Kuwait may look to pump prices to ease deficit

Will Kuwait be able to take a bite out of a budget gap by setting higher prices at the pump?

Kuwait Ministry of Finance Assistant Undersecretary for General Accounting Abdul-Jaffar Al-Awadi recently revealed a total budget deficit of approximately $7.9 million for the first quarter of the fiscal year. He also noted a move by national leaders, chronicled in publications like OilPrice.com, who plan to increase fuel prices for drivers by up to 80 percent.

This would be the first increase for any OPEC member in two decades and marks a new model of cost containment for a country that has historically subsidized gasoline prices.

Kuwaiti administrators are hoping that the increase in fuel prices will reduce the deficit.

Other reports earlier this year show massive plans by Kuwaiti leaders to ramp up oil production, although by all accounts the current price of around $40 a barrel is below the breakeven level for production revenues.

Another recent move is the issuing of $3.3 billion in local bonds, adding borrowing to pay government employee salaries, which total approximately $2.6 billion each month. In addition, Kuwait has faced challenges related to the automated payment technologies that support the delivery of government salaries.

To many experts in the oil industry, it's no surprise that GCC leaders are getting creative in handling their finances as many anticipate the same kinds of dramatically lower oil prices that are now in place to continue for a number of years.

“The general consensus is that oil is going to stay in the $40-$50 band.” Peter Bryant, managing partner at Clareo in Chicago and the author of "The Growth Champions - The Battle for Sustained Innovation Leadership," recently told Gulf News Journal.

Citing all-time high production, and the successful emergence of fracking, Bryant said natural gas is becoming a major market player. “Fracking has proved to be extremely resilient.” Bryant said.

Bryant also cited new production in countries like Iraq. “The world is awash with supply.” he said, contending that only a “black swan event” could change oil prices dramatically.

In making predictions about energy prices, Bryant warned against looking at the past as a predictor of the future. With so much volatility and uncertainty, he said, it becomes difficult to really make the kinds of concrete predictions in the energy sector that have traditionally provided direction to governments.

In some parts of the GCC, Bryant said, leaders are getting proactive about managing the long-term financial effects of lower oil prices.

“The Saudis get this.” Bryant said, discussing moves into renewable energy and other initiatives that younger generations are taking to stabilize national economies. “There's a definite push toward (renewables and diversification) - and it's growing.”

As GCC nations keep looking toward financial fixes, many global investment efforts and new domestic initiatives are signaling a new era not based on oil, but on new technologies and new directions that decrease reliance on a finite resource.