I’ve read many articles how the current oil price per barrel is really hurting the oil producing nations, from OPEC to Russia, and some in between. Now I can understand things like the Canadian sand tars and very deep ocean reserved needing a certain $/barrel to make them profitable. But for these other countries, they were doing fine when oil was trading at $10/barrel in the late 90’s.
How can they be in such distress when oil is around the $40/barrel and just after a insane run up to $140. I would think they would be awash in cash and have plenty of reserves from that, plus all they are doing is pumping it out of the ground, as we pump water, so their cost per barrel is very low.
Did they really restructure their economy in such a short time where they are now dependent on $140 oil, which it appears is globally unsustainable?
Yes of course these countries have based their national budget on some expected income from oil exports, calculated to a certain oil price. When oil falls below that price, they either have to borrow money or cut back on state expenses. Venezuela and Iran needs oil prices above $90 to balance their budgets. Mexico > $80. Nigeria, Oman >$77. Bahrain >$75. Russia & Bahrain > $70. Kazakhstan >$59. Algeria >$50. Saudi Arabia > $49. Libya >$47. Azerbaijan >$40. Kuwait >$33. Qatar >$24. UAE >$23.
I also heard the number $114 for Iran and that Iraq needed >$111. But they’ve got you to pick up the tab, so that’s no prob.
You could ask the same question about economies which aren’t dependent on oil. For example, the economy in New York is heavily influenced by the financial markets. One would think that New York would sock money away during boom years and use that money to get through the lean years. Instead, the idea seems to be to put a tax on non-diet soda.
The same thing seems to happen at an individual level.
I guess it’s human nature to think that the good times will last forever.
Russia has actually put away several hundred billion dollars. Much of it in US assets. They’ve had to dip into it pretty heavily during the financial crisis, so I don’t know how much is left. Norway also has a pretty hefty saving.
There seems to be a big difference on growing dependent on the various markets based on the performance over decades, and grow in proportion with that (and yes there are overshoots in that too), and a single commodity state that had a enormous, unprecedented run up in prices over a very short period of time .
What strikes me is funny during this oil plunge, is that it shows how oil-producing countries are just as addicted to their oil $$ as we are addicted to their oil.
Hell, my own county saw its property tax revenue double in five years after the housing boom, and now that tax revenues are ONLY 115% of what they were in the year 2002, we hear that there will be no money for public services.
Most people’s personal budget’s are like that as well. I couldn’t imagine trying to live on what I made in the late 1990s (even inflation adjusted). People naturally adapt a higher lifestyle relative to their income.
