High oil prices are boon to Arab economies… and bane as well
Posted: 26 June 2006
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A surge in oil prices has brought a second economic boom to Arab economies but it also has disadvantages - higher inflation rates and worse conditions for the poor.
While real prices are not as high as their level in the first boom 25 years ago, they have brought another economic upsurge, wiped out fiscal deficits, slashed debt, depressed unemployment and strengthened the region’s financial reserves.
 But the rise above $70 a barrel has also adverse effects on both Arab oil producers and importers, according to the Arab League’s top economic official.
“The surge in oil prices has led to higher inflation rates and largely pushed up living costs,” Jassim Manai said in an article about the impact of oil prices on Arab economies.
“This has in turn led to deterioration in living standards among many people while the increase in consumer prices has weakened the region’s ability to attract investment.”
Manai, Chairman of the Abu Dhabi-based Arab Monetary Fund (AMF), said Arab oil consumers were hit worst as the oil price surge meant a higher import bill. “Some of them were forced to increase fuel prices, sparking angry social backlashes.”
“Another negative impact was that sustained high prices could discourage reforms in some countries while others could increase expenditure…this will weaken their spending rationalization policies and increase the public sector’s domination on the economy.”
Oil prices averaged above $50 a barrel in 2005 compared with nearly $36 in 2004 and as low as $10 in 1998. The surge allied with higher crude production to boost the Arab oil export earnings from only $70 billion in 1998 to nearly $327 billion in 2005. The revenues are projected to be even higher in 2006 as regional countries are pumping at near capacity and crude prices are expected to rise above their 2005 average.
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