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How oil prices drop can weigh on Egypt?
When the issue of the recent significant drop in oil prices is raised, the first thing that comes in mind is oh! Oil exporters will be negatively affected, as they will lose part of the revenues generated from their energy exports, but looking at the other side it is important to notice that oil-importing nations will take advantage of these declines.
Brent crude resumed its drop for a seventh straight week this week to hit its lowest level in almost four years, as it comes close to the psychological level of $80 a barrel.
For Egypt, the recent decline in oil prices come in favor of the government amid its pursuit to slash its huge trade and budget deficits.
In general, oil importers benefit from any retreat in oil prices through the cut in cost of importing oil and its products that are mainly used as inputs of production.
Hence, the government has the chance to cut its deficit while producers can offer their products at lower prices, and therefore easing inflationary pressures.
“Despite that Egypt produces oil, we cannot consider it to be an oil-exporting country…I think the drop in prices came to its benefits,” Dr. Abu al-Soof told Al Arabiya News.
Egypt consumed “more than 20% of total oil consumption and more than 40% of total dry natural gas consumption in Africa in 2013,” according to the U.S. Energy Information Administration (EIA).
The government spent $26 billion in energy subsidies in 2012, pushing the budget shortfall higher to $7.5 billion in June 2014 and resulted in accumulated debt to foreign oil companies operating in Egypt.
However, the government made a bold decision in July by increasing 78 percent in basic fuel prices.
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