Downswing in oil prices threatens Arab economies
Regional-OPEC, Economics, 3/27/1998

The prices of crude oil witnessed a large decline in international markets since the 22nd of last February, reaching its lowest level in 4 years.

Oil analysts attribute this decline to several factors: the expectation of increasing Iraqi share of oil output permitted under the UN sanctions to more then 4 billion dollars every 6 months, the emergence of a strong international call to speed up the process of sanction lifting from Iraq and the economic crisis of south east Asia and its consequences of weakened oil demand.

As a result, the downward pressure on prices is strong and analysts say it will be deficult to halt this downfall unless OPEC decreases oil production and force its member states not to produce more than their alloted shares (as many are suspected of doing). Saudi Arabia has already announced early in the week that it will reduce its output, along with other yesterday.

It is expected that this large decline in oil prices if sustained will have negative effects upon the Arab states' economies. Few states and governments will avoid being effected since a large portion of their revenues is the result of oil sales. Other Arab states will be effected as a result of the spill-over effect that the oil producing countries will have on the neighboring economies that have expatriots and economic ties to the Arab oil producing countries, with some countries expected to suffer severely such as Algeria.

Wehther OPEC will be able to have an efective policy and enforcement of the reduction of its oil output is one factor effecting oil prices on the production side. Another longer term factor is the introduction of new oil reserves and the pipelines being engineered to carry this oil in the former southern Soviet Union countries such as Khazakstan and others.

These former Soviet republics that have been projected to have large oil reserves will have pipelines ready to put forth more oil on the world market in the coming years. However, it should be noted that with the lower oil prices, many of the Western companies that are financing these oil pipelines may find that such proposition becomes uneconomical low oil prices.

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