In the latest sign that even OPEC’s Gulf states are taking a hit due to low oil prices, Kuwait’s emir said Tuesday that his country’s revenue is down about 60%. He also urged Kuwait’s citizens to prepare themselves for potential economic reforms that could be implemented to address this situation.
“Urgent Reform Measures”
Emir Sheikh Sabah Al Ahmad Al Sabah, speaking to parliament as it started its new session, said (as reported by the Kuwait News Agency), “Oil prices have resulted in [the] slump of the State income by 60%, however the public spending proceeded unchanged and without any cut, to be in the tune with the falling oil prices, thus leading to the State budget deficit, which is a burden…and a limit to our development aspirations.”
Kuwait’s Emir Sheikh Sabah Al Ahmad Al Sabah
He continued, “There must be speedy, serious and urgent measures to complete the economic reforms and attain their objectives, namely with slashing the public spending…While I declare in front of you facts and ramifications of the crisis, I ask the government and the assembly to take urgent reform measures.”
He did not detail any specifics as to what cuts are being planned. Kuwait provides its 1.2 million population with a broad social welfare program, but does not levy any taxes on these citizens nor on the 2.8 million foreigners living in the country.
MENA Gulf Exporters Should Take “Urgent” Action: IMF
The emir’s announcement comes after the International Monetary Fund said in a report last week that oil exporting countries in the Middle East should “urgently” adjust their government spending plans amid the oil price plunge. “Intensifying conflicts and depressed oil prices are weakening growth prospects and raising risks across the region, a situation compounded by the recent bout of global financial market volatility,” the agency said in its October Middle East and Central Asia Regional Economic Outlook.
According to IMF estimates, the titular head of OPEC, Saudi Arabia, needs to sell oil at around $106 in order to balance its budget. The agency said if oil remains around $50/bbl, most countries in the region will be depleted of cash in five years or less- including Saudi, Bahrain and Oman.
A United Front Against ISIS
In his speech, Al Sabah also urged unity following an ISIS attack in June on a Shiite mosque in Kuwait City, which resulted in 27 fatalities and 227 injuries.
“I, as the father of all, ask you and all the citizens to be aware of the dangers threatening our security, with the necessity of maintaining our national unity and participating in the protection of the homeland,” the Kuwait News Agency reported him as saying.
Oil Minister: No Change In OPEC Strategy
Earlier this month, Kuwait’s oil minister Ali al-Omair told Reuters that there were currently no calls from within OPEC to alter the group’s market share defense strategy. “Today there are no ideas or demands from the member states to make any big change in OPEC’s decision,” he said on October 12.
Kuwait’s oil minister Ali al-Omair
“Today there are indications that a lot of high-cost oil production? is starting to get out of the market and this will help improve prices,” Omair said.
He added that there were positive indications concerning the world economic outlook. He said, “There are signs that world economic growth could improve by the start of 2016 and this would also add to the improvement in oil prices.”
Offshore Exploration Program Within 2 Years
In September, Kuwait said it planned to begin an offshore oil exploration program within the next two years in the hopes of boosting output capacity, state news agency KUNA reported, citing a Kuwait Oil Co (KCC) executive.
KOC’s manager of planning, Bader Al-Attar was quoted as saying that Kuwait wants to add a total of 700,000 bpd of oil production capacity from offshore and onshore assets, hence indicating that the OPEC member will maintain energy investments amid falling oil prices. He did not specify the possible offshore locations.
The onshore Burgan field is the source of most of Kuwait’s production. It’s the second largest oilfield in the world and is located in the southeastern region of the country. However, it also extracts reserves from the offshore Neutral Zone where it shares infrastructure with Saudi Arabia.
Attar also was cited by KUMA as saying that Kuwait seeks to increase output capacity to 3.5 M/bpd by the end of this year, including from the Neutral Zone, from about 3.15 M/bpd currently.