Oman reduces oil price assuption for 2009 budget from $55 to $45

Oman is cutting the assumed 2009 oil price from $55 a bbl to $45 - a cut of 18%.

The Government was already forecasting a deficit based on $55, so indeed there will either have to be some budget cuts, or a big slice of money transferred from the reserve fund(s), or a bit of both.

Oman's economy, despite the efforts of diversification, still effectively runs Government spending of one form or another, and Government spending runs on oil and gas. The drops in oil price to less than $60, if sustained, will have a nasty effect on the local economy, which will reduce tax revenues too. OK, it won't be as bad as the recession in most of the world, but a chill wind will still be blowing.

Most Omanis don't know what 'lay-offs' or 'redundancy' mean. The only example I know of was the closure of the Gulf Air call centre back-office last year when the Oman Government pulled out of Gulf Air, and the papers were full of stories of shell-shocked Omanis worried about the fact they were in debt to the eyeballs and were about to be ... OMG!!! out of work. There was a strong expactation that it was up to the Government to 'do something!'.

If the sub $50 oil stays for a while, some of the local employees might start to find out what happens in most other countries when there is a big slowdown: unemployment.


But, as there is no system of unemployment benefit in the Sultanate, this would indeed be potentially devastating, what with school fees to pay, and debt payments to make.

As anyone who works here knows, sacking Omani employees is far from easy, if not effectively impossible without a clear case of fraud. Because of family connections somewhere, or if lacking wasta they will complain to the Ministries, who will then put pressure on the company to keep them on the payrole. This situation may come under some pressure in 2009, and that may turn out to be a good thing. I think the system should be radically updated to both provide some form of compulsory unemployment insurance and to make it as easy to hire and fire local staff as Expat staff.



Of course, under-employment is nothing new in Oman, but this sort of thing has been common for some time in the real world...

The National

Oman, Iran, budget on $45 a barrel oil
Tamsin Carlisle
December 03. 2008 3:35PM UAE

Oman and Iran are planning 2009 budgets based on $45 a barrel oil, following a record decline in crude prices by about $100 a barrel since July.

The Omani council for financial affairs and energy resources agreed this week to amend the average oil price assumed in the sultanate’s budget to $45 from $55, while Iran’s government and a parliamentary committee have an initial accord to base next year’s budget on $45-a-barrel crude, in place of a previous price assumption of $55 to $60 a barrel.

The revisions are likely to mean that both Gulf states will either run deficits next year or will have to slash government spending to balance their budgets.

The International Monetary Fund has estimated Oman’s break-even oil price at $77 for the current fiscal year, and Iran’s at $90, significantly higher than for most other Gulf states.

Record oil revenues earlier this year helped Oman post a large budget surplus of 912 million rials (Dh8.7 billion) for the first quarter of its current fiscal year, instead of a forecast deficit. However, sharply lower oil prices later in recent months will have eroded the state’s chances of avoiding a deficit for the full year.

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