by Thomas W. Lippman

The country that could ultimately suffer the most damage from a sustained depression in the world price of oil could be one that is not a major producer: Egypt.

Unable to sustain itself, Egypt is being propped up by big infusions of cash from Saudi Arabia and the United Arab Emirates (UAE). Those two oil states, closely aligned with the Cairo government headed by Abdel Fattah al-Sisi, could afford to be generous in their commitments when they were taking in $100 a barrel, just a few months ago.

With the price now down to about $60 and unlikely to rise much over the next year at least, it becomes an open question how long it will take for the two Gulf states’ domestic needs to overtake their support for Egypt.

The Saudis and the Emiratis understand that Egypt is an economic “bottomless pit,” according to Gregory Gause, a specialist in the Gulf monarchies at Texas A&M University. There have been no indications so far that they are contemplating a pullback from Egypt, but it becomes more likely the longer lower prices squeeze their oil revenue, Gause said.

Saudi Arabia’s equanimity so far in the face of the plunging price of the commodity that supports most of its public spending reflects multiple policy interests. If the falling price discourages further development of high-cost new oil sources such as shale in the United States, deep-sea wells off Brazil’s coast, or new fields in the Russian Arctic, that helps Saudi Arabia maintain its market share, a declared objective.

And the Saudis seem quite content as the price contraction inflicts economic damage on damage on Iran, their great regional rival, and on Russia, which has incurred Riyadh’s displeasure by supporting the regime of Syrian President Bashar al-Assad, to whose ouster the Saudis are committed. Egypt, however, is another matter because Sisi has become a major ally of Saudi Arabia and the Emirates in the regional struggle against the Islamic State and other extremist groups.

In a paper distributed last week, Fahad Alturki, head of research at Jadwa Investment Group in Riyadh, predicted that Saudi Arabia will maintain its current levels of spending at least for a while because it has “foreign reserves of more than 95 percent of GDP and a public debt of less than 2 percent of GDP.” Even at today’s prices, he said, the kingdom is likely to show a balance of payments surplus next year and fall into deficit only in 2016.

If the Saudi government did decide to cut spending, however, external aid would probably be one of the first targets, Alturki said.

Oil prices were already descending rapidly because of declining global demand and inventory surpluses when the members of the Organization of Petroleum Exporting Countries decided last month not to reduce their production to stabilize the price. That decision sent the price down still further to the apparent satisfaction of Saudi Arabia and the UAE, which have very deep pockets. Platts Oilgram, a trade journal, reported that “Saudi oil minister Ali Naimi left the summit all smiles, telling reporters that rolling over the 30 million b/d production ceiling was ‘a great decision.’”

The most immediate losers from the price decline are the large producing countries that need the cash to sustain their current operations. According to Alturki’s paper, these include Russia, which needs a price of $107 a barrel to support its budget; Venezuela, which needs $120; and Iran, which needs $127. Alturki’s “baseline” price projection for the next two years is $83 to $85 per barrel. Oil prices are notoriously hard to predict, but his figures are in line with several other analyses that have been published in the past few weeks.

Egypt’s problem is different, and harder to solve. The country produces about 700,000 barrels of oil a day, and its output has declined steadily from a peak of 900,000 barrels in the 1990s, according to the US Energy Information Administration. (Worldwide production is about 92 million barrels.) Almost all of Egypt’s output is consumed domestically by its population of about 80 million.

Because it is not an oil exporter, Egypt depends on other sources of hard-currency revenue to support itself; mostly Suez Canal tolls, cotton exports, and tourism. The tourist trade, however, has dwindled to a trickle over the past few years because of the country’s political upheavals, leaving the country short of cash to pay for imported food and other necessities.

According to Arabian Business magazine, the United Arab Emirates and Saudi Arabia committed aid with more than $12 billion in cash grants, no-interest loans, and refined petroleum products in 2014 alone. Kuwait, another major Gulf oil exporter with a small population, kicked in another $4 billion, the magazine reported.

Saudi Arabia pledged to support Sisi almost immediately after he ousted the former president, Mohamed Morsi, in 2013. Morsi had been elected as the candidate of the Muslim Brotherhood, which both Egypt and Saudi Arabia have since outlawed. In June, Saudi Arabia’s King Abdullah reportedly declared that any country that did not join in supporting Egypt would “have no future place among us.” But the king is also doling out tens of billions of dollars in salary increases, new social benefits and housing programs that he extended to his own citizens during the regional uprisings of 2011. He is also paying for massive infrastructure projects such as a new metro rail network for Riyadh and a mammoth new port on the Red Sea. Even Saudi Arabia can’t keep it up indefinitely at $60 a barrel.

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