Al-Shaal Report: Economy and deficit require fundamental change in public administration policies
With the conclusion of last July, the fourth month of the current fiscal year 2026/2027 has also ended. The average price of a barrel of Kuwaiti crude oil for July stood at approximately $81.9, which is roughly $24.9 per barrel higher, or about 43.6 percent, than the new baseline price assumed in the current budget, set at $57 per barrel.
According to a weekly report by Al-Shal Consulting, the previous fiscal year 2025/2026, which ended at the close of last March, saw an average Kuwaiti crude oil price of approximately $72.2 per barrel. The July 2026 average price is about 13.4 percent higher than the average for the previous fiscal year, yet remains approximately $8.6 per barrel below the current budget’s break-even price of $90.5 per barrel, according to Ministry of Finance estimates.
Al-Shal added that due to the closure of the Strait of Hormuz, there is a near-complete disconnect between the aforementioned figures and the actual financial status of the general budget, at least until the Strait of Hormuz is fully reopened and Kuwait’s oil production returns to its full capacity.
Al-Shal clarified that after the fourth month of the current fiscal year, what is known is that Kuwait is working to increase its production capacity. However, what remains unknown is how much of its production was exported and at what price, meaning how much was translated into public revenues in a country where oil revenue shares account for approximately 90 percent of budget revenues.
Our estimates suggest that the current budget deficit is widening, surpassing the previous year’s deficit of approximately 7.1 billion dinars. Given the evident volatility in the geopolitical situation, it is clear that the fifth month of the current fiscal year, August, will not be materially better than the preceding month, July.
Al-Shal emphasized that any percentage of lost production will not be offset by price increases, as prices will lose much of their gains if the Strait of Hormuz is opened and exports flow freely.
He added that the correlation between the performance of the Kuwaiti economy and oil market movements is extremely high, possibly the highest in the world. According to the latest data published by the Central Statistical Bureau, the Kuwaiti economy contracted by approximately 4.6 percent in real terms during the first quarter of this year, despite production halting for only one month during that quarter.
Al-Shal stressed that the developments in the economic arena and the widening general budget deficit require a fundamental change in public administration policies. Implementing correct policies to minimize crisis costs is only possible with detailed, up-to-date knowledge of the figures and their sharing with all stakeholders. The current contraction and financial deficit are not the fault of the administration but the result of a force majeure. While no significant progress has been made toward the gradual reduction of oil dependency by previous administrations, including the current one, the failure to properly manage the current crisis deepens its negative effects and makes future reforms more difficult.
