Falling oil prices are hitting Middle Eastern defense budgets, but surplus funds accumulated in previous years should cushion the region’s biggest spenders for some time.
Four of the 12 Organization of the Petroleum Exporting Countries (OPEC) — Kuwait, Saudi Arabia, the United Arab Emirates and Qatar — are expected to keep their defense budgets intact due to excess revenue from the oil price boom since 2005.
“All GCC countries have reserve funds developed from the excess when oil prices were peaking and developed rainy day funds. Russia also splits it between rainy day funds, for when the oil prices drop, and national wealth funds,” said Nicholas Redman, senior fellow for geopolitical risk and economic security at the International Institute for Strategic Studies.
Iran and Iraq, however, will be harder hit because they need higher prices to maintain their budgets, according to Washington- based Capital Alpha Partners.
“The expectations now are for oil prices to stay at the $60 to $80 price range for a considerable amount of time, so for budgets that have a break-even of around $105 to $110, that’s a problem,” Redman said.
According to a United Nations report, Iran needs a price of $140 per barrel to balance its budget, whereas Saudi Arabia needs $90.70, Qatar $77.60, and the United Arab Emirates $73.30.
Iranian President Hassan Rouhani on Dec. 7 said his government has to cautiously adjust its budget for 2015.
“The price of Brent [crude] has fallen from $110 to less than $70, a decline little before seen,” Rouhani said in a speech to Parliament, according to the semi-official Iranian Students’ News Agency. “It’s necessary for next year’s budget to be adjusted with caution.”
Mahdi Zadehali, international relations expert at the Iranian Ministry of Foreign Affairs, told Defense News his government may have to rely on tax revenues to balance its spending.
“With the current situation of the oil price drop to around the $70, it changes everything; Iran may be shifting from oil revenue to tax money,” he said.