Oil countries wasted chance to build strong economies, expert says

Oil Barrels

Many of the large oil-producing nations such as Saudi Arabia, Kuwait and Venezuela have squandered their chance to build strong and sustainable economies on the proceeds of high oil prices, a leading energy analyst has warned.

Fadel Gheit, an oil expert at the Oppenheimer & Co brokerage in New York, said prices at $90 a barrel had allowed nations to temporarily prosper without regard to the cyclical nature of commodity prices.

“Many of these countries have failed to diversify their economies. They are welfare states, dependent on high-cost oil without any other real manufacturing, industry or even tourism and now the oil bubble has burst,” he said.

Gheit, a former Mobil Oil executive, said the oil producers should have followed the examples of countries such as Japan and South Korea which had built vibrant economies without any natural resources.

The damning view of some of the largest energy producers came as the price of benchmark Brent crude continued to fall and the Oppenheimer analyst believes it will not stop at $70.

There is growing concern about the political implications for oil-producing countries of a prolonged slump in prices, especially Iran, Algeria and Venezuela, which have high-cost production and heavy public spending commitments.

Russia, which derives half its budget revenue from oil and gas, is already struggling with a collapse in the value of the rouble and an economy fast moving into recession.

The Kremlin, which is also struggling with western sanctions over Ukraine, is thought to need an oil price of $105 to balance its budget, according to some estimates.

Iran, also hit by sanctions in the past over its nuclear programme, is heavily dependent on its energy exports and is said to need $140 a barrel to balance its budget. Meanwhile, oil accounts for 95% of Venezuela’s exports. Harvard economists claim its per capita gross domestic product is 2% lower than it was in the 1970s when oil prices were 10 times lower.

Gheit says oil producers have been blind to consuming nations reducing their energy intensity and even more importantly that US shale is turning the supply map upside down. “They have failed to see that fracking is like a virus and it’s going to proliferate and it will eventually spread even to Russia and Saudi Arabia.”

Powered by Guardian.co.ukThis article was written by Terry Macalister, for The Guardian on Friday 28th November 2014 20.07 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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