Saudi Arabia, Russia should take long view on oil agreement, says IEA chief

IEA boss Fatih Birol praised Saudi Arabia’s efforts to diversify away from oil dependency. (AP Photo)
Updated 13 March 2019
0

Saudi Arabia, Russia should take long view on oil agreement, says IEA chief

  • Executive director of the International Energy Agency Fatih Birol warned that short-term volatility can throw out policymakers’ calculations
  • The 2016 agreement between Saudi Arabia, the world’s biggest oil exporter, and Russia, second in global rankings, has been credited with stabilizing the oil price after the 2014 collapse

HOUSTON: Fatih Birol, executive director of the International Energy Agency (IEA), has urged Saudi Arabia and Russia to be aware of the consequences of their alliance on oil production levels.
Speaking exclusively to Arab News on the sidelines of the CERAWeek by IHS Markit energy forum in Houston, Texas, Birol said: “It is very important to see what are the consequences of such agreements not only in the very near term but also in the medium term. This is important, to make those agreements according to the entire picture.”
The 2016 agreement between Saudi Arabia, the world’s biggest oil exporter, and Russia, second in global rankings, has been credited with stabilizing the oil price after the 2014 collapse.
However, Birol warned that short-term volatility can throw out the policymakers’ calculations. He cited the recent renewal of production limits as a case in point, when the latest deal to extend the caps on output was followed by a period of volatility in crude prices.
“Russia has become one of the main drivers of the Vienna parties agreement, if not the main driver. What we have seen, however, is that after the recent agreement to bring the prices up, prices in fact went down.”
He explained the weakness in crude prices late last year, after signals from Russia and the Organization of the Petroleum Exporting Countries (OPEC) that the “Vienna alliance” would be extended, by reference to the strength of US shale oil production. The IEA highlighted the “remarkable growth” in US oil production as the main reason why crude prices have not risen more in recent months.
Birol made clear that he was not advising Saudi Arabia and Russia on the future path of their oil alliance, saying that was an issue for the policymakers of the two biggest oil exporters. Asked later in the CERAWeek forum if the alliance was having the intended effect of balancing out global oil supply and demand, he said it is getting there.
Asked what Saudi Arabia and Russia should do in the face of increasing US oil production, to the extent that the US will overtake Russia and rival Saudi Arabia as an oil exporter in the next five years, he said both countries should continue their efforts to diversify away from oil dependency.
“They (Saudi Arabia) made a very important plan in terms of Vision 2030, and they took some important steps. I really hope that this vision will be realized, not only for Saudi (Arabia) but for Russia and all the others. In my view, it is obvious that no country can afford to be a single-product economy now, and they have to diversify.
“Saudi Arabia has all the means to be able do that. There have been some successful steps in recent times, like the petrochemical industry and putting more emphasis on natural gas. But there are also some non-energy steps that need to be part of the game, like a broader economic diversification,” he added.


Pakistani central bank lifts interest rate as inflation bites

Updated 20 May 2019
0

Pakistani central bank lifts interest rate as inflation bites

ISLAMABAD: Pakistan’s central bank raised its key interest rate to 12.25% on Monday, warning that already soaring inflation risked further rises on the back of higher oil prices and reforms required for a bailout from the International Monetary Fund.
The 150 basis points increase follows a preliminary agreement last week with the IMF for a $6 billion loan that is expected to come with tough conditions, including raising more tax revenues and putting up gas and power prices. It was the eighth time the central bank has increased its main policy rate since the start of last year.
With economic growth set to slow to 2.9% this year from 5.2% last year, according to IMF forecasts, the rate rise adds to pressure on Prime Minister Imran Khan, who came to power last year facing a balance of payments crisis that has now forced his government to turn to the IMF.
Higher prices for basic essentials including food and energy has already stirred public anger but the central bank suggested there was little prospect of any immediate improvement.
Noting average headline inflation rose to 7% in the July-April period from 3.8 percent a year earlier, the central bank said recent rises in domestic oil prices and the cost of food suggested that “inflationary pressures are likely to continue for some time.”

 

It said it expected headline inflation to average between 6.5% and 7.5% for the financial year to the end of June and was expected to be “considerably higher” in the coming year. Expected tax measures in next month’s budget as well as higher gas and power prices and volatility in international oil prices could push inflation up further, it said.
It said the fiscal deficit, which the IMF expects to reach 7.2% of gross domestic product (GDP) this year, was likely to have been “considerably higher” during the July-March period than in the same period a year earlier due to shortfalls in revenue collection, higher interest payments and security costs.
Despite some improvements, financing the current account deficit remained “challenging” and foreign exchange reserves of $8.8 billion were below standard adequacy levels at less than the equivalent of three months of imports.
The central bank said it was watching foreign exchange markets closely and was prepared to take action to curb “unwarranted” volatility, after the sharp fall in the rupee over recent days that saw the currency touch a record low of 150 against the US dollar.
Details of what Pakistan will be required to do under the IMF agreement, which must still be approved by the Fund’s board, have not been announced but already opposition parties are planning protests.
As well as higher energy prices that will hit households hard, there are also expectations of new taxes and spending cuts in next month’s budget to reach a primary budget deficit — excluding interest payments — of 0.6% of GDP.
With the IMF forecasting a primary deficit of 2.2% for the coming financial year, that implies squeezing roughly $5 billion in extra revenues from Pakistan’s $315 billion economy, which has long suffered from problems raising tax revenue.

FACTOID

Pakistan’s economic growth is set to slow to 2.9% this year.