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.
]]>by Thomas Lippman
Has King Abdullah backed away from his longstanding refusal to have anything to do with an Iraqi government that includes Nouri al-Maliki? Reporters who were in Jeddah when Abdullah met with Secretary of State John F. Kerry Friday seemed to think so, based on a background briefing by the [...]]]>
by Thomas Lippman
Has King Abdullah backed away from his longstanding refusal to have anything to do with an Iraqi government that includes Nouri al-Maliki? Reporters who were in Jeddah when Abdullah met with Secretary of State John F. Kerry Friday seemed to think so, based on a background briefing by the ubiquitous “senior official.”
Abdullah reportedly said that he would urge Iraq’s Sunni Muslims to join a new, more inclusive government in Baghdad to help save the country from itself by fending off the radical Sunni Muslim forces known as the Islamic State in Iraq and Syria [ISIS]. These militants have overrun much of northern Iraq and are marching toward the capital. According to the senior official, Abdullah did not specifically say that any new government would have to exclude Maliki, whom he loathes and mistrusts, an apparent softening of his adamant position.
“It was clear,” the senior official told reporters after the Kerry-Abdullah meeting, “that the two shared a view that all of Iraq’s community should be participating on an urgent basis in the political process to allow it to move forward and that each—both the Secretary and King Abdullah in their conversations with Iraqi leaders—would convey that message directly to them.”
That could signal a willingness to recognize a new government headed by Maliki, but it could also mean the opposite – since Maliki is unlikely to be able to form a government that would have substantial Sunni representation, what Abdullah really wants is a government headed by someone else.
There is no doubt that the Saudi leadership regards ISIS as a threat to regional stability and a menace to themselves, but the king has long believed that Maliki is the cause of the problem in Iraq and cannot be part of the solution. In his view, Maliki is an Iranian agent whose exclusion of Sunni Muslims from positions of power is what motivates the ISIS rebels. Saudi Arabia’s foreign minister, Prince Saud al-Faisal, restated that view the day before Kerry met the king.
“Maliki is the one to blame,” he said, according to the Saudi Press Agency, because he “stirred up the sectarian fight” and encouraged sectarian militias to fight each other.
Prince Saud himself met with Kerry on Friday, along with the foreign ministers of Jordan and United Arab Emirates, and gave no indication that King Abdullah was reconsidering his position. On the contrary, a “senior official” told reporters, the Saudi position was “exactly” the same as what the kingdom has said publicly, which is that Maliki must go. “They talked about their concerns about the lack of inclusivity of the current leadership. That’s obviously a reference to Maliki, so…”
Because Saudi Arabia has supported a Sunni insurgency against the Iran-supported government in Syria, many analysts in the Gulf of suspect Saudi Arabia of also encouraging the ISIS uprising in Iraq. In both countries, Saudi Arabia would gain through the downfall of regimes aligned with Riyadh’s arch-rival, Iran, a Shiite state that supports Maliki’s Shiite-dominated government in Baghdad. King Abdullah’s belief that Maliki is an Iranian agent can only be reinforced by news reports this weekend that Iran is preparing to return to Iraq warplanes that it had refused to give back after defecting Iraqi pilots flew them there during the 1991 Gulf war.
Saudi Arabia has a nominal ambassador to the Maliki government, but he lives in Amman; the kingdom does not have an embassy in Baghdad, has offered no economic or military support to the Maliki government, and has not encouraged Saudis to do business in Iraq. Iraq does have an embassy in Riyadh. Diplomats who have served there say King Abdullah’s senior advisers all recognize that his refusal to engage with Iraq has been counter-productive because it has left the field of influence to Iran, but they have been unable to persuade the king to soften his position. He believes that Maliki lied to him when he pledged, upon taking office eight years ago, to run an inclusive government that would give a sense of dignity and responsibility to Iraq’s formerly dominant Sunnis, whose power vaporized with the fall of Saddam Hussein and the U.S.-orchestrated purge that followed.
The question facing King Abdullah now is whether the ISIS threat is sufficiently dangerous to Saudi Arabia to persuade him to accept a new Baghdad government run by Maliki, and cooperate with it – and possibly with Iran directly – to thwart the rebellion and preserve the unity of the Iraqi state.
