trinidad and Tobago Guardian : November 12th 2015 Contents NOVEMBER 12 • 2015 www.guardian.co.tt BUSINESS GUARDIAN
ENERGY | BG9
On a trip through a Gulf squeezed
by low oil prices, the head of
the International Monetary
Fund repeatedly called on coun-
tries to cut back on subsidies,
lower government spending and consider levy-
But implementing Christine Lagarde's sug-
gestions is easier said than done in the oil-
rich countries, even as crude prices have
dropped by over 50 per cent since last year.
Generations have grown used to cradle-to-
grave social programs, comfortable government
jobs and tax-free living. While Gulf leaders,
including those in Kuwait, have begun warning
harder times may be ahead, some citizens
remain opposed to any cuts.
"Almost every week we hear about Kuwait
giving grants left, right and center to other
nations that are in need of money. It's as if
the government doesn't realize that we, in
Kuwait, are also in need," said Abdulaziz Al-
Adwani, a Kuwaiti school teacher. "It's not
logical to start imposing a tax on citizens when
the government can afford to give grants to
this country and that country."
That's the kind of opposition Lagarde, the
IMF's managing director, and Gulf leaders face
in moving forward with any structural reforms.
Countries like the United Arab Emirates, Qatar
and Kuwait have large cash reserves to cushion
the blow of low prices. However, if depressed
prices continue into next year and beyond as
analysts predict, even oil powerhouse Saudi
Arabia could find itself hurting.
After meeting finance ministers of the Gulf
Cooperation Council in Qatar on Sunday,
Lagarde offered her own recommendations on
how to move forward. The council includes
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia
and the United Arab Emirates.
"The main elements are common across
countries: an expansion of non-oil tax revenues;
raising energy prices, which are still well below
international norms; firm control of current
spending, particularly on public sector wages;
and a review of capital expenditures," Lagarde
said in a statement.
In an interview published Tuesday by the
Kuwaiti daily Al-Qabas, she suggested levying
taxes on commercial profits.
"Citizens would understand the reasons
behind such financial measures in the light of
the oil price decline," the newspaper quoted
her as saying.
Lagarde left an economic forum Wednesday
in Kuwait City after giving a speech without
speaking to reporters. Kuwaiti Finance Minister
Anas al-Saleh, on hand for the event, said low
oil prices wouldn't slow the country's devel-
opment plans, though it likely would raise
money for projects through Islamic bonds
known as sukuk.
"The government is considering adopting
sukuk as a means to bolster income and alleviate
the expected budget deficit," al-Saleh said.
The Gulf Cooperation Council on Sunday
offered yet another way to raise money for its
members -- a proposed 100 per cent "selective
tax" on tobacco products equal to customs
duties, the state-run Kuwait News Agency
But even that may be a step too far, as Saudi
smokers consumed an average of 35 cigarettes
a day in 2012, one of the highest rates in the
world, according to a study by the Institute
for Health Metrics and Evaluation at the Uni-
versity of Washington. Kuwaiti smokers that
year had 21 cigarettes daily on average, the
"Whenever I travel on vacation, I buy my
cigarettes from Kuwait," smoker Abdullah Al-
Enizi said. "Now to hear that they might
increase the prices even more is very bizarre.
Lawmakers should protect the rights of con-
sumers and reject this proposal."
IMF chief calls for reforms
in Gulf amid low oil prices
Prices for crude oil, the world economy's most essential com-
modity, will need until 2020 to recover from the price war
unleashed last year by Saudi Arabia, the International Energy
Agency said Tuesday.
But while that's good for energy consumers across the world,
it makes them more dependent on a small handful of politically
volatile, mainly Middle Eastern, producer countries than at any
time since the 1970s, the Paris-based watchdog warned in its
closely-watched annual outlook for the world energy market.
Under its base-case scenario, the IEA said it expects crude
prices to recover to around $80 a barrel by 2020, as the market
gradually rebalances by taking high-cost supply out of the
market and encouraging higher demand growth. Thereafter, it
expects only tepid demand growth for another 20 years, as
alternative sources, especially renewables, expand their share
in the energy mix.
The promise of $80 oil is a comforting message to western
oil companies that have been slashing jobs and investment this
year in anticipation of much lower prices. BP Plc BP recently
outlined plans where it could continue to grow and pay dividends
even at an oil price of US$60/bbl, while Chevron Corpand
ConocoPhillips last month also announced aggressive cost
savings as spot prices headed back below $45/bbl.
US shale producers too, will be happy if the IEA's base case
plays out. If prices recover as it expects, then U.S. tight oil
output should rise by 1.5 million barrels a day by 2020 to over
5 million b/d, according to the IEA.
However, it warned that "a substantial decline in output" is
likely in the near term if prices remain below US$60. And it
warned that prices could stay stuck in the US$50-$60/bbl
range if Middle Eastern producers, notably Iraq and Iran, can
create a political climate stable enough to realise the potential
of their low-cost reserves--always a big if', but one that has
"a clear pathway" now that sanctions on Iran are set to be lift-
ed.Oil prices have fallen 10 per cent in the last week as hopes
for a quick end to the Saudi-led price war have faded. The
benchmark U.S. crude oil future currently trades at just over
US$44/bbl. Media reports suggest that there is little chance of
the Organisation of Petroleum Exporting Countries agreeing to
cut its output this year, despite the increasing strain on their
budgets. Saudi Arabia is going so far as to borrow on the inter-
national capital markets--an option not available to other OPEC
members such as Iran and Venezuela.
But as low-cost Middle Eastern producers regain market
share, the IEA warned, the risk of over-dependence on the
region rises again. And with oil demand falling in developed
economies as renewable energy sources gain ground (the IEA
predicts combined US, Japanese and EU oil demand will fall
by 10 million b/d by 2040), it's the rising economies of Asia
that will be most acutely exposed.
"A concentration of global supply would be accompanied by
elevated concerns about energy security, with Asian consumers...
particularly vulnerable," the IEA said.
By 2040, it expects China's oil imports to be five times those
of the US, while India's will "easily exceed" the European
IEA: Oil could take five years to recover
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