Falling Oil Prices Could Cost GCC Countries $350 Billion, Pressure Governments

---

Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--Gulf Cooperation Council (GCC) countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates (UAE)) could lose at least half of their oil revenues annually, or about $350 billion, in reaction to the dramatic fall in crude oil prices, according to sector analysts. The GCC states, which pump about 17.5 million barrels a day, are facing the challenge of oil prices dropping to around $60 a barrel, half of the 2014 highest levels.

Bahrain has lost $261.9 million in the past 45 days as the oil price dropped below $59.59 per barrel, according to reports by the newspaper Akhbar Al Khaleej from Bahrain Petroleum Company, Dubai (Bapco). The two-year state budget had previously used $90 as a forecast benchmark price.

The drop in the oil price has hit Gulf stock prices very hard, wiping out millions of dollars of market value across the region and hurting major private companies such as developer Emaar Properties (Dubai) and builder Arabtec Holding (Abu Dhabi).

As oil revenues make up to about 90% of income for most GCC states, and with prices now below budget forecasts, governments are looking at certain deficits next year. Spending cuts must follow, and possibly the region's first taxes, raising fears of an economic slowdown.

A leading Kuwaiti economist, Jassem Al Saadun, said the Gulf states had failed to seize on surging energy revenues to build a real diversified economy. "Public spending has soared to new record highs and it was not for vital infrastructure projects," he said.

Even with the huge reserves that many countries have built up, economists warn that a prolonged drop in oil prices will hit Gulf states hard. Ratings agency Standard and Poor Financial Services LLC (S&P) says that an extended decline in oil prices will likely slow their economies, reducing spending on infrastructure projects and hitting the private sector.

For related information see September 24, 2014, article - Infrastructure Boom Returns to Middle East.

Saudi Arabia, the largest producer, insists it will maintain high spending levels by dipping into reserves. But Kuwait has ordered major spending cuts and is considering lifting petrol and electricity subsidies. The UAE has announced plans to raise electricity and water charges.

In something of a disconnect with the spending slowdown trend, 53% of the luxury spenders in Oman plan to buy more luxury goods and experiences in 2015. This compares to a regional average of 31%, according to the new American Express Middle East Spending survey.

The survey, conducted by YouGuv across the Middle East North Africa (MENA) region, revealed that overall spending on luxury experiences, such as social events and holiday, outweighed spending on goods, such as watches and cars. Oman was one of two countries where respondents stated that spending on goods is more important than experiences. Oman consumers focus 50% of their spending on goods on high-end electronics. Art and collectibles take a 17% priority, which is well above the regional average of 5%.

If the downward trend in oil prices is sustained, there could be a first-quarter peak in spending on goods in anticipation of price rises and inflation.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.