National Budgets & the Productive Use of the Petrodollar

Jamal Fuad,

Ph.D., Retiree, FAO and the World Bank, International Consultant

February 20, 2016

Oil is an important international commodity. Its supply and demand is also internationally manipulated. The industrial countries have the largest demand for this commodity, not only for use as fuel, but also as a mother commodity for the manufacture of hundreds of other essential items and accessories. Actually, less than 20% of oil imported is used for transport and energy generation; the remainder is being used for the production of a variety of products, from ladies perfume to auto bodies, musical instruments, house and health furniture, fertilizers, and much more. That is why the industrial countries are in such a high competition to acquire concession for its production and pricing.

Oil is also a political commodity. Its supply and demand can easily be manipulated to set its international pricing. Being a major source of energy and of high demand worldwide, oil can also easily damage economies of nations that depend solely on oil for their annual budgetary needs.Further, small oil producers have no role in deciding the price of oil they pour into the market. Even OPEC, the Organization of Oil Producing Countries, headquartered in Geneva, supposedly set up to regulate the production and the price of oil, is limited in its power as to how much oil is to be marketed and at what price.

The conclusion is that while the supply and demand levels have a major impact on the oil market price, likewise, the world political environment is also a factor in setting oil production levels and its pricing. Oil is a major player in the ongoing cold war between the great powers of the world, Such as the current situation between the United States and its allies on one hand, and Russia, China, and their allies on the other.

Further, Petrodollar plays a role in the East/West conflict, the USA wanting continued use of the dollar as the currency in all world oil transactions. Thus, USA has signed special agreements with other major oil producing countries to keep using the dollar in exchange for the United States’ commitment to protect such countries from outside aggression.

Oil politics is in action in the existing conflicts in Yemen, and to some extent in Syria, between the Russians and the United States, as they have divergent viewpoints. The recent decline of oil prices is directly attributed to differences of opinion between Saudi Arabia and Iran regarding the ongoing conflict in Yemen. The Saudis, being a major world oil producer, have inundated the market with oil, with the results of bringing its global price down, targeting mainly the Iranian and the Russian economies. The United States has also decreased its demand for foreign oil, which has kept the supply of oil at an all time high, forcing oil prices down.

The industrial countries are also working hard on decreasing their dependence on oil. They are expanding their research at developing energy sources other than that from oil, such as the use of Solar, Wind, Ocean, energies, including what comes from the nuclear fusion.

These international efforts to decrease the need for oil will eventually increases oil supply levels, and would eventually drive prices down. With such price fluctuations, setting national budgets solely on oil revenues becomes problematic and unwise.

Here, I would like to summarize the risks involved in depending solely on oil for annual national budgets, and strongly suggest that we must look at other sources where we can have control over sources of our revenues. To repeat:

1.      The volatile nature of the oil market is such that, making price predictions difficult, and revenues uncertain.

2.      We have no control over Oil world markets and its pricing mechanism.

3.      Its use as a political tool, both by the large oil producers, and also by the great political powers of the world, makes the oil sector vulnerable. 

4.      Future global use of oil as the main source of energy is in doubt. Researchers around the world are busy at finding alternatives to oil, predicting lower prices.

5.      Then again, oil reserves are finite and cannot continue forever. Every well has the possibility to eventually dry up, some sooner and some later.

These reasons must be convincing enough to compel us to diversify the sources of our annual revenue.

Alternatives Sources of Revenue?

Having said this, I am not advocating shunning entirely the use of our major source of funds from the sale of oil. Monies received from the sale of oil should be put in a special fund, to be possibly named Kurdistan Development Fund, to be used mainly for addressing the sector that brings us the most revenues and creates work for our citizens. Then, development of our human resources is of utmost importance, followed by the rehabilitation of our basic infra-structure, especially the supply of electricity and water, construction of major roads, building housing settlements, schools, educational and training facilities, fully equipped hospitals, construction of small industrial outlets, and developing modern tourist facilities, etc.

However, the most important sector guaranteeing a stable revenue is the agricultural sector. We need to utilize our God-given natural resources of fertile lands, water, and a fairly favorable climate, to ensure food security for our nation. The agricultural sector must receive the lion’s share of the petrodollar to become viable again.

Here some may comment: “Here we go again,” but yes, I am an agricultural activist, and firmly believe that rejuvenating our agricultural sector will have a great impact on increasing our national wealth, putting our young generation to work, and insure our food security.

