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Kuwait among most vulnerable to oil supply disruptions, warns Energy Intelligence

Energy Intelligence’s recent report paints a worrying picture for the Kuwaiti oil industry, highlighting the escalating tensions in the Middle East and their potential impact on regional oil production and shipping.

While current disruptions seem confined to the Red Sea, the report warns of graver consequences should the conflict widen, potentially involving attacks on oil facilities or closure of the crucial Strait of Hormuz.

Kuwait’s vulnerability exposed

The analysis identifies Iraq and Kuwait as particularly vulnerable due to their heavy reliance on oil revenue, exceeding 85% in both cases. Kuwait faces additional concerns due to its lack of a public debt law since 2017, limiting its ability to borrow in a crisis. This, coupled with Kuwait’s struggles to implement economic reforms and attract foreign investment, creates a potentially volatile mix.

Expert advice for navigating uncertain waters

The report suggests several mitigation strategies for Kuwait. Leveraging the central bank’s reserves and the relatively liquid portion of the Kuwait Investment Authority’s (KIA) vast assets are seen as immediate options.

However, the report emphasizes the need for long-term solutions, urging Kuwait to expedite the public debt law and prioritize economic diversification.

Diversification: The key to long-term stability

Economists like Monica Malik, chief economist at ADCB, stress the importance of diversification for oil-dependent economies like Kuwait. “Relatively less economically diversified countries will be the most affected, especially Kuwait,” she warns. Diversification would not only reduce vulnerability to oil price fluctuations but also attract much-needed foreign investment and bolster the overall economy.

Iraq’s unique challenges

While Iraq enjoys better central bank reserves thanks to 2022’s oil revenue, its lack of a sovereign wealth fund and its significant financial burdens – high debt, large fiscal deficit, and weak credit rating – paint a less optimistic picture. The population disparity, with Iraq’s 45 million compared to Kuwait’s 4.3 million, further complicates the equation.

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