Agora Financial: Joel Bowman, reporting from Dubai, UAE...
As we write to you this morning, oil for April delivery is trading around the world for around $110. The precious goo seems to have forgotten that, as many analysts professed a few months back, $100 was its ceiling. Now the old "psychological barrier" looks relatively cheap...just as $90 did a few months before that...and $80 did a while before that...
It's not a bad time to be an oil exporting country, to be sure. But quick riches often lead to excessive spending...and the slope from excessive spending to downright indulgence is a slippery one...especially when it is being greased by $110 oil.
The world's oil-exporting countries have become increasingly dependent on high prices in order to service their domestic economic needs and, as such, are now left more exposed to a downside in price movement, a new report reveals.
The study, conducted by PFC Energy, indicates that many OPEC countries can not afford to sustain their current level of economic activity if prices recede to what they were even a few years ago.
"The economies of most producer countries now require massive (revenue) flows, which are only possible with higher prices," says Robin West, chairman of PFC Energy. "This is one of the factors leading to long-term higher prices."
The study found that Venezuela is the most dependent on oil maintaining its record streak, requiring prices to average $94 this year and $97 in 2009 just to service its external accounts.
Nigeria is the next most dependent on high prices, requiring a price of $68 and $71 over the next two years.
Even the cashed-up Gulf States have become addicted to sky-high oil.
Of those outlined in the report, Saudi and Iran are the most reliant on high prices with data indicating the two countries need oil to stay at $55 just to "break even."
Remember $55 oil? That was less than two years ago.
Other Gulf States too are bound to oil's record rally. The UAE, Kuwait and Qatar all requiring oil to average $50 to meet the extensive financial commitments made by their governments.
"Actually," opines Dan Denning, editor of the very fine Australian Daily Reckoning , "for governments, expenses always exceed income."
"You wonder which system will crash first: the fiscal warfare state in America, heavily strapped by debt and buckling under high oil prices...or the oil welfare state in the Gulf... unable to reduce expenses but faced with an inevitable decline in production.
"It's a race. Both systems are going to lose. But who's going to lose first, or most?"
While the Gulf governments splash their petrodollar riches around, Chris Mayer has been taking a peek at the bills mounting up on the US government's own ledger.
Chris spoke to CNBC's Dylan Ratigan all about the repair bills for the Empire's infrastructure recently. You can view the whole CNBC video to get some background right here . Then, armed with your new insights, check out what Mr. Mayer has to say in today's column, just below...
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If you take anything I say as advice, you're crazier than I am.
AI
