Sunday, August 26, 2007

Oil politics and economics

Prime Minister Bakhit last week announced a freeze in rises in the prices of oil derivatives, after creating the groundwork for it. In the aftermath of this, finance minister Ziad Fariz resigned. Is it a case of good politics and bad policy? Or were the reasons offered by the government and its media tools not as sound as they originally seemed?

It is difficult to answer these questions because full data is not available. What is well known is that poor and middle class Jordanians are having trouble coping with already high fuel prices because their income levels are not going up at the same rate as the rises in prices (despite government assurances that inflation levels are much lower then peoples perception of them. Go figure). The official line is that the current price levels are set based on the assumption the world oil prices are 60 USD per barrel, rather than the current level of over 70 USD. The 10 dollar differential costs about 1 million dollars a day. So, how do preferential oil deals, like the recent one with Iraq figure into the equation?

The Iraq deal is for a discount of 18 dollars per barrel for 30,000 barrels per day (daily imports are 100,000 barrels). An anonymous government official tried to minimize the importance of the deal, citing a 13 dollar per barrel cost to transport the oil. Presumably it costs nothing to transport oil from other sources. It just drives itself over, unlike the lazy Iraqi oil.

The Iraqis seem to be confident that the security issues related to transporting the oil have been solved, and so as long as the security situation is good then there should be no problems in implementing the deal.

So, the Iraqi oil deal should be enough to cover most of the losses incurred due to the rise in world oil prices, especially after factoring in prices that were as low as $52 last spring. The were making money back then.

The government typically accounts for such deals as follows. The $18 price differential will be considered a grant, and the treasury will be charged for the oil at regular market rates. This accounting scheme account for how the government was losing money even when Saddam was giving them oil for free. Of course, this gives a misleading impression. Although economically speaking trying to build an economy on real prices prevents distortions and discourages waste.

Samih Maaitah says that the best was to deal with future surprises, after the liberation of the energy sector next year will be to pay people salaries sufficient to cover basic costs of living. How radical. I doubt it will happen. How else can we always be beholden to the government?


At 8:31 PM, Blogger Mohanned said...

Celebrate, they promised a solution by 2030! Lets hold hands and nedbek for this achievment, in 2030 we will export energy and we shall be free!

At 9:03 PM, Blogger Mohanned said...

Khalaf, Do you remember when Iraq was invaded? Do you remember in that year the US of A gave jordan extra 1 billion dollars? Do you remember that we got the oil for free for at least 2 years from saudi arabia, kuwait and the UAE and yet we paid for it? Where in the hell did all that GOD damn money go?

At 11:09 PM, Anonymous Anonymous said...


My name is Mariam. I am a fellow blogger under the name Madas. I am writing my thesis about blogging and the public sphere in London.

I have contacted a few bloggers to talk about the Jordanian blogsphere. I would like to ask you a few questions as one of the very few Jordanian activists. usually i would like to interview you, but since some of the bloggers i talked to were anonymous, I would like to send you a few questions instead.

If you are interested, please email me. My email address is

I really hope to hear from you very soon. I would send questions to the email you send me from and would use your answers in the thesis.

At 7:10 AM, Blogger Khalaf said...

Mohanned: Nuclear energy is a must for Jordan, as I wrote last year. As for the money that came to Jordan, one would have to study the budgets for those years to answer your questions. The implication of your question is that it was stolen, although I am sure that the revenues did in fact show up in the budget.

At 8:51 AM, Anonymous Anonymous said...

العراق سوف يزود الأردن بالنفط - 100الف برميل يوميا - وباسعار تفضيلية. يبدو ان الأمر على خلفية تفاهمات اهمهما دعم عراقي للمساعدة في استيعاب اعداد المواطنين العراقيين المتواجدين في الأردن حاليا والتي تتراوح ارقامهم بين 700 الف إلى نحو المليون مواطن عراقي الجنسية في الأردن.

طبعا الإعلام المحلي شّبعنا نبط عن رئيس الحكومة والملك و"عطاياهم،" لآنهم ما رفعوا اسعار الوقود وكان المفروض يخفضوا سعره مش بس يثبتوه، وخصوصا وإنه اسعاره تتجه للإنخفاض عالميا وتحديدا مع ازمة الإعتمادات المالية التي تخض اسواق المال حاليا.

اما الأمريكان سبب الكارثة، فمن دهنه قلّيله، فليس عليهم تقديم اي شئ سوى مزيد من الكوارث والبلاوي للمنطقة، ويا ريت بوش ينقطنا بسكاته ويختفي ..سسس #*ته.. يعني بيعطي امثله من فييتنام امبارح، شو السفلة. شو كاين محارب بفييتنام جنابه؟ ما هو كان يتهرب من الخدمة في فييتنام. ه

At 9:00 AM, Anonymous Anonymous said...

just want to know, when are we going to thank our brothers and sisters in Iraq
And wiil the saving be passed on the Jordanians consumers??
or is it going to be disappeared??

At 9:37 AM, Blogger Khalaf said...

All the reports, except that of Khadder (which is unsubstantiated)are for 10,000 to 30,000 barrels, and not 100,000.

Actually, I am waiting for you to thank the American-installed sectarian regime in Iraq for its kindness. After all, it is they who made this deal.

The government says that they are freezing the price of fuel this year. This is supposedly how the savings will be passed to the Jordanian consumers.

At 5:00 PM, Blogger Mohanned said...

Khalaf I totally agree with you regarding the nuclear power issue, but the time line that the government put is just stupid, I don't know how long it takes to build or buy a nuclear reactor, but I think the 1 billion privatization revenues should at least cover some of the cost. Energy and water independencd is key to our survival as a country and we should do whatever it takes to get their..

And urduni, they are not giving it for free, be sure that they got more from us(security wise) and thats the least they can do to provide iraqies in jordan with some services which they must provide wether they are in jordan or in iraq..

At 5:25 AM, Anonymous Anonymous said...

هذا بعض المصادر التي استقيت منها خبر ان الإتفاقية هي على 100 الف برميل يوميا وسيبدا الأردن بـ10 الآف لدواعي امنية ولوجستية حتى يصل لقيمة الـ100 الف برميل يوميا

انا بالمناسبة واثق وادقق في صحة الأخبار التي اوردها فلا
داعي للتشكيك جزافا، ولكن دوما ارحب بالتصحيح ،
إذا توفر

بالمناسبة الحظ ارتفاع حس المعارضة على صفحات مدونتك الرزينة مؤخرا وهذا امر ارحب به ويدفعني لزيارتها اكثر، برغم الإختلاف مواقفنا بالطبع

At 7:13 AM, Blogger Khalaf said...

شكرا للرابط يا سيد خضر. انا لم اقل ان الرقم الذي استخدمته غير صحيح, بل قلت انه غير موثق. انا افضل اعطاء جميع المصادر التي استند اليها تفاديا للتششكيك.

اهلا و سهلا بك دائما مؤيدا او معارضا.


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