Perhaps the recent budgetary crunch was a wakeup call for all. First, for the authorities to realize that we urgently need a revival of the agricultural sector. It is our economic priority number one. It is quite risky to rely on the import of our daily food from abroad. As the world population is on the rise, currently standing at 7.4 billion, a day will come when no matter how much money we may have, the food market would be too tight to provide us with our food requirements. Is it not a shame to bring carrots from Australia and USA, vegetables and fruits from our neighbors, poultry, beef, and fish from South America, and dairy products from a country that has not even one free flowing river. Why are we not utilizing our God-given fertile land and water, and a favorable climate that allow for the production of just about every food and feed items that we need. It is not only that we must insure our daily food, but most importantly is that the sector creates work, and our young generation

doesn’t have to risk their lives to emigrate and drown in the

distant seas. The sad joke is that the fish in those oceans have started learning Kurdish for having met so many of them.

And second, we seem to have a very short memory of our very recent economic past. It was only in the 1990s that people were on the verge of a famine, as a result of sanctions imposed by Baghdad. People in those years used to sell their furniture, dismantle their houses, pulling out doors and windows and offer such for sale to insure a meager living for their families. It is very sad to see that soon after the end of such difficulties people wasting so much food, throwing away items received from the oil for food program, and even using wheat flour, instead of gypsum, to draw construction sketches on the ground for their homes. Truckloads of spoiled bread are being thrown away daily by our citizens. We are also wasteful of the use of our water and electricity, whenever it is supplied, with minimum consideration for our neighbors.

Taking a look at our neighbors, we find that our nation has been endowed with the most of the water and sufficient fertile land, not available for other people in the region. So let us develop our fertile land and water resources for the production of most of our agricultural needs. Sufficient budget from the oil money should be allocated for this sector. Without food security there is no national security. This sector has been very much damaged and requires proper attention to re-educate our farmers to prepare them and move them to the modern age and to bring farming production up to the modern times. We must become self-sufficient in our needs for all food and feed items.

We need also to make the agricultural profession attractive to our young generation and to many others who are still young enough and can be part of a variety of agricultural programs. Many of these middle- aged men are tied up to mostly sedentary, non-productive jobs (Guards, policemen, janitors, drivers, watchmen), most of which are not needed. I am sure that with proper training they can become active modern farmers. The current practice of having so many idle employees is a great waste of human resources that need to be seriously addressed.

Another important waste is the use of good agricultural lands for settlements, or for airports, where more suitable areas could have been found for both needs. I also hear talks about amateur activities for refining crude oil in some areas of Kurdistan that must immediately come to a halt. In this operation, waste from crude refining activities is being dumped on fertile agricultural land, making it useless for agricultural production.

Oil money should actively address building up our human resources. Qualified candidates should be awarded scholarships to attend accredited institutes/universities, on all aspects of technical, administrative, and managerial subjects required by our young emerging nation. If we intend to be a sovereign nation, then preparing the human resource is an important priority.

Our environment has already suffered a great deal: From chemical bombardment, building military roads, or digging defense trenches by the army’s earlier combat units in Kurdistan. It is about time we showed love of our country and stopped hurting our motherland any further.

Oil, the Devil’s Excrement, the curse continues.

In the seventies, Juan Pablo Pérez Alfonzo, Venezuela’s oil minister and one of the founders of OPEC famously said that oil was not black gold but that it was the devil’s excrement and brought a curse to those countries that had oil reserves.

 Pérez Alfonzo’s insight has been rigorously tested over the last forty years and economists, environmentalists and political scientists have confirmed that he was correct in saying that oil did not bring all the benefits that governments, and people, expected. Studies have shown that the economies of resource-rich countries grew at a slower rate than those that do not have abundant minerals or raw materials to export and, even if the natural resources fuelled growth, it was rarely accompanied by the expected full social benefits. It could be said that a surplus in wealth from natural resources has had a negative effect on the development of other sources of wealth such as agriculture, manufacturing and a country’s human resources. Those countries that proved to be an exception, e.g. Norway and Malaysia, used the bonus of oil resources wisely. Desert countries e.g. Gulf States and Libya, had no significant agriculture or industry prior to the discovery of oil and the riches that the Americans and Europeans extracted from under their feet brought wealth beyond their dreams, while wealthier countries such as Iraq, Iran, Nigeria and Venezuala, that already had other resources and industry, oil was a bonus. However the bonus still carried the curse and, over time, it has not proved to be a ‘God given’ gift. 

