OPEC countries enjoy current-account surpluses
Published by Daily Star on 2003-10-28
BEIRUT: There was a quiet announcement the other day in Abu Dhabi, the capital city of the United Arab Emirates, that didn't attract much attention at the time. The Ministry of Planning said that free zone sales and large re-exports had allied with growing gas income to ensure that the UAE would remain a key capital exporter. In 2003, the ministry said, the country's current account surplus could be $11 billion, some $3 billion more than last year.
One reason the announcement may not have drawn much notice is that Middle East members of the 11-nation Organization of Petroleum Exporting Countries like the UAE are habitually enjoying current account surpluses. A country's current account represents the balance between export and import of goods and services as well as investment and services income.
Still, the UAE's figure is staggering, even though it's in line with the surpluses projected for most Gulf oil and gas producers. Saudi Arabia, for example, may obtain as much as $33 billion in current account surplus this year: its revenues from the sale of oil--about 8 million barrels a day--are estimated to be $95 billion, while its published budget calls for expenditures of $62 billion. With the proposed OPEC cut in daily oil production of 900,000 barrels a day starting next month, producers' income is likely to go up, despite the relatively sluggish world demand for oil right now, according to industry analysts. One benefit of a current account surplus for the Gulf's oil exporting economies is that it reduces their reliance on overseas borrowing for ambitious domestic development projects.
But there was another point in the UAE planning ministry's announcement that was significant. The country's current account surplus, the ministry said, would be forthcoming regardless of fluctuating oil prices. The ministry said that revenue from crude oil exports fell last year to $16.9 billion from $17.7 billion in 2001.
The surplus would be forthcoming despite heavy remittances by the expatriate community and high spending by UAE tourists abroad. In 2002, the expatriate remittances amounted to $4.1 billion; UAE tourists spent $3.65 billion overseas, in contrast to $1.3 billion generated by the local tourism industry.
What is also significant is that the UAE's current account surplus comes about despite rising imports. Between 2001 and 2002, imports grew by 5 percent to $39.2 billion, from $37.3 billion.
Offsetting these expenditures was a growth in total exports to $49.6 billion in 2002, from $48.8 billion the previous year. Sales of natural and liquefied gas were $3.3 billion last year, while re-exports--mainly by Dubai--climbed from $13.9 billion to $14.5 billion. In addition, free zone exports, led chiefly by Jebel Ali in Dubai, rose to $7 billion last year, from $6.78 billion in 2001. The planning minister, Sheikh Humaid bin Ahmed Al Mualla, said that overall exports in 2003 are projected to jump by $.35 billion.
According to oil and energy industry analysts, crude oil producers--particularly those in the Gulf like the UAE--are increasingly diversifying their revenue base by pumping up exports through mechanisms such as free zones and re-export zones. This diversification is largely anticipatory: although it costs barely a dollar a barrel to extract oil from the sands of Arabia, according to the Paris-based Organization for Economic Cooperation and Development, the producers may be reckoning on a global decline in oil prices from the current $30 a barrel, particularly if non-OPEC suppliers such as Russia increase their production and flood the market, thereby affecting the OPEC cartel-set prices.
Even so, the Gulf oil producers are assured of extraordinary revenues for more than a generation to come. Some 25 percent of the world's proven oil reserves are under the deserts of Saudi Arabia; if the proven reserves of Kuwait, the UAE, Qatar and Iraq--all OPEC members-- are added, the share of the world's reserves held by Middle East OPEC countries rises to two-thirds, according to the International Energy Agency--a quasi-governmental group of oil consuming countries which was set up by the OECD to monitor the oil industry. In contrast, Russia is known to have about 5 percent of the world's proven oil reserves, and the shares of Mexico, the United Kingdom and Alaska are comparatively insignificant. But it costs $2.5 a barrel in Russia to lift every barrel of crude oil, which already makes its oil production costs considerably higher than those of Middle East countries.
Moreover, the IEA has estimated that the oil industry would need to invest some $2.2 trillion over the next 30 years in exploration and production to develop sources beyond those that already exist in the Middle East. It is difficult to see this sort of investment forthcoming in full measure.
The IEA says that even if innovative technology and new forms of energy supply--such as hydrogen fuels--were to come into the market place, Saudi Arabia and its neighbors would still need to provide two-thirds of the expected increase in oil demand between now and the year 2030. As the world marks the 30th anniversary of the Arab oil embargo against the United States this month, analysts point out that OPEC has forced American consumer--in particular--to transfer some $7 trillion to the oil producing countries over the last three decades. The Arab embargo on October 20, 1973, followed the Yom Kippur War with Israel and resulted in a jump in oil prices from around $3 a barrel before the war to over $11 a barrel by January 1974. The embargo contributed to widespread inflation, imposed higher consumer and business expenditures--and brought about a global recession in 1975. That recession was the first of four global economic downturns caused by oil price increases following volatile political events in the Middle East.
Despite Western vows to curb energy use and to find alternate sources to oil, the demand for oil has increasingly significantly in these last 30 years and is likely to continue. And there's little sign that energy conservation efforts are fully succeeding. In short, the Gulf's oil producers have long years ahead of lucrative oil production. And anything they do by way of other exports--much in the manner of the UAE--will be simply an added bonanza.
Senior Writer and Global-Affairs Columnist