- The Washington Times - Sunday, September 5, 2004

Not everyone was complaining when the price of a barrel of oil flirted with the $50 mark on global markets earlier this summer.

For Venezuelan President Hugo Chavez, it meant more money to pour into social programs benefiting his supporters.

For Russian President Vladimir Putin, it meant a projected doubling of the country’s “rainy-day fund” and a means to finance painful economic reforms.

For Iraqi Prime Minister Iyad Allawi and his U.S. backers, it meant hastening the day when Iraq can finance its own reconstruction.

“When you have losers, you also have winners,” said Robert Ebel, chairman of the Energy Program at the District-based Center for Strategic and International Studies. “A lot of the big oil exporters are experiencing a big windfall right now.”

For Venezuela, every $1 increase in the price for a barrel of its crude oil exports in the global market means $821 million in additional revenue, based on the country’s 2003 production totals.

Political analysts credit a burst of government spending — financed largely by oil revenue — with helping Mr. Chavez handily defeat a recall bid last month.

The petroleum industry accounts for more than three-fourths of Venezuela’s exports, half of the government’s tax take, and a third of the gross domestic product.

With world supply still tight and demand high, crude oil prices yesterday remained under pressure, despite retreating from peaks hit in July.

A barrel of crude oil sold on the world market for $42 a barrel in London at the close of trading Friday, up 53 cents for the day. U.S. crude oil prices peaked just short of $50 last week, an indication that reserve stocks of oil worldwide are tight.

And the high prices seem set to stay.

The Paris-based International Energy Agency (IEA) last month raised its estimate of world oil demand to 82.2 million barrels a day, 750,000 barrels higher than the previous estimate. Among the factors pushing up demand and prices: the recovering U.S. economy, economic booms in China and India, concerns about pipeline vulnerability in Iraq, and the Russian government’s attacks on oil giant Yukos.

“The market is tight, production and infrastructure capacity are less than desired, and uncertainties continue to weigh on the market,” the IEA said in its latest monthly report.

After the Aug. 15 referendum vote, Mr. Chavez announced a “deepening of the revolutionary process.” Funds from the state-owned oil company have financed a string of social programs for the poor, from subsidized soup kitchens to health clinics staffed by imported Cuban doctors.

“Chavez will continue throwing money at the people who support him,” said Mauro Guillen, a management professor at the Wharton School, in an analysis published recently by the University of Pennsylvania graduate business program.

As long as oil prices remain high, Mr. Chavez “is going to be particularly difficult to dislodge from power,” Mr. Guillen said.

For Saudi Arabia and other major Middle East suppliers, the soaring price of oil represents a burden and an opportunity. Leading oil producers worry that high prices could lead to an abrupt economic slowdown in the United States and other leading markets, but for now, the extra cash is coming in handy.

“These are countries heavily dependent on oil money, and they are in the best fiscal shape they have been in a long time,” Mr. Ebel said.

Saudi Arabia, for example, is dedicating a major slice of the projected $35 billion government surplus to a public-jobs effort, subsidizing worker training and employment programs for jobless Saudis.

Russia recently surpassed Saudi Arabia as the world’s biggest producer of oil, although Saudi proven reserves still dwarf that of rivals.

The oil bonanza has cut both ways for Mr. Putin, who has used some of the money to cushion the pain of economic reforms on other fronts. The central government has used oil money to make up pension shortfalls, preserving worker and retiree incomes while cutting employer payroll taxes by 10 percent.

But the huge and growing size of Russia’s windfall also is posing problems for the government.

Finance Minister Alexei Kudrin had promised not to use the surplus funds for short-term needs in preparing a draft of next year’s budget for submission to the State Duma last week.

That could prove difficult, as the government’s “stabilization fund” rose 16 percent to $9.1 billion in July and is projected to double to nearly $20 billion next year, a tempting target for lawmakers and ministries looking to fund pet projects.

The largest political and strategic effect of soaring energy prices could be felt in Iraq, where the fate of Mr. Allawi’s interim government is closely tied to the country’s massive but vulnerable oil infrastructure.

Despite the rising world oil prices, Iraq’s crude oil revenue fell from $46.8 million a day in July to $24.8 million in August — the lowest in nearly a year.

Before the war, Iraq produced an average of 2.5 million barrels of oil a day. Last month, after repeated sabotage of pipelines in the north and south, production fell to 1 million barrels a day.

The Iraqi government’s hopes of exploiting its oil wealth to finance redevelopment also are hindered by the huge investment that will be needed to upgrade and secure the country’s creaky oil infrastructure.

Anti-government insurgents consistently have targeted Iraq’s long and vulnerable network of pipelines in a bid to disrupt production.

Militants on Friday again bombed Iraq’s northern oil pipeline, halting all exports into neighboring Turkey, just a week after Iraqi engineers had restored shipments at the pipeline for the first time since May.

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide