Kuwait seeks international avenues for oil revenues

The GCC countries account for a huge 60% slice of the world's oil reserves and more than 60% of Opec's total production. This dominance has often been blamed for the instability within the Middle East.

Kuwait, with the world's fourth-largest oil reserves, recently increased production to three million barrels per day (bpd), with plans to take this number to four million bpd by 2020.

However, the country is not immune from global inflationary and recessionary pressures. And Al Harami believes oil should not be blamed. 'It's surprising how we forget that inflation is happening in other commodities and concentrate on oil and how its prices are hitting all times records.

'It's not only the oil prices that are going up; prices of gold, aluminum, food and almost everything are also rising. And it's only now that we're beginning to realise that there's something else represented by the weak US dollar. What's happening now is a new phenomenon - everybody is getting rid of the green [and investing elsewhere],' Al Harami said.

Opec officials also blamed factors that are not related to the oil market, while acting Kuwaiti Oil Minister Mohammad al-Olaim said the surge in oil prices is due to the flow of money from pension and other investment funds.

For Kuwait, the main problem is that the economy is awash with cash, which is creating inflation. This applies to all oil producing countries and in particular the Gulf states. Al Harami warns that unless Kuwait starts creating safe avenues to dispose of oil revenues and surplus dollars, the problem will continue.

Correction by end of 2008

Nobody has a magic solution for this, so Al Harami thinks a correction in the oil market is inevitable by the end of year. Such a correction would be global, as no economy can maintain prices above the $100 level. But does this mean that Kuwait needs to undertake a correction anytime soon?

'Kuwait needs to make no correction. Our currency is already related to currencies other than the US dollar [it is no longer pegged to the dollar] and we're a consuming community that depends on importing everything. We don't have any huge projects in Kuwait, rather we have fixed projects; if we complete them - fine. But if we don't, no big harm could happen,' Al Harami says.

Yet, state-owned Kuwait Petroleum Company (KPC) has announced big investments in new projects, but Al Harami questions the success of these, saying its best investments are outside the country.

'We are constrained by our capacities and capabilities. The Kuwait oil industry has failed to invest [in] any big projects inside Kuwait. This is because we lack the know-how, the talented project managers and we are always delayed. We do have the vision and strategies, but when it comes to application, we score zero. And that's why when we invest our vision and money outside Kuwait, we blossom.'

Sealing a deal with Petrovietnam

Outside of Kuwait, KPC has been in the process of finalising deals to build new refineries and petrochemical plants with Chinese, Vietnamese and Indian companies by next year.

The deal with Petrovietnam would see it build Vietnam's second refinery, with a capacity of 170,000 bpd. The project is due for completion by 2013 and will depend on importing Kuwaiti crude oil. This will provide a safe haven for Kuwaiti crude oil sold at international prices, says Al Harami.

In India, it is in talks to build a large refinery with 150,000-400,000 bpd capacity.

Al Harami points to the success KPC is having internationally, and hopes the company can replicate that internally by finding good partners for projects. Until then, he believes it is unwise to invest in oil projects inside Kuwait.