Middle East

Oil prices and economy in 2023

Rising international oil prices, which dominated most of 2022, have boosted revenues to the state treasury and provided a much-needed boost to the Kuwaiti economy. Analysts estimate that revenue will exceed KD 25 billion by the end of the 2022-23 fiscal year ending March 31, with windfall earnings only wiping out the projected deficit for the current fiscal year. Not for the first time since 2015.

Last November, Congress belatedly approved the budget for fiscal year 2022-23. The budget envisaged a revenue of KD 23.4 billion, an expenditure of KD 23.5 billion and a deficit of KD 100 million. The budget was based on the assumption that oil prices for the fiscal year would remain at an average of US$80 per barrel. However, the continued upward trend in oil prices throughout 2022 means that Kuwait’s actual realized surplus could be significantly higher than projected in the budget.

The recently released third-quarter balance of payments (BOP) data from the Central Bank of Kuwait (CBK) also revealed that the country’s current account balance in 2022 is on track to record its largest surplus in almost a decade. bottom. Rising oil prices and production, as well as steady income from Kuwait’s overseas investments, were the main drivers of last year’s record first-to-third quarter surplus of around $15 billion, the report said. points out.

The International Monetary Fund (IMF) has further endorsed its optimism for Kuwait’s economy, with an assessment of the country’s finances that Kuwait is likely to continue the uptrend of economic recovery seen in 2022 in the near term. pointed out. In its final communiqué after a visit to Kuwait in mid-December, the IMF team predicted that overall real GDP growth would bounce back to 1.3% in 2021 from -8.9% in 2020 and 8% in 2021. It said it is expected to increase further until it surpasses. 2022

During the visit, the IMF mission discussed with officials from the CBK and the Ministry of Finance, evaluated data from other relevant agencies, and identified potential downside risks from a slowdown in global oil demand, as well as potential oil Price volatility and the strong growth seen in 2022 may continue, but at a slower pace over the next year. The IMF said inflation has been kept in check by the CBK’s tight monetary policy, and continued state subsidies and price controls have allowed a limited pass-through of rising global food and energy prices to consumers. explained.

However, the IMF believes that while higher oil prices and production in 2022 have significantly improved overall fiscal and current account surpluses in 2022, the outlook for 2023 is tempered by uncertainty and risks. Potential downsides to the external environment identified by the IMF include the possibility that the current slowdown in global economic activity could lead to a full-blown recession in 2023 and the ongoing geopolitical crisis. There are also the effects of the crisis.

Moreover, delays in implementing key fiscal and structural reforms identified by the IMF and other international and regional economic bodies have hampered progress on urgently needed economic diversification programs and undermined widespread programs. It could amplify the risks of cyclical fiscal policy. Austerity in good times and bad times.

The rise in oil prices seen in fiscal year 2022-23 helped boost government revenues and maintain macroeconomic stability in the country, but Kuwait has struggled with volatility in global demand to propel its economy. It also highlights the continued over-reliance on capricious international prices.Furthermore, the economic recovery based on the rise in oil prices seen in 2022 is likely to shift from overwhelming reliance on hydrocarbon reserves and earnings. He reiterated the importance of pulling the economy apart.

Nonetheless, the government was due to release its budget proposal for fiscal year 2023-2024, which begins on April 1, buoyed by a surge in revenues in 2022 and higher oil prices. The plan for the new budget reportedly includes an increase in current spending in line with the government’s objective of improving the lives of its citizens, as well as diversifying the economy, increasing the contribution of the non-oil sector to the budget, and increasing competitiveness. which included implementing fiscal and economic reforms to increase the Revalue land and property leases.

But hopes in the political world that strong public finances would help the new government push through much-needed policy changes and infrastructure projects were dashed early last week. In a surprise move last Monday, Prime Minister Sheikh Ahmad Nawaf Al-Ahmad Al-Sabaf submitted his cabinet resignation to Crown Prince Sheikh Meshal Al-Ahmad Al-Jaber Al-Sabaf bottom. Relations with legislative bodies during the first session of the 17th National Assembly.

