Assessment of Petroleum Sensitive Countries Economic Reforms in Reaction to Fluctuating Oil Prices

Abstract

Since the early 1970s, the world has witnessed fluctuating oil and gas prices with deceleration in estimated growth and production. Multiple studies have reported how economic cycles are coupled with this phenomenon and how it has influenced the world economy. This paper provides an in-depth investigation of the various reforms and corrective measures taken by Petroleum Sensitive Countries (PSC), particularly, the United States of America, Saudi Arabia, United Arab Emirates, Russia, China, Malaysia and Indonesia. Multiple qualitative assessment of the reforms has been performed in addition to defining and assigning impact factors for their significance and probability of success. The cited reforms were, primarily, imposed to tackle the various complications resulted from low oil prices and was assumed to readjust and sustain the economy along with assisting these countries through the evident economic crunch and budget deficits with minimal damage. These highlighted reforms are analysed in depth which is followed by performing multiple comparative qualitative risk/opportunity assessments where weights have been assigned for each of the impact along with the probability of success for each type of reform. It is found that the most common and effective reform that has been implemented by these PSCs is maneuvering with the energy prices in these countries along with production manipulation. In other words, revising energy prices and abolishing fuel subsidies for the end users, imposing taxes on commodities and limiting the total production output. From this study, it is also found that the energy prices adjustments and subsidies removal reforms has been identified as the most efficient governmental reforms fostering long term sustainability and profitability. This provides the PSCs with more opportunities to decouple their dependency on oil resources alone. Furthermore, other reforms taken by PSCs are analyzed, evaluated and compared to their respective short and long-term efficiencies followed by identifying optimum strategic reforms using multiple qualitative and comparative criterions. Reforms by Russia have also been analyzed in depth along with investigating their proposed strategies and its implementation to rescue its struggling economy under the new global energy game. Analyses of potential risks surrounding reforms of specific PSCs and discussion of the underlying consequences is discussed in detail in this paper. This paper emphasizes on the necessity, the impact and the probable success in implementing energy pricing reforms in Petroleum Sensitive Countries should a similar situation arise in the future. This novel study which is coupled with extensive investigation and qualitative risk/opportunity assessment summary may act as a benchmark for future studies.

Fluctuations of Oil Prices and Gross Domestic Product in Indonesia

“…Therefore, the findings are coherent with researches conducted on other countries as well depicting the similarity in the dynamics of the countries. The research carried out by Belhaj et al (2018) stated that the economic activities can respond to the alterations in oil prices asymmetrically. In the case of the results of this study, it has been found that the effect in the short run is positive of the oil fluctuations on the GDP index and this implies that the nature is asymmetric.…”

“…In the study of Hooker (2002) an explanation is provided regarding the impact among the prices of oil as well as inflation. A model is proposed in which rate of change of oil prices and unemployment gap is discussed which includes prevailing rate of unemployment to the benchmark that is known as the natural rate of unemployment which also lagged inflation in order to predict the core PCI inflation (Belhaj, Suboyin, & Ali, 2018); (Alam, Hairani, & Singagerda, 2019).…”

“…There is dissimilar magnitude of the effect of same change in the prices of the oil when there is a positive change as compared to when there is adverse change. It is considered as a significant findings as it has ability to capture the impact upward as well as downward in the prices of the oil (Belhaj et al, 2018). However, there is a mixed asymmetry of such empirical evidence.…”

“…It is also analysed that the asymmetric impact of the changes in the price of the oil would be caused by the different changes in the price of the petroleum product to the changes of crude oil which is mainly due to different policies that are applicable over prices of petroleum product like subsidy of fuel (Belhaj et al, 2018). Although the phenomena of fluctuation in the price of oil is considered to be very important for countries that are emerging into the global economic scenario including Indonesia, where the economy of country relies over a strong industrial sector and economies that are emerging have shown that they rely over oil.…”