The militias grouped under the ISIS name are ruthless, well-financed, and now quite well armed with U.S.-made weapons seized from the fleeing Iraqi army. Even so, they present no direct military threat to Saudi Arabia, which is not their primary target. What Riyadh fears is that radical jihadists, Saudi and otherwise, who have joined ISIS’s ranks will infiltrate Saudi Arabia and attempt to destabilize the kingdom through terrorism and guerrilla attacks. The Saudis, like the ISIS fighters, are Sunni Muslims, but to the extent that ISIS has an ideology it derives from that of al-Qaeda, which originated as a Saudi movement dedicated to bringing down the al-Saud monarchy.
On Thursday, King Abdullah ordered Saudi security forces to take “necessary measures” to defend the kingdom against ISIS. Whether “necessary measures” might mean acceptance of Nouri al-Maliki’s role on Iraq is not yet clear.
This article was first published by LobeLog and was reprinted here with permission. Follow LobeLog on Twitter and like us on Facebook
Photo: U.S. Secretary of State John Kerry meets with Saudi King Abdullah bin Abdulaziz Al-Saud in Jeddah, Saudi Arabia, on June 27, 2014. Credit: State Department photo/ Public Domain
]]>by Jim Lobe
After listening to the various statements, press conferences, and background briefings by “senior administration officials,” and initial reactions that followed tonight’s announcement about the interim accord between the P5+1 and Iran, it occurred to me that Israeli Prime Minister Binyamin Netanyahu may alter his recent course of repeatedly [...]]]>
by Jim Lobe
After listening to the various statements, press conferences, and background briefings by “senior administration officials,” and initial reactions that followed tonight’s announcement about the interim accord between the P5+1 and Iran, it occurred to me that Israeli Prime Minister Binyamin Netanyahu may alter his recent course of repeatedly and quite publicly denouncing the agreement as a “bad” or “very bad deal.” Bibi certainly has shown a pragmatic side in the past, and I suspect we may see it again, particularly because the deal appears to be somewhat tougher than had been expected.
After all, when Jeff Goldberg tweets that “The Israeli government position that any Iran agreement is a bad agreement simply isn’t credible,” even Bibi’s new, hard-line ambassador here, Ron Dermer, has to assess seriously the implications.
So it would not surprise me, at this point at least, if Bibi says that this is not as bad a deal as he had expected and then tries to take credit for the tougher-than-exected terms that it appears to include. That’s the only way he can hope to get a serious hearing at the White House at this point. Moreover, Hollande’s endorsement of the deal has really painted him into a very tight corner. After all, he can’t claim so soon after giving the French president a hero’s welcome in Tel Aviv for Paris’s rejection of the proposed agreement two weeks ago that his “sincere” friend has just signed on to a “sucker’s deal.” And, as has been shown in recent months regarding his fears about the hardening of European opposition to — and increasing exasperation at – Jewish settlements on the West Bank, he has to be careful about giving offense to the EU3, as well as to the White House, however politically weak he may perceive Obama to be at the moment. Indeed, I suspect he may come under pressure from the Euros, Israel’s most important trading partners by far, to keep his mouth shut. Finally, this deal was made, as Wolf Blitzer put it tonight, between Iran and the “international community” in whose name Bibi often purports to speak. To continue to vehemently denounce the deal is to put himself outside that “community,” thus further exposing Israel’s international isolation. With Saudi Arabia, the United Arab Emirates, and Bahrain as virtually his only “allies” on this question, his position is not an enviable one.
Of course, none of this means that he won’t try to derail the deal by working with the Israel lobby (which must be very concerned about its own vulnerabilities given both the degree of public support for an Iran deal that the recent Washington Post and CNN polls have shown and comments like Goldberg’s) to get new sanctions legislation through Congress or by resorting to some kind of provocation (short of attacking Iran as he and his ministers have so often threatened to do). But, assuming Iranian compliance with the deal, including the significantly enhanced inspections provisions, I think he’s going to have to be much more discreet than he has been, at least for the time being.
On the other hand, he’s never been a particularly subtle guy.
We’ll see soon enough.
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