According to a report released by Emirates NBD, the UAE’s break-even price for oil has risen the highest in the GCC to $107 per barrel.
The break-even price is the value that a country requires in order to balance its budget.
The lender noted in its GCC Quarterly update that Gulf economies will benefit from rapidly rising oil prices in the short term but falling prices will offset the profits.
“For the GCC oil producers, the additional export revenues should provide further comfort to push ahead with planned expenditure, particularly for the UAE, which has a relatively high break-even oil price and has been more conservative with spending growth in recent years,” the report said.
“Higher spending in the advance of a diversification of budget revenues increases the GCC budgets’ vulnerability to a negative price shock,” it added.
GCC governments have initiated massive public spending campaigns like raising public sector salaries, increasing welfare benefits, creating jobs and building houses in the wake of the Arab uprisings to stave off social unrest.
Brent crude prices peaked $126 per barrel last month, the highest monthly average since July 2008 as tensions between US/Israel and Iran simmered.
Saudi Arabia has the second highest break-even price in the GCC at $80 per barrel, the Emirates NBD report said basing on forecast 2012 budget expenditure of $213bn. The other countries are Oman and Bahrain at $90-100 per barrel.
Kuwait is the lowest at $55, the report noted.
“The UAE’s break-even oil price has risen sharply over the last five years, as expenditure has grown from around 18% of GDP in 2007 to an estimated 30% of GDP in 2012,” the Emirates NBD report stated.
“At the same time, non-hydrocarbon budget revenues have declined from 25.5% of total revenue in 2007 to an estimated 20.8% of total revenue in 2012.
“Oil revenues have thus become a more important source of budget revenue, and the fiscal position is more vulnerable to a sharp decline in oil prices than was the case five years ago,” the leading UAE bank said in its assessment report.