Down the oily slope

The real driver of high oil prices is geopolitics. Evidently, the biggest risk to oil supplies is the uncertainty in the Persian Gulf and the Middle East. Moreover, other oil producers like Iraq, Libya, Nigeria, Venezuela and Russia are facing domestic unrest.

More importantly however, the world’s biggest crude oil producers now need to sell oil at a higher price to balance their own budgets. Russia, with few other sources of revenue, now needs oil prices at $110 per barrel to manage its finances. With its latest bout of social spending, Saudi Arabia needs crude oil to sell at around $80 per barrel just to balance its budgets. The numbers are similarly high for Iraq, Algeria, Qatar and Oman. Only a decade ago, Saudi Arabia was able to balance its budget with oil prices at $25 per barrel. Because it is in these countries’ interest to keep prices high, any hope of reducing the fuel subsidy bill due to lower crude prices in the international market will remain unfulfilled.