Comment|~||~||~|While Middle East geopolitical instability is driving oil prices to new highs, Kuwait, for the second time in six months, has just managed to overcome a political crisis that has left the country stable and more democratic.
However, a question mark still hangs over the future of Kuwait’s oil development—will it follow the government’s preferred path of greater foreign investment and production? Or will it go down the road that some opposition lawmakers are paving to freeze or slash production and limit overseas involvement? If the emirate takes the latter route it will almost certainly jolt the already jittery global markets.
Earlier this year, Emir Sheikh Sabah Al Sabah, on the death of his predecessor, took the helm to steer oil-laden Kuwait through the region’s turbulent waters. His brief rule has already seen three watersheds: a more democratic and open succession, women voting and opposition control of parliament.
Sheikh Sabah’s swearing in was performed during an open parliamentary session and voted on by the Cabinet of Ministers, in contrast to the previous practice of branches of the royal family picking the ruler behind closed doors.
The reform prompted political analyst Mai Yamani to praise what she called the peaceful passing of a “parliamentary revolution”.
The small emirates stand like a beacon of stability and democracy sandwiched between: warring Iraq; glowering Iran, which is eyeballing Uncle Sam and his allies that include Kuwait; and Saudi Arabia, which is quarrelling with Qatar and the UAE over borders and piplelines while dealing with terrorist attacks and its own internal tensions.
But whether Kuwait’s new democracy delivers prosperity or rattles world markets may depend on the balancing of power between the legislature and the executive. Kuwait’s parliament can pass acts, but needs the emir to sign them into law. The emir can reject them by sending them back to the legislature for reconsideration, leaving parliament the option of approving the bill by a two-thirds majority to override his veto. Parliamentarians can also refuse to recognise the emir-appointed cabinet, forcing him to either replace his ministers or dissolve parliament to call an election.
One of his first major acts was to do the latter and call fresh elections in which women could vote—a right that he promoted, as prime minister in 2005.
The opposition swept to power last month forcing him to replace his cabinet and give in to their demands for electoral redistricting.
When parliament convenes after its summer recess the emir will have to chart his course through the coming political storm that is racing towards him—the nation’s oil policy.
In January, Petroleum Intelligence Weekly, an industry newsletter, drove world crude prices up by reporting that Kuwait’s oil reserves were only half of its official figure of 99 billion barrels—lopping off 5% of the world’s total official reserves. The newsletter based its report on internal documents from the Kuwait Oil Company (KOC), which immediately denied the claim. It brought to the boil a debate, which had been simmering for over a decade, over giving foreign firms greater access to Kuwait’s reserves and the extraction rate.
And at the centre of the controversy lies Kuwait’s Burgan field, the world’s second largest, which after 60 years of production has matured and could soon falter. In 2005, KOC said the field’s output will only be 1.7 million barrels per day—less than the 2.0 million bpd it had optimistically forecast a few months earlier for what it said was the remaining 30 – 40 years of the field’s life.
This may explain why the government resurrected Project Kuwait—the decade-old plan to de facto allow foreign firms to keep a percentage of what they find by paying them a fee per barrel, neatly sidestepping the constitution that forbids foreign companies owning the country’s hydrocarbons.
Security conscious Kuwaitis also see an added bonus to the plan in having Total, BP and Exxon digging in fields on its disputed border—London, Washington and Paris would be concerned about any Iraqi tanks crossing it.
Last year, the opposition again blocked the plan that they thought they had killed off years earlier, and their election win may make them even bolder in stopping the government’s oil policy. Some MPs have said they want to cut back production, not increase it, as they no longer believe the government’s reserve figures.
They argue that the current high prices mean that revenue will stay high while they preserve the nation’s strategic asset in trust for future generations. Yet reducing the crude supply at a time of volatile prices could push prices to the height where they trigger a world recession and send prices plummeting.
The brewing political showdown may shape the country’s energy policy, which is overseen by a supreme council that includes the prime minister, the new energy minister, Sheikh Ali al-Jarrah al-Sabah, a 56-year-old former banker and diplomat and various experts.
How it moves on foreign investment and production will impact the future of the country’s parliament and oil supply as they both mature, and will be watched keenly by their turbulent neighbours and world markets.
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