Oily business

I read this article on CNN.com yesterday about how Saudi Arabia could run out of cash in 5 years if Oil prices remain at current levels.

An interesting graphic in the article posits that break-even prices for oil are widely different for countries in the Middle East. Kuwait can break even if the price of oil is USD 49 per barrel and Qatar at USD 56. Saudi Arabia and Bahrain on the other hand have break even prices at USD 106 and USD 107 respectively. I did not realize that it could be so expensive to stick a straw into the earth and slurp out the black stuff. Admittedly, the break-even point refers to the price at which the budget will be balanced, not the cost of producing oil.

For all of Dubai's folly in the late noughties, one has to admire the foresight of Sheikh Rashid who worked hard to set up multiple different revenue streams beyond oil in preparation for the day the wells run dry. His Wikipedia page states that he once said, "My grandfather rode a camel, my father rode a camel, I drive a Mercedes, my son drives a Land Rover, his son will drive a Land Rover, but his son will ride a camel." His quote reflected his concern that Dubai's oil, which was discovered in 1966 and which began production in 1969, would run out within a few generations. He therefore worked to develop the economy of Dubai so that it could survive after the end of oil production, and was a driving force behind a number of major infrastructure projects to promote Dubai as a regional hub for trade:

Saudi Arabia on the other hand has been producing precious little else, dates perhaps and exporting their hardline views to the neighbouring region. With a cost of production over a hundred dollars a barrel and a selling price of under forty, things are going to get interesting very soon. Saudi Arabia is said to have burned through USD 70 Billion of its reserves this year and is expected to reach a budget deficit of 20% of GDP. Its military spending in the same time period has grown to 17% of GDP.

Interesting time to be buying the largest private jets in the world and supporting wars in Yemen and Syria when your primary revenue stream is under pressure. Perhaps the rulers have been taking advice on how to live life from a flamboyant fat man in India who has been selling the family silver to finance his hobbies.