Reserves to make up for lower income

Abu Dhabi: The precipitous drop in international oil prices due to the global financial crisis will impact the UAE's income from crude exports this year and slow its annual growth rate, but the country has enough resources to fund key infrastructure projects of national interest in the foreseeable future, say experts and top government officials.

"The UAE has accumulated significant amounts of cash and has huge investments abroad, which will generate income in difficult times and this can compensate for the drop in oil prices," said Mohammad Amerah, an Abu Dhabi-based economist.

"This cushion will help the government to fund development projects within the country. None of the projects will stop due to a lack of cash. Cash is there," he added.

On Tuesday, UAE Minister of Higher Education and Scientific Research Shaikh Nahyan Bin Mubarak Al Nahyan told reporters in Abu Dhabi that "We have made sure the development plans of the country continue and the infrastructure projects are completed on schedule. "Nothing has been cancelled [due to the financial crisis]."

The country's shrinking oil income is visible.

Abu Dhabi, which accounts for nearly 94 per cent of the UAE's oil output, is now earning lower crude export revenues.

The average official selling price (OSP) of Abu Dhabi National Oil Company (Adnoc) crude grades - Murban, Upper Zakum, Lower Zakum and Umm Shaif - plunged to $40.96 a barrel in December from $50.21 a barrel in November 2008, in line with recent market price trends.

Adnoc's December average crude price was its lowest monthly price last year, the highest being $135.68 per barrel in July.

The company earned an average of $96.48 per barrel from exports in 2008.

On July 11, 2008, international oil prices peaked at an all-time high of $147.27 per barrel. But ever since, the price of crude spiralled downwards due to the global financial tsunami, which has wiped out more than $25 trillion from the global financial system.

This, in turn, crimped demand for petroleum products in major industrialised nations, and the flight of spooked investors tanked the oil market.

An increase in oil inventories worldwide, especially in the northern hemisphere, where traditionally, there is high demand for heating oil during winter, also contributed to the dip in international oil prices.

Crude oil futures on the New York Mercantile Exchange for February delivery in the US, the world's biggest oil importer, were trading a tad above $39 a barrel on Wednesday.

In December, UAE Central Bank Governor Sultan Bin Nasser Al Suwaidi forecast that the country's gross domestic product (GDP) would fall to single-digit level in 2009 due to the global financial crisis.

He said the economy was poised to slow in 2009 and 2010.

Kate Dourian, Middle East editor of global energy information provider, Platts, told Gulf News this week that if Abu Dhabi doesn't amend its spending plans this year in line with falling international oil prices, "they will either end up with a budget deficit or struggle to balance their budget, unless there's another spike in oil prices, which given the current trends, looks unlikely."