Published: October 30, 2015
The steep drop in oil prices in June 2014 has had huge effects on the market over the past year, but this past week the largest effect may have just been realized. The International Monetary Fund has just announced that many leading OPEC nations could be bankrupt in five years or less if the situation remains unchanged. These countries include Saudi Arabia, the United Arab Emirates and Kuwait. Saudi Arabia may be the hardest hit according to the IMF. It needs the price of oil to be around $106 per barrel to balance its budget. Although these countries have buffers in place, they still will only last 30 years maximum with these prices, even less if they continue their downward trend. This all does not even take into account the possibility of instability in the region draining these excess funds for some of these countries. Iraq is one of the hardest hit because it lacks the funds necessary to sustain itself due to its fight with ISIS and the Iraq War, which started in 2003. All told, the IMF has decreased its forecast for growth in the Middle East, North Africa, Afghanistan and Pakistan from 3 percent in May to 2.5 percent, which does not seem like much, but this could hit this already-unstable region extremely hard and worsen its political troubles.
Michael Hanifin, a junior management major, says that oil prices have not been this low since 2009 and continues saying that he believes that $60 a barrel into late 2016. He believes that OPEC will act to prevent many of these countries from going bankrupt because crude oil is so important to the global economy.
Jason Martinez, a junior international business major, states that it makes sense that these countries have bankruptcy issues loaming ahead of them because they have no other notable industry to sustain themselves and no substantial form of income without raising oil prices.
Although it has affected oil exporters in a negative way, it is important to note that the drop in oil prices has helped many oil importers strengthen and reform economies that are on the verge of breaking down which includes the Eurozone. The IMF has also reported that it expects the growth rate of the the Middle East, North Africa, Afghanistan, and Pakistan region to increase to 4 percent in 2016. So hopefully we will avoid a crisis altogether, and this will hopefully lead to some changes in the Middle East. We will see what happens over the next couple of years.
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