Opinion Editorials, November 2003, www.aljazeerah.info
Human Price of the Israeli Occupation of Palestine
Israeli daily aggression on the Palestinian people
Mission and meaning of Al-Jazeerah
Cities, localities, and tourist attractions
Economics of fuel pricing
Fahed Fanek
Jordan Times, Monday, November 24, 2003
SINCE 1991, Jordan used to receive all its needs of crude oil from Iraq, at special prices, effectively around half the going world prices after accounting for the annual Iraqi grant of $300 million a year. This favourable pricing was accompanied by a special arrangement for payment by Jordanian products and services, amounting to 20 per cent of the total Jordanian exports. These arrangements concerning reduced prices and the method of payment through barter allowed the Central Bank to build up its reserve of foreign exchange, enabled the Ministry of Finance to narrow the budget deficit, and permitted the industrial sector to grow faster than otherwise possible. These Jordanian-Iraqi arrangements were not expected to last forever; and they came to an abrupt end when the United States declared war on Iraq, in March, and occupied the country, in April. However, several Gulf Arab states, namely Saudi Arabia, Kuwait and the United Arab Emirates, agreed to compensate Jordan for the loss of the Iraqi oil. They provided Jordan with crude oil for a period of three months. Some states extended the favour for another three months. From now on, Jordan has to import oil from Iraq and Saudi Arabia for cash, at the going prices in the world market.
The generous Iraqi subsidy was renewable on annual basis and lasted for twelve years. By contrast, the Gulf states' subsidy was for a short period, aiming to enable Jordan to endure the sudden shock of war and to defer its economic consequences for some time, so that the difficulties facing the country will not be directly related to the American decision to invade Iraq. The Gulf states' favours were accompanied by an extraordinary, one-time American grant of $700 million, to help Jordan go through the problem and postpone feeling its immediate impact, the underlying purpose being to reward Jordan for its cooperation.
Now we are told that Jordan resumed importing crude oil from Iraq, albeit at the international prices, payable in hard cash. If this is true, and there are no reasons to doubt it, the oil bill for the coming year will be to the tune of $900 million to one billion. This is a huge amount that will overburden both the balance of payments and the central government's budget. It will result in a higher deficit in the budget and cause the Central Bank's reserve to go downhill.
The other side of the problem relates to domestic prices of fuel derivatives. They are currently based on the assumption that the price of crude oil is $26 per barrel, since the price has risen to above $29 per barrel, plus the cost of transportation. Therefore, leaving the current prices as they are at present requires subsidising the budget expenses, in excess of JD60 million, which is too much for a budget already in deficit, taking into account that the budget used to make a surplus from the price difference, exceeding $50 million. Under the pressure of these facts, the government of Ali Abul Ragheb implied that the fuel prices will be revised as of the beginning of next year, to become market based.
Securing the Jordanian needs of oil will, from now on, present a big challenge to the government. Solving this problem will be very difficult indeed for the new government. Perhaps the possibility of a political solution must be first exhausted: Could we get Arab oil at reduced prices? Could we get the Iraqi crude in settlement of the outstanding debt of the central bank of Iraq, which is close to $1.5 billion representing value of consumer products exported to Iraq under the trade protocol during the past several years and financed by the Central Bank of Jordan?
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| Earth, a planet hungry for peace |
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| The Israeli apartheid (security) wall around Palestinian population centers (Ran Cohen, pmc, 5/24/03). |
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| The Israeli apartheid (security) wall around Palestinian population centers in the West Bank, like a Python. (Alquds,10/25/03). |
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