Another casualty of the oil price war is about to go down in flames: this time, Algeria is the one taking the hit.
More specifically, Algeria’s oil subsidies. The country cut subsidies last year in response to the ongoing low oil price situation. As a result, domestic gasoline and diesel fuel prices rose by 14% and 11% respectively. Now, it’s planning to cut even more.
As a member of the Organization of Petroleum Exporting Countries (OPEC), and home to the third largest oil reserves in the world, Algeria’s mainstay has been oil for decades.
Oil exports account for around 95% of the country’s total export revenues. That money also covers nearly 25% of Algeria’s GDP, and more than 60% of its overall budget.
Last year, low prices dropped that budget into a deficit of 12% of GDP. Although that number is expected to be much lower this year, the country’s expenditures will continue to feel the sting for years to come.
Algerian Finance Minister Haji Bab Ammi has said that in addition to cutting oil subsidies, the country’s free universal health care is also unsustainable with oil at these levels.
It’s worth noting that Algeria isn’t the first OPEC member to start cutting domestic benefits due to languishing oil prices, either.
In 2016, Saudi Arabia, the very head of OPEC, was forced to cut fuel subsidies and cancel nearly $20 billion in government projects just to keep its own budget deficit from widening. And worse, even with oil finally balancing out around $50, it may have to make more cuts this year to stay above water!
The Energy Information Administration reported today that oil revenues across OPEC are at their lowest since 2004, both from lower prices and lower export numbers.
Algeria and Saudi Arabia are walking the razor’s edge between economic reform and social upheaval. Neither wants to end up like the catastrophe that is Venezuela, or to spark destructive conflicts like those in Libya and Nigeria.
Bottom line: OPEC is in trouble on all sides. And there’s only so much more that can be cut before everything comes apart.
To read more about Algeria’s coming changes, click here to read the OilPrice article.