Saudi Arabia says high oil prices pose no threat to world economic growth

LONDON : Red-hot oil prices during 2004, stoked by a surge in global demand and worries about disruptions to supplies, are not harming world economic growth, Saudi Arabia’s oil minister Ali al-Nuaimi insisted.

His bold statement on behalf of the world’s largest producer of crude was in contrast to the opinions of consumer countries.

“This price of oil is not affecting the growth of the economy,” Nuaimi said in a speech at a major conference in London.

“The projections today are that the world is supposed to be growing by 4.0- 4.5 percent per year. As I said, the (current oil) price is not negatively affecting growth,” the minister told the conference, entitled “Oil, Economic Change and the Business Sector in the Middle East”.

World oil prices have rocketed to record high points during 2004, largely because of an upsurge in global demand, notably from China. In October, prices topped 55 dollars a barrel in New York and 51 dollars in London trading.

On Monday, New York’s main oil contract, light sweet crude for January delivery, stood at 49.65 dollars per barrel in early deals, a rise of 21 cents.

Nuaimi’s optimism meanwhile contrasted with warnings recently expressed by the finance chiefs and central bankers of the Group of 20 countries.

Earlier this month in Berlin, participants in the informal G20 forum warned that high oil prices had increased the risk of slower economic growth.

The G20 comprises the Group of Seven industrialized countries — Britain, Canada, France, Germany, Italy, Japan and the United States — the major emerging economies and the European Union.

In October, the EU cut its growth forecast for 2005 and warned that nearly half of the 12-nation eurozone was set to breach their own budget rules, as surging oil prices hit a fragile recovery.

It forecast a slight deceleration in growth to 2.0 percent for the euro area and 2.3 percent for the full-25 state EU in 2005.

Last week, the International Monetary Fund said it had grown more cautious about prospects for the world economy next year, with director general Rodrigo Rato saying global growth would now be around four percent instead of initial predictions of 4.3 percent, partly due to higher oil prices.

Despite the difference of opinion over oil’s impact on growth, consumer countries and Saudi Arabia agree that runaway oil prices will not produce a repeat of the 1970s oil shock.

Adjusted for inflation, current prices are far below the levels reached in the wake of the 1979 Iranian revolution when they surged to upwards of 80 dollars a barrel in today’s money.

“The differences between today and the 1970s are significant,” Nuaimi said.

“The first crisis was driven by political action in the Middle East — the boycott, the Iran revolution, the Iraq-Iran war — whereas the situation today is driven by demand.”

“Everybody was taken by surprise by the surge in demand in 2004. Back in November 2003, everybody was projecting a demand growth of 1.3 to 1.4 million barrels daily (mbd). But today, it is closer to 2.8 mbd.”

Nuaimi attributed current high oil prices to rampant demand and the “fear factor” caused by tensions in the Middle East and supply disruptions due to workers’ strikes.

“You have tensions and war in the Middle East, the strike in Nigeria. If you can eliminate these, the price will come down,” he said Monday.

He added that Saudi Arabia had made plans to increase its oil production capacity to 12.5 mbd from the current 11.0 million over the next few years.

“This year, we increased our total production capacity from 10.5 to 11.0 million barrels per day,” Nuaimi said.

“We have also recently developed plans to increase Saudi Arabia sustainable production capacity to 12.5 million barrels per day over the next few years.”

As for the long term, “scenarios to raise the capacity to 15.0 million barrels per day can be set in motion if the global demand requires it”, he added.