The government’s resignation, just three months after its October inauguration, was reportedly sparked by opposition lawmakers who pressured the government to introduce a debt relief bill that would allow the state to purchase citizens’ personal loans. , the government had argued that the bill was not viable. MPs also tried to question the two ministers about past failures in their respective ministries. The resignation of the Cabinet has again stalled planned financial and economic reforms and policy changes, weakening the enthusiasm and interest of domestic, regional and international investors to invest in the country.

Meanwhile, on the global economic front, oil prices will start on an upward trajectory in 2023, with markets signaling a “soft landing” for the global economy in the hopes of lower inflation and higher oil demand in some markets. ‘ was expected. Make a U-turn and scrap the Zero COVID Policy. Despite fears of a global recession, the resurgence of the Chinese economy is expected to boost global growth and, consequently, oil demand next year.

Expectations for oil prices to remain high through 2023 are fueled by the European Union’s (EU) decision to embargo Russia’s oil, and by the G7 wealthy nations group’s $60 per barrel for oil exports and additional embargoes on Russian refined petroleum products starting in February. In addition, the Organization of the Petroleum Exporting Countries (OPEC) and its non-OPEC members reaffirmed their commitment to maintain oil production cuts of 2 million barrels per day (mb/d) through 2023, further tightening supply and We may see stabilization in oil prices. .

Projections of higher global oil prices over the next 12 months have come from a potential drop in oil production in the United States, as evidenced by the decline in the number of operating oil rigs in the country at the end of 2022. is also supported. Moreover, with the domestic and global economies reeling from the impact of an aggressive rate hike in 2022, the U.S. Federal Reserve said he could ease the next rate hike expected on February 1 with a smaller hike. There is a nature. 1 percentage point higher than the 0.25 percentage point rate hike previously forecast.

Falling U.S. interest rates will lower oil prices in other world currencies, prompting OPEC and other oil exporters to hoard money by countries delaying or limiting oil purchases in 2022. I hope it is possible. Russia’s response to the embargo on oil and petroleum products and his OPEC+ member’s adherence to mandated production cuts, regarding forecasts of global factors that could affect oil prices in 2023 Commitment will be a key determinant, he said. Oil price movement in 2023.

Russia has already announced a ban on oil exports to countries participating in the G7 price cap, suggesting it could cut oil production by up to 700,000 barrels per day accordingly. Meanwhile, OPEC+ said he reaffirmed its October supply cut decision and will continue to cut oil production by 2 million barrels per day (bpd) through 2023.

Meanwhile, on the demand side, a cold northern hemisphere winter is expected to support consumption in the coming months, while the trajectory of oil demand will be shaped by global economic growth, more specifically growth or oil scarcity. That’s her three main driving forces: the United States, China, and Europe. Meanwhile, the IMF has already warned in its economic forecasts for the US, China and Europe that all three countries are decelerating simultaneously and that 2023 will be “worse than the year we leave behind.”

Additionally, Russia and China are two wildcards that could impact the outlook for global oil in 2023, but a third modest but significant player is the world’s third-largest oil importer. Could be some India. Indian oil imports are particularly associated with Middle Eastern oil exporters, notably Iraq, Saudi Arabia, the UAE and, to a lesser extent, Kuwait, which has traditionally been a major oil supplier to India. But India is steadily buying Russian oil in her 2022, lured by offers to offer discounts on Russian oil that the West has embargoed. India imported her 1.9 mb/d of oil from Russia in her December, making Moscow the largest oil supplier to India. 3 months in a row.

Meanwhile, data from the latest Oil Market Report by the International Energy Agency (IEA) predicts that global oil demand will grow by 1.9 mb/d to reach a record 101.7 mb/d in 2023. . Oil supplies slowed to 1 mb/d, with an overall non-OPEC+ rise of 1.9 mb/d offset by an OPEC+ decline of 870,000 barrels per day, mainly due to an expected decline in Russia.

Given the uncertainty over the overall outlook for oil prices in 2023, the question among many economic and political analysts in Kuwait is that the current political climate will Whether the country will be able to fully realize the potential gains that higher prices can portend, or whether it will weather the possibility of yet another drop in oil prices and the possibility of the world slipping into recession over the next year. can.

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