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UAE, Kuwait, Saudi Arabia can
Balance Budget at $45 Per Barrel

DUBAI — The UAE, Kuwait, and Saudi Arabia will be able to balance their 2009 budgets even if oil prices stay at $45 per a barrel, while Qatar, Bahrain and Oman will require higher prices —above $60 per barrel — the latest research by Kuwait Financial Centre (Markaz) said.

Forecasting a average $45/bbl price during first half of 2009, Markaz said the country with the highest dependence on oil revenues was Saudi Arabia as 89 per cent of its 2009 revenues would come from oil sales while the country with the least dependency on oil revenues would be Kuwait with 69 per cent of its total revenues expected from oil this year.

For the UAE, oil will account for 81 per cent of its total projected revenues in 2009, it said. “The more oil rich nations, like Kuwait and Saudi Arabia, will be able to balance their 2009 budgets on much lower oil prices ($43/bbl and $42/bbl, respectively) than less oil rich countries like Bahrain, Qatar, and Oman, as higher production quotas would compensate for lower average oil prices. UAE’s breakeven price is $45 3/bbl. Kuwait is in an even more uniquely positive position, as the small size of the country and population means that oil revenues are spread over a much lower base than, say, Saudi Arabia leading to an increase in per capita income,” Markaz said.

“Bahrain and Oman, which have less oil, and by definition, less oil production, would need much higher average oil prices, $75/bbl and $66/bbl, respectively, in order to breakeven in 2009.

While International Monetary Fund has estimated $23/bbl as UAE’s breakeven oil price, Credit Suisse put it at $67/bbl, Merrill Lynch at $40/bbl, Fitch Ratings at $31 /bbl and RGE Monitor at $45-50/bbl.

According to Markaz, between 30 and 35 per cent of the GCC’s combined real GDP has been in the form of oil. “While Qatar will remain as the country with the highest oil component to its real GDP is Qatar at 52 per cent in 2009, Kuwait will follow with a 34 per cent contribution of oil GDP, down from a high of 36 in 2008.

The UAE’s oil component to GDP will remain at 23 per cent while Oman’s oil GDP will drop to 19 per cent from 20 per cent in 2008, the research said.

“Bahrain is an interesting case as oil only accounts for 9 per cent of real GDP whereas oil revenues account for 85 per cent of total revenues. This could be due to the fact that Bahrain enjoys a diversified economy as compared to the majority of the GCC, with solid GDP contribution from services and financials, and yet it’s most profitable economic activity remains oil related, accounting for the high percentage of oil in total government revenues,” it said.

Investment bank EFG-Hermes projected an average Brent crude oil price of $50 per barrel for 2009 and $65 per barrel for 2010, and noted that there would be a marked drop in GCC production levels in 2009.

Naturally, the countries with the greatest contribution of the oil sector should see the greatest deterioration. Kuwait and Saudi Arabia will see real GDP contract owing to the production cuts and the larger share of their oil sector to GDP. Real GDP growth will remain in positive territory in Qatar, Bahrain and Oman, report said.

· issacjohn@khaleejtimes.com