Why Saudi Arabia refuses to reduce oil production
Baku, Azerbaijan, Oct.15
By Azad Hasanli - Trend:
OPEC (Organization of the Petroleum Exporting Countries) will not reduce the oil production, BP's chief economist for Russia and CIS countries, Vladimir Drebentsov said.
He made the remarks during the presentation of BP statistical review of world energy 2015 and energy outlook 2035 in Baku.
"It seems irrational, because, for example, Saudi Arabia consciously reduces its export revenues," said Drebentsov. "Today, its revenues from the oil export have decreased much more than if it reduced the volume of oil production."
"In the short term, Saudi Arabia lost. But why did the country choose this strategy? According to my estimations, this strategy is more beneficial than reducing the oil production," he added.
If Saudi Arabia reduced the production by one million barrels per day in 2014, it would have to reduce it in 2015 and in subsequent years as well, since the shale oil production in the US would continue to grow as long as the US ran out of oil, according to the expert.
"By the way, the shale oil in the US is enough for about ten years," he added.
The economist believes that the chosen strategy is complicated by the peculiarities of the economic policy of Saudi Arabia itself.
"There are two factors here. First, Saudi Arabia still hasn't reduced its state expenditures, therefore, the state budget deficit has sharply increased and this can be covered only with foreign exchange reserves or borrowings," said Drebentsov.
He noted that the foreign exchange reserves of this country are quite large and they decrease very quickly.
"Second, Saudi Arabia's national currency - riyal - is pegged to the dollar and its exchange rate hasn't changed throughout 15 years," said the expert. "This leads to deficit in the balance of payments on the current transactions."
"Saudi Arabia mainly exports oil, but its revenues have dropped [due to the decrease in oil prices], while the expenditures on the import remain at the same level due to the fixed exchange rate," said Drebentsov.
For example, the economy corrects itself in Russia which has refused from fixed exchange rate of the national currency, while the same can't be said about Saudi Arabia, said the expert.
Edited by SI