In Theory: Slick moves to increase oil revenues

According to some forecasts, including those of the International Energy Agency, oil prices will fall by the end of this year.

This is due to many factors, the first of which is supply and demand, especially after the Chinese economy showed slower growth than expected. The second reason is that the Organisation of Petroleum Exporting Countries is seeking to reduce oil prices by increasing oil output.

Despite these facts, oil prices continue to fluctuate.

Over the past few months, many reports on the course of oil prices in global markets have been released, including two reports by the International Energy Agency (IEA), and the International Monetary Fund.

According to the IEA report, the global demand for oil will increase slightly at 0.9 per cent during the current year to $89.9 million (Dh330.2 billion) barrels a day, compared to 89.1 million barrels in 2011. The oil output of Opec member states rose to 31.43 million barrels per day — a fact that does not justify the oil price rise with Opec's crude oil exceeding $120.

Although Chinese demand for oil will increase by 4.2 per cent this year, Europe and North America's demand for oil will fall by 2.7 per cent and 0.9 per cent consecutively.

If supply and demand indicators in global oil markets are balanced, there are other factors that contribute to continuous oil price increases, such as speculation. However, there are geo-political factors that play an important role in escalating oil prices, especially after the imposition of tough sanctions on Iran's oil exports.

Creating tension

These sanctions come at a time when the Iranian economy is witnessing further deterioration as a result of an increase in military expenditure and Iran's obligation to support Syria's economy.

Accordingly, Iran's oil revenues are expected to fall as of the second half of this year, after sanctions on Iran's oil exports took effect as main countries, like Japan and South Korea, started to reduce their oil purchases from Tehran.

Iran is trying hard to make up for this reduction in its oil revenue, which will affect its growth rates and foreign obligations, by creating tension in the Arabian Gulf region, in an attempt to increase oil prices.

Iran's threats to close the Strait of Hormuz, which was later followed by the provocative visit by Iranian President Mahmoud Ahmadinejad to Abu Mousa, the UAE's island occupied by Iran, aimed to send a clear message that oil supplies are under threat.

As is the case with its previous threats to shut the Strait of Hormuz, the message behind Ahmadinejad's visit to Abu Mousa will fail to spark fears about the possibility of interruption in oil supplies from the Arabian Gulf.

But such visits will not change the historical facts and legal status of the islands, a fact that was demonstrated by the global solidarity with the UAE and its calls for resolving the issue peacefully, through either bilateral negotiations or referral to the International Court of Justice.

Temporary and speedy

The important question which arises here is: can Ahmadinejad's visit affect oil prices, and to what extent? What is the alternative to such provocative approaches?

With regard to the first question, the visit's effect on oil prices would be temporary and speedy, and hence Iran will not benefit much from this visit. This is simply because more countries will distant themselves from Iran and refrain from buying its oil — an approach was recently revealed by some Indian companies that have not yet abided by the sanctions completely.

As for the alternative, which will reflect positively on the economic conditions in the region, including Iran, it lies in the response to the UAE's peaceful approach that was clearly manifested in the recent statement by the UAE Cabinet stressing the historical relations between the two sides.

In the meantime, Iran can make the most of the successful development experience of the UAE and other GCC countries which placed them among the emerging and fastest growing countries, instead of exporting their crises to neighbouring countries and resolving their internal contradictions and problems by fuelling tensions in the Arabian Gulf.

Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.