28/01/2010

At the start of 2009 the economies of the Gulf Cooperation Council (GCC), especially its large oil producers, faced a daunting year. Oil prices had fallen precipitously from a high of $145 a barrel in mid-2008 to around $35-$40 a barrel, and the outlook was bleak as the world faced its worst recession since the great depression. In addition, in an effort to shore up prices OPEC (Organization of the Petroleum Exporting Countries) had agreed record production cuts of 4.2 million bpd, further dampening growth and revenue prospects for those GCC members subject to quotas (Saudi, Kuwait, UAE, Qatar), according to Samba Financial Group’s special report about “2010 Oil Market Outlook and Implications for GCC Economies” released on Tuesday.

In the event, oil prices surprised on the upside, staging a strong recovery during the second half of the year. Prices traded in the $70-75 a barrel range for most of the latter part of the year, breaching $80 a barrel in October and then again in December, and raising the annual average 2009 price to $62 a barrel for WTI. While still down about 38 percent on the 2008 average, the rebound in oil prices during the year has helped cushion the impact of the global recession on the GCC and a reduction in external capital flows. The resultant stronger than expected oil revenues helped finance counter cyclical policies, government support for the region’s financial sectors, and revive investor and consumer confidence. While sharply lower, fiscal and current account balances are largely estimated to have stayed in surplus, allowing some replenishment of external assets initially drawn down when the global crisis first hit. However, despite the positive, albeit slower, growth momentum in non-oil sectors, overall GCC real GDP (gross domestic product) growