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Opinion: How to face fears of falling oil prices | ASHARQ AL-AWSAT English Archive 2005 -2017
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A gas flame is seen in the desert near the Khurais oilfield, about 99 miles (160 kilometers) from Riyadh, in Saudi Arabia, on June 23, 2008. (Reuters/Ali Jarekji)

The price of Brent crude fell below 72 US dollars a barrel yesterday, dragging down the GCC stock markets. Oil experts predicted that the prices would drop below 60 dollars a barrel in the coming months.

It is normal to feel a sudden sense of unease. Everyone in the Gulf will be asking: What will our situation be like when we rely almost exclusively on oil revenues?

I will not be tackling solutions of medium- or long-term nature or any other economic or state-level administrative fixes; what is important now is to deal with the market and people in a civilized manner, rather than leave them in the dark where fear dictates their choices, as we saw happen to the stock market that was severely dented.

Why aren’t officials being transparent and honest? Why aren’t they talking about this issue and about what could happen in the next few days? What does the Saudi government intend to do? Is a serious crisis looming on the horizon due to the drop in oil revenues? What would that mean for the more than 2 million employees and 10 million family members who rely on these revenues, as well as the 10 million on state incomes, which are in fact also based on oil revenues?

What would happen if the oil price drops below 60, 50 or even 30 dollars a barrel?

Why aren’t we hearing what we ought to be hearing, even if it is bad news? We are the ones who will have to cope with the final repercussions of changes in the oil market. Things should be straightforward and transparent. What is the estimated price of oil per barrel next year? This should not be confidential information as the truth will help the government. What are the financial capabilities of the government in light of the deficit of its foreign reserves and savings? These should not be kept a secret. Everybody wants to get their house in order: owners of companies as well as heads of households.

In my opinion, the inherited policy of ambiguity is not justified, because even if it was not harmful in the days of prosperity, it will cause the spread of rumor in times of distress, which, as well as fear, will lead the market to worse performance.

The stock market reactions, despite being overstated, reveal the mental state of people: fear in the light of ambiguity. Over the last few days, the market has been suffering from a rush in oil sales, out of fear that prices drop even further.

In fact, the government’s situation today is perhaps less critical than it was during previous crises: The price of an oil barrel dropped to 12 dollars in 1986. The situation remained dire until the 1990s when it witnessed limited improvement but ended dropping back to the same price in 1998. These were difficult years that were overcome after the unprecedented boom in oil prices. We seem to be on the verge of a new chapter and another waning chart.

Here, we assume that the government will tell the people that a storm is looming on the horizon, explaining its dimensions and solutions. The worst-case scenario would be for the government to lose two-thirds of the budget income. It would still be able to operate thanks to the savings it has accumulated over the past five to ten years. If my estimation is accurate then fears are unjustified.

If the government can finance half of its annual budget from its foreign sovereign wealth funds for the next five years it will have enough time to get its act together and reconsider its avoidable spending policies, without having to modify its support for key commodities, the salaries of its employees or its planned development projects.

Nevertheless, it can cut subsidies on barley and dates and gradually raise the price of gasoline. Most importantly, it can improve the situation of the market; the amount of money stacked in banks is massive and is not used for internal investments. The people’s money alone is capable of improving the overall economic situation. But before anything else, we need to insist on openness because we are headed for a situation that may not be as bad as we might think. Perhaps the situation will not require these measures, which would be the product of fear.