The recent drastic fall in the price of oil has had a devastating effect in Venezuela where the country’s economy is now heavily reliant on oil. In 2014, oil brought in $75 billion to the economy of this oil rich country where Pérez Alfonzo served as Minister of Oil, but today the value of a barrel of oil is less than a third of its 2014 price. The result is a shrinking economy and rising inflation accompanied by a food crisis that is hitting every Venezuelan. The country had become reliant on its income from oil to provide food for its growing population but now the government cannot pay for the imports of flour, milk, eggs and other basic staples that the population depends upon and many supermarkets, especially those that are state subsidised, have empty shelves. Inflation is estimated to be 700%, (The Times, London, 12.02.2016), there are long queues outside any shop that has food supplies while crime rates are rising. The country has also been hit by drought which is being blamed for the drop in hydro-electric power and the enforced daily power cuts. Now the Venezuelan government is urging everyone to do their bit towards seeing their country through the current emergency.

 This year, President Maduro of Venezuela announced the formation of a new Ministry for Urban Agriculture. Emma Ortega, the Minister for Urban Agriculture, recently said “people have to solve the current emergency by cultivating in any available space. We just need sun, water and earth. Currently our cities are just food consumers and parasites.”

 President Madura has said that by growing their own food people can survive the economic collapse and that he and his wife were keeping 50 backyard chickens in their effort towards food security. “It’s time to develop a new culture of production”, he said. While the government is urging its people to return to agriculture the country’s health services are breaking down as doctors try to stop the rapid spread of the zika virus, in the absence of the drugs they need but have no means of obtaining. It is a sorry state of affairs for this oil rich country.

What has brought Venezuela down is the result of its successive governments believing that the oil revenues would always be sufficient for the country’s needs and little emphasis was placed on the development of other avenues of income while wealth always attracts the dishonest and the corrupt who seek to line their pockets. Corruption can be found in any country but sadly the combination of oil wealth and developing countries results in corruption and nepotism on an excessive scale.

I was a student in Britain when the Ba’athists turned their attention on my family and, after obtaining my doctorate, I was able to get employment in Tripoli University Libya followed, a few years later, by work with the Food and Agriculture Organisation (FAO) of the U.N. When I retired from FAO my work had involved livestock and agriculture development programs in all the countries of the Middle East and North Africa yet the opportunity for  work in Iraq only came when Saddam was overthrown and I had reached the UN retirement age. Six years ago I was asked to take up the post of adviser in food security and agriculture to the KRG’s Prime Minister I readily took the opportunity to play a role in the development of Iraqi Kurdistan. I believed that I would be contributing to the redevelopment of farming communities destroyed by Saddam’s troops, improving agriculture and developing food security for the benefit of Kurdish people in Iraq.

I had not been in Erbil for long when I realised that sadly this was nothing but a pipe dream and that, unfortunately, the fatal miscalculations made in Venezuela were being repeated in KRG and Iraq.

The reality was that all the ideas, recommendations, advice, observations and reports that I made were simply ignored. It did not matter if it involved increasing poultry production, improving slaughterhouse facilities and meat inspection, control of livestock imports, silos and wheat production, vaccination programs or safeguarding water and agricultural lands – no one was interested. The first Prime Minister I was asked to advise took one report I offered him and threw it onto his desk saying “We do not need this, we have oil!”, I was never called to meet his successor. By chance I attended international discussions held by the Blue Peace Organisation on water supplies in the Region and I was appalled to discover how Turkey were damming the Tigris and Euphrates rivers and reducing the waters flowing into Kurdistan and Iraq. It was made perfectly clear by the Turks that they regarded water as a commodity and they used the phrase ‘Water for oil.’  No one in the KRG government, including President, Prime Minister and Speaker of Parliament, expressed concern and Turkey’s exports were welcome in the markets to be sold in direct competition with any locally produced goods.

 It seemed that agriculture and food production was regarded as being unimportant when the bright, new petrodollars could buy everything they wanted. Instead of being used to develop our agriculture and industries the oil revenue was used to buy cars, food, freezers, electronic goods or clothes or to build anything from cement plants to tourist villages or invisible factories on prime agricultural land. As long as there was enough oil money available to maintain imports, pay salaries and pensions everything was fine. Or was it? The sad truth was that the entire government was being run by ruling parties that took power in turn and allocated ministerial posts to the requisite number of party members irrespective of ability while nepotism was rife. It is a sorry state of affairs when only one of the seventeen Ministers of Agriculture that have served the KRG was an agriculturist and sadly the same can be said of the central government in Baghdad. For thousands of years the lands of Kurdistan and Iraq were referred to as the birthplace of agriculture and civilisation yet since the discovery of oil the entire area has been blighted by the greed of men who ignored the value of fertile land and water and saw only the money that oil produced.

Kurdistan, like Venezuela, is now on the brink of an economic crisis caused by the drastic reduction in the values of the petrodollar, the squandering of agricultural land, failure to rejuvenate villages and communities, to safeguard water supplies and the development of a society that is entirely dependent on imports.

