Algeria’s dwindling petrodollars drive key OPEC deal broker

Bloomberg

Algerian Energy Minister Noureddine Boutarfa’s shuttle diplomacy between Tehran, Moscow and Vienna before OPEC’s meeting on Wednesday underlines the North African nation’s desperation for a deal.
The oil-market rout has seen Algeria burn through cash set aside during the boom years to plug a widening budget deficit. The country’s Revenue Regulation Fund, formerly one of Africa’s biggest state funds, is almost completely depleted after slumping 87 percent since 2013 to about $6.7 billion, according to finance ministry figures.
With foreign exchange reserves eroding by more than a third over the same period to $121 billion in September, the authorities started borrowing from overseas for the first time in about two decades. This month, Algeria agreed a 900 million-euro ($996 million) loan from the African Development Bank and signaled more could follow.
While the government has tried to curb imports and sell domestic bonds to boost liquidity, that won’t be enough to offset lower income from oil and gas, which comprise 95 percent of export receipts, according to Mohamed Said Beghoul, a former director of state-owned energy company Sonatrach.
“At current prices we won’t be able to survive two years,” said Beghoul, now an analyst in Algiers following 30 years in the oil industry. “There are some billions in foreign reserves but they risk to melt like snow in eight to 10 months if the price of the barrel stays as it is.”
Should that happen, the dinar would be devalued and the government would be forced to borrow more, according to Beghoul. Ultimately, the state would have to curb spending on housing, health care and basic foodstuffs, which helped suppress dissent in the years following the Arab Spring, he said.
The strain on state finances comes amid mounting concern over the health of ailing 79-year-old President Abdelaziz Bouteflika, a key ally of the West in the battle with militancy. Should low oil prices persist, foreign reserves will be drained and the economy will deteriorate further, according to Ahmed Benbitour, an opposition leader and former prime minister.
“At that point we’ll have trouble financing imports,” said Benbitour. “From the moment that the budget financing of state resources and the balance of payments are no longer sufficient, we risk heading to an explosion in the street due to shortages and increases in product prices.”
The price of benchmark Brent crude was about $48 a barrel on Monday. That’s an increase of 77 percent from a 12-year low in January, but well below the $90 the International Monetary Fund says Algeria needs to balance its budget.
With little room to soften the blow by boosting output, Algeria has become one of the most vocal members of the Organization of Petroleum Exporting Countries. After failing in August to persuade fellow members to hold a meeting to boost prices, Boutarfa was pivotal in forging OPEC’s preliminary Sept. 28 deal in Algiers that belies his nation’s position as the group’s ninth-biggest producer.
In a last roll of the dice, Boutarfa and his Venezuelan counterpart Eulogio Del Pino met in Algiers, before traveling to Moscow on Monday, according to two delegates familiar with the matter. That follows talks with Iranian Oil Minister Bijan Namdar Zanganeh in Tehran on Saturday, where Boutarfa made a proposal for a collective OPEC cut of 1.1 million barrels a day.