Since the globalization ideology has been adopted, the whole world has turned into one small village; connected in every aspect of life, whether socially, politically, economically…etc. therefore, if a disaster in the western hemisphere occurs, it will consequently have its negative effects on the eastern hemisphere! And, that is the case with the current world economic collapse! Though the Egyptian economy is still categorized as a developing one, the echo of this dramatic collapse will, possibly, impose its negative impact on the country
Described as the worst since the 1930s, all governments have been reconsidering their measures to secure their vital sectors, including the petroleum one, and confront this major threatening crisis. The collapse of mega financial associations in the United States of America (USA) was the beginning of a wide financial crisis all over the world, causing the collapse of stock markets in Europe, Asia and the Arab World.
The energy industry has been negatively affected since then. This year has witnessed unprecedented ups and downs in oil prices; from the historical increase of $147 a barrel in last July to less than $75 last month. Despite the expectations that oil price would reach the border of $200, it went down by half. Panic is gripping producers as the speed of the decline has stunned oil-rich governments that have become dependent on high prices.
The Organization of Petroleum Exporting Countries (OPEC) has called for an emergency session in Vienna to find a way to stop the price drop at a time when oil consumption is falling markedly in industrialized countries.
Impacts on the Arab World
Focusing on the Arab Region, the main oil and natural gas supplier worldwide, many economic experts and analysts believe that there will be no major drawback on the economies of the Gulf countries due to their rich treasury. However, the governments are implementing new measures to control the threats of this financial crisis.
Saudi Arabia and the United Arab Emirates poured up to $10 billion into their banking systems to boost liquidity as Gulf Arab policymakers prepared to discuss a joint response to the global crisis.
The Saudi Central Bank made deposits worth up to $3 billion with banks struggling to cope with the turmoil while the UAE Ministry of Finance funneled 25 billion dirham ($6.8 billion) into the system as part of a 70-billion-dirham rescue facility.
Similarly, Kuwait’s leader, Sheikh Sabah al-Ahmad al-Sabah, urged parliament and the government to push through reforms to help move the economy away from reliance on oil exports.
Kuwait’s central bank, which cut its benchmark interest rate last month, said it had shifted its priority away from fighting inflation to boosting confidence in its banking sector.
In Qatar, Sheikh Fahd Bin Faisal Al-Thani, Qatar Central Bank (QCB) Deputy Governor said banks in Qatar remained stable in the face of the global financial crisis with the apex bank ready to provide liquidity to banks if needed.
Is the Egyptian petroleum sector threatened?
As a matter of fact, most companies operating in the Egyptian petroleum sector, whether Exploration & Production (E & P) or services, are multinational corporations. And, in order to execute their operations and activities in the country, they receive funds and loans from international banks to financially cover their projects’ expenses which count for millions of dollars. For instance, the drilling of one well could worth $200 million-investment.
As a result of the world financial crisis, a general belief assumes that these companies will reduce the volume of their investments in the country to cope with the present deficit. However, the reconstruction plan of the petroleum sector, implemented eight years ago by Eng. Sameh Fahmy, the Minister of Petroleum has been of a great added value, which prevents the collapse of this crucial sector. The Minister has reformed all the exportation strategies, whether short, medium or long term ones, so that the local demand tops the Ministry’s list of priorities. Such reformations have taken into consideration the possible threats of the unrestrained exportation deals on the country’s strategic resources.
Since the year of 2000, the number of agreements sealed exceeded the 151 deal for exploration and production. According to the terms of these agreements, the operator has to abide to definite terms which set the schedules for the E&P activities and necessitate a minimum of $6 billion as investment regardless the international economic or political circumstances.
The signed agreements secure, to a great extent, a state of stability in the Egyptian petroleum sector and diminish the negative aspects of the world financial crisis in the country in general. The Ministry has taken its measures to confront the crisis and keep its oil and gas production rate at its normal levels, out of harm’s way.
As an attempt to soothe the public concerns and worries amid OPEC’s announcement to cut down the production by approximately 50 per cent, the Egyptian Natural Gas Holding Co. (Egas) revealed that it has increased its gas reserves to 76 trillion cubic feet compared to only 36 trillion in year 2000.
In recent weeks, financial market turmoil intensified throughout the world and credit markets froze, causing a chain reaction resulting in non-financial companies experiencing difficulty in financing normal business operations
U.S. Treasury Secretary Henry Paulson
We need to rebuild the whole world financial and monetary system from scratch
French President Nicolas Sarkozy
Borrowing, bank lending, official development aid, foreign direct investment and workers’ remittances – all may be compromised by a deepening financial crisis
FAO Director-General Jacques Diouf
There are no precise numbers yet about the impact of the financial crisis on developing countries, but when industrialized countries face a crisis, fewer people work and fewer remittances are sent to developing countries
Josef Schmidhuber, Senior Economist, FAO’s Global Perspectives Unit
Developing countries have been making real progress, so this is a real setback. The one piece of good news from the last eight years is that the world has made real progress against poverty, and the U.S. has been quite good in this area
David Beckmann, President of Bread for the World
By Rasha Azab