I wrote ‘we cannot drink oil’ in the article I doubt if any government official read it!

http://www.iraqswaters.com/2014/09/we-cannot-drink-oil.html#links

بطرس غالى تركنا

طالب مراد القاهره

كان الدكتور بطرس غالى سادس امين عام للامم المتحدة حيث تولى المنصب في اوائل يناير/ كانون الثاني 1992 و لفترة خمسة سنوات . فى اثناء فترة توليه المنصب توالت قضايا و مصائب فى العالم مثل مذبحة قانا و مجازر يوغسلافيا و جرائم التطهير العرقي في رواندا عام 1994 حيث كنت في تلك الفترة في زيارات كثيرة لكينيا من مقر عملي في مقديشو عاصمة الصومال حيث كنت ممثلا لمنظمة الاغذية و الزراعة ( الفاو ) بالاضافة الى مكاتب المنظمة داخل الصومال كان لنا مكاتب في جيبوتي و نيروبي .

ومن تجربتي الشخصية من خلال موقعي و تواجدي في قلب الحدث  في مقديشو لم يكن لدى الامريكان اي تقدير لبطرس غالي و الامم المتحدة ، و عدم التقدير هذا انعكس بالسلب على ممثل بطرس غالي في الصومال الدكتور عصمت كتاني و الجميع يعرف انه كان كوردي عراقي و كان اول شخص من العالم الثالث يصبح رئيسا للجمعية العامة للامم المتحدة ، و كان علي خلال هذه الفترة بصفتي ممثلا لاحدى منظمات الامم المتحدة ان ازور الدكتور عصمت بمكتبه بصفته رئيسا لنا ، ومازلت اذكر كيف كان كبار ضباط الجيش الامريكي ينظرون له نظرة استعلاء و اظن لكونه عراقيا بالتحديد ، و كان الامريكان قد اعدوا ادميرال هاو الامريكي ليحل محله ، و ما زاد الطين بلة انهم اتوا بسفيرة امريكا لدى العراق اثناء احتلال الكويت من قبل العراق ابريل كلاسبي و التي اعطت الضوء الاخضر لصدام حسين لغزو الكويت اتوا بها لمكتب الامم المتحدة في مقديشو مع الدكتور عصمت كتاني و كانت تحضر معنا اجتماعات ممثلي الامم التحدة الصباحية في مكتب عصمت كتاني .

و تفاقمت المشكلة بين بطرس غالي و الامريكان حيث وصفت مادلين أولبرايت الدكتور بطرس غالي بالرجل الصعب و العنيد و اتهمته بأن اراؤه محدودة لذا انهت الولايات المتحدة عمل بطرس غالي بعدم تجديد عمله لفترة ثانية .

و قد شرح الدكتور غالي اراؤه عن الامم المتحدة في كتاب نشر في فرنسا و ترجم الى العربية تحت عنوان ( خمسة سنوات في بيت من الزجاج ) و ذكر في كتابه ان السبب الحقيقي لعدم التمديد له ان الولايات المتحدة تحاول ان تفرض هيمنتها على هذه المنظمة العالمية . و بالفعل ارتقوا ب كوفي عنان المسئول الامني لدى الامم المتحدة ليحل محل بطرس غالي و كان كثير الزيارات لمقديشو لكونه كان مساعد بطرس غالي للشئون الامنية .

قابلت المرحوم الدكتور بطرس غالي في ممر هبوط طائرته في مقديشو حيث كنا في استقابله و كان على رأس المستقبلين له الدكتور عصمت كتاني و كان معنا زميلي استيفان  ديمستورا الممثل الحالي ل بان كي مون في سوريا حيث كان انذاك ممثلا لمنظمة اليونيسيف بالصومال ، و كالعادة تمكن الجنرال عيديد من تخريب الزيارة و ذلك بإفتعال مظاهرات ضد زيارة بطرس غالي لمقديشو و انا على ثقة ان الامريكان هم من حرضوا الجنرال عيديد و زمرته على تخريب هذه الزيارة و تخريب عمل كتاني ، و الغريب انه بعد سنتين و بتاريخ 30 يوليو /تموز عام 1996 قتل الامريكان الجنرال عيديد و كان هذا اليوم اخر يوم لي في صومال بعد انتهاء فترة عمل استمرت 8 سنوات و مازلت احتفظ بعدد من جريدة ( بلديق ) الصومالية والتي كان يصدرها الجنرال عيديد و التي اتهمنا على الصفحة الاولى بالجريدة انا و الدكتور عصمت كتاني بإننا اكراد و كأننا مجرمين لكوننا اكراد .

ان قالب الصب الذي انتج رجالا مثل غالي و كتاني قد تحطم