Cheap oil is impetus to modernization of Caspian region

Cheap oil is impetus to modernization of Caspian region

The catastrophic drop in oil prices actively promotes the development of the real sector of the economies of the countries of the Caspian region, Russian, Azerbaijani and Kazakh experts said today during a discussion of the economic future against the background of the negative oil market.

The director of the Center for Studies of World Energy Markets at the RAS Institute of Energy Research, Vyacheslav Kulagin, drew attention to the inevitability of ultra-high volatility of the oil market and oversupply in the market, which require national economies to refocus to non-oil sectors. It is disappointing news for Russia, Kazakhstan and Azerbaijan, which means budgetary problems, but, on the other hand, such a shake-up is useful for economies, it gives impetus to modernization," he said.

Speaking about the oil industry, he noted the lack of problems under the current prices. "The main costs of Russian companies are in rubles, therefore production is getting cheaper. So there are no problems at this level. With regard to production cuts, it should be done in coordination with the OPEC countries, or we could lose the market. Due to this, the level of stabilization of supply and demand is at $50 per barrel," Vyacheslav Kulagin predicts.

The Deputy General Director of the Kazakh Institute of Oil and Gas, Akbar Tukaev, agreed that such a shake-up is useful for economies, "but the volatility of oil prices and the current global economic situation causes ambiguous feelings." "The share of oil will be at least 42% by 2040. Over the past year the Iranian factor has lowered oil prices by $10-20 per barrel, although there was no real growth in production in Iran. According to our estimates, in September the demand and supply will begin to level off," Tukayev said.

The director of the branch of the Institute of Economics of the Committee of Science of the Ministry of Education and Science of the Republic of Kazakhstan, Zhangeldy Shimshikov, acknowledged that "Kazakh exports decreased by 42.4% and imports by 25.7% due to a collapse in oil prices. At the same time, let me remind you that in 2000 oil prices were at the same level and only in 2006 did they reach a level of $60 per barrel," he noted.

"Indeed, the level of unemployment in our country is 14.9%, however, in view of self-employed citizens, it is about 11% . We expect economic growth of 2.1% in 2016 – this is the most optimistic forecast. A more realistic one is close to 1%," Shimshikov pointed out.

The head of the Center for Oil Research, Ilham Shaban, stressed that Azerbaijan began to develop the non-oil sector before the fall in oil prices. "It's about a decline in oil production. The reason is quite objective: most fields are just old. Naturally, the fall in prices had a negative impact on our economy, the GDP growth last year was 1.1%," the correspondent of Vestnik Kavkaza cited him as saying.

The Director General of the National Energy Security Fund, Konstantin Simonov, agrees with the forecast of $50 per barrel as the equilibrium of the supply and demand ratio. "I think there will be an increase to $50 per barrel. The key factor is the policy of the Federal Reserve, because the United States has serious problems in this sector. We should remember that there was another restructuring of the market in 2000, the oil cost wasn't too high, Iran continued deliveries to Asia," he said.

Concluding the discussion, Vyacheslav Kulagin urged to invest more effectively in the development of the real economy.