The Middle Eastern countries have experienced budget deficit due to lower oil revenues. Since their budget deficit is expected to persist for some periods due to lower forecasted oil prices, what options they to finance budget deficits in the short as well as long run?
Hello
Ideally these commodities are risky in nature. So, to avoid these traditionally they use BCB structure. Its a derivative structure having two butterfly strategies at two ends of one iron condor. That reduces volatility risk substantially. For short term the iron condor length is short and for long term the iron condor length is quite long. I hope this helps.
Best
Dear Hasan Mohsin
Greetings,
The Oil prices is lower in the recent years depend on many variables , so these fluctuations must give many countries to think how to hedging about this event. I think it must increase and expand for industrial sector to compensate any loss in budget ,
Best Regards,
It is not the first time the oil price is low, does not mean the last . So the point with low oil price push the alternative energy source to match that price maybe some one does not or does it. This is a game for petrol countries with high profit in the time if work again.
Frankly speaking, I do not understand what keeps oil prices at so low level. So far, there is no substitute for oil in renewable energies, since they have too high cost. It is problematic to substitute oil in transport (especially air) even in longer run. At the price of $35 per barrel oil extraction is still profitable for most of conventional oil (price is above the cost). However, it is already non-profitable for shale oil, tar sand and deep drilling offshore, especially in Arctic. Owners of oil fields should understand that if they are able to keep oil, it will have higher price in future. They just should think long term and to cooperate with rivals.
It is also true that many oil exporting countries have high dependence of their budget on oil prices and difficulty to make changes in export composition. I think that rational decision of OPEC countries would be to cut all production by 50% (not just 5%, it will not help) and wait. They will suffer but only for one year or even less - and then all stored oil in importing countries will end and price will start to rise. It can even go back to $100 but then investment to non-conventional oil will start again pushing price down to $70-80 that may be economically reasonable for the current period.
I am thankful to all the respondents i.e. Ghosh, Faris, Claudio and Yuri. From your comments i remembered an article from Feldstein who actually mentioned that the net losers of this lower oil price would be Russia, Iran, Venezuela (all political opponents of US), as if all other countries have lower cost of extraction so they will survive. Many thanks once again.
Mohsin
Every country need have diversified economy with a number of export branches for not to be too much depended of changes of price of one commodity (oil).
The oil prices remain sluggish for the last 13 months when this issue was raised in December 2015. Saudi Arabia responded with its long-term Vision 2030 economic transformation. Not sure how this economic blueprint will be implemented. Other oil-dependent economies are also struggling especially those that have slowly utilising their cash reserves.
The government revenue displacement as a result from the decrease in resource rents has prompted many government to introduce new taxes. Other measures may include government austerity measures but these measures may have some adverse impact on the growth.
The more diversified the oil economy, the better it is in terms of absorbing the oil price shocks. So the key operative word is diversification.