KUWAIT, March 23 (KUNA) -- Many analysts and observers have taken the recent 47 percent hike of the oil price as the index for assessing returns from the crude sales without taking into consideration the fact that this rise is based on the weakened US dollar.
The hike of the oil price on the international market and subsequent record rise of the national crude price in recent months, when it approached the level of USD 100 per barrel, raised questions regarding the actual price of the barrel in shadow of the unprecedented fall of the US dollar vis-a-vis the Kuwaiti dinar.
The oil price, since May 2007 till last week's closing of operations, had risen from USD 63.08 pb to USD 92.68 pb, with a 47 percent hike. Moreover, the oil price, during last week, jumped to USD 98.85 pb.
Meanwhile, the rate of the Kuwaiti dinar, after its de-pegging from the greenback and restoration of its attachement to the basket of several foreign currencies, rose from 292 fils to 266 fils, nine percent.
Officially, rise of the price of the national crude in the US dollar amounted to 47 percent, however, the proportion is lower when setting the price in the dinar, as a result of the drop of the rate of the national currency vis-a-vis the dollar. Now, the price of one barrel is KD 24.7 compared to KD 18.4 10 months ago, with a rise of 34.2 percent.
When comparing between the hike of the price of the barrel in dollar with that in the dinar, the difference amounts to 12.8 percent. Thus, these comparisons clearly show that the drop of the rate of the greenback against the local currency resulted in a loss of 12.8 percent from the hike posted in the past 10 months.
Assessment of the barrel of oil in the dinar is quite significant, for the bulk of the financial transactions in the country are done with the local currency, in addition to the fact that the government finances most of its projects with the dinar.
From a wider perspective, the fall of the rate of the dollar has resulted in maintaining the great consumption of the oil in the shadow of the global economic growth.
Experts believe that a weak dollar coupled with a high oil price constitutes a serious problem for the oil exporting states that have pegged their national currencies to the American currency, for these countries receive banknotes with a weak value, along with a low interest, while their economies are developing.
Moreover, the bulk of the foreign currencies of these countries are in the US dollar. According to unofficial figures, Saudi Arabia has USD 800 billion worth of reserves, followed by the United Arab Emirates, approximatley USD 500 billion, and Kuwait USD 250 billion.
Although the rate of the international banknote has posted a record fall, this drop has remained short of an international monetary crisis, identical to that witnessed in the 70s.
Furthermore, the record fall of the dollar has coincided with continous rise of the rate of the euro, leading to a basic question; will the European currency become the international reserve currency?
In 2002, the euro rated 86 cents, compared to USD 1.5 nowadays. The prospects for the euro to become the international reference currency are bolstered with several factors; volume of the euro zone, share of the euro zone in the international trade, and drop of the European states' dependence on the imported crude, compared to the US.
By Ahmad Faraj
Copyright Kuwait News Agency 2008.
