- The mindset in the Gulf now is that economies need to fortify themselves against future crude price dips and reduce dependence on oil income, said, Hertog.
- UAE Environment Minister Mariam Al Mheiri called the current crisis a “reality check” for the world.
- The war has pushed millions into hunger and turned the country into one of the world’s worst humanitarian crises.
The Ukraine conflict is creating havoc on the global economy, but not everyone in the Middle East has been affected equally as reported by CNN.
Pandemic-linked downturn
Some of the world’s biggest hydrocarbon producers, the Gulf nations are seeing billions of dollars added to their coffers aided by a Ukraine war-driven rally in oil prices.
They are expected to register their first budget surpluses after an eight-year oil slump that was compounded by a pandemic-linked downturn.
Research by Mitsubishi UFJ Financial Group (MUFG) in February showed that Gulf Cooperation Council (GCC) countries are likely to see a GDP surge of 6.1% in 2022 on the back of increased oil prices, as well as fiscal surpluses for the first time since 2014.
The GCC consists of Saudi Arabia, Oman, United Arab Emirates (UAE), Kuwait, Qatar and Bahrain.
The benchmark Brent crude oil price was $22 per barrel in March 2020.
Gulf states that rely on hydrocarbons for the bulk of their income are used to oil booms and busts.
Will this boom be any different?
Analysts say that Gulf oil exporters are aware that much of the demand is circumstantial, driven by market disruptions after Russia invades Ukraine and will inevitably drop.
“They are not taking what’s happening for granted,” said Amena Bakr, chief Opec correspondent at Energy Intelligence.
That’s unlikely to happen this time around, said Omar Al-Ubaydli, Director of Research Bahrain Center for Strategic, International and Energy Studies.
The windfall from high oil prices will “help alleviate short- to medium-term budgetary and liquidity problems and will help them delay the need for further fiscal restructuring,” he said.
The mindset in the Gulf now is that economies need to fortify themselves against future crude price dips and reduce dependence on oil income, said, Hertog.
“Stepping up patronage as during previous booms would undermine this,” he added.
Economic growth
The UAE is expected to have the highest economic growth in 2022, followed by Saudi Arabia, whose economy is expected to grow an average of 4.8% this year, according to the IMF’s 2022 World Economic Outlook, which was published before the war.
Breakeven oil prices declined significantly in Saudi Arabia, the UAE, Qatar, and Oman said Garbis Iranian, Chief Middle East and North Africa Economist at the International Institute of Finance in Washington DC.
But as the war in Ukraine has highlighted the West’s need to reduce its dependence on hydrocarbons, it has also exposed the difficulty in doing so.
The demand for oil in the global market has boosted the GCC’s confidence in demand for their main commodity and their ability to bounce back, analysts say.
“I think they [Gulf states] are more confident that they can sustain the prices needed to break even fiscally — around $70 per barrel — for a lot longer,” said Hertog.
The US Energy Information Administration forecasts benchmark Brent oil prices to average $116 per barrel this quarter, above each of the Gulf states’ fiscal breakeven prices.
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Source: CNN
