UN: Oil prices ravage Middle East economies

by Thalif Deen

New York, Jun 28 -- The sharp decline in oil prices that threw most Middle Eastern economies into recession last year is expected to continue late into 1999, according to a new report released by the United Nations.

"No major lasting improvement in oil prices is expected in 1999," predicts the 19-page report released here.

The study, which will go before a meeting of the Economic and Social Council (ECOSOC) in Geneva next month, points out that overall oil revenues in the Middle East have plummeted.

From a high of 180 billion dollars in 1980, total oil revenue for the region has plunged to 95 billion dollars in 1997 and a new low of about 68 billion dollars in 1998.

This has resulted in "considerable negative effects on economic growth and development" in the entire region, the report says.

The annual average price of a barrel of crude oil was about 12.3 dollars in 1998, representing a 37 percent decline from the 1997 average. "This was the lowest annual average during the past 21 years," the report notes.

According to the London-based Petroleum Finance Company, oil revenues for Saudi Arabia - the largest single oil producer in the Middle East - declined from 43 billion dollars in 1997 to 29 billion dollars in 1998.

Also affected were Kuwait, whose earnings fell from 12.4 billion dollars to 9.1 billion dollars, and the United Arab Emirates, whose revenues dropped from 13.5 billion dollars to 9.5 billion dollars.

At the height of the price recession in mid-1998, Kuwaiti Oil Minister Sheik Saud Nasser al-Sabah warned of "a looming economic catastrophe" for oil producers in the region.

Unless world oil producers made drastic cuts in production, he said, the free fall in oil prices could bring down governments.

The 11 members of the Organisation of Petroleum Exporting Countries (OPEC), along with Mexico, decided last year to reduce production by one million barrels a day to boost prices. But the cutbacks only provided temporary relief, as oil prices have continued to slide.

According to the UN report, the decline in oil prices stems from several factors, including high levels of oil inventories, an expected rise in output in Iraq - which has been under UN embargo since 1990 - and Central Asia, and a significant drop in demand from countries in Southeast Asia. The fall in Asian demand was prompted by a severe financial crisis that began in Thailand in mid-1997 and eventually spread to South Korea, Thailand, Malaysia, Indonesia and the Philippines.

The study, prepared by the Beirut-based UN Economic and Social Commission for Western Asia (ESCWA), is part of an annual survey of economic and social developments in 13 Middle Eastern countries, including 10 of the world's major oil exporters.

The report describes overall regional economic performance in 1998 as "dismal." Preliminary ESCWA estimates indicate that the combined real gross domestic product (GDP) for the Middle East region increased only by an average of 1.0 percent. This represents a significant decline from annual average growth rates of 3.7 percent in 1996 and 3.4 percent in 1997.

The report says that unemployment is a chronic problem confronting the region's more diversified economies. The situation worsened in 1998, as economic performances failed to generate employment opportunities to accommodate the needs of the rapidly increasing labour supply.

In addition, economic slowdowns in the Gulf countries, which traditionally hire expatriate labour, made the situation worse.

Yemen and Jordan, two countries that depend heavily on migrant earnings, recorded the highest unemployment rates in 1998, with preliminary joblessness estimates of 27 percent and 21 percent, respectively.

A decline in oil revenues forced the Yemeni government to curtail expenditures, while interest rates were raised significantly to stabilise the local currency against the US dollar.

Faced with rising unemployment at home, Jordan cracked down on about 300,000 foreign workers who the government claims lacked valid working permits.

Unemployment in the Middle East is expected to worsen in 1999, the report warns.

While most member countries of ESCWA are blessed with large oil and natural gas reserves, it says, the region lacks two other critical natural resources: productive land and accessible renewable water supplies. These shortcomings have only added more problems to existing ones in the region, the report concludes. (IPS)

The above article by the Inter Press Service appeared in the South-North Development Monitor (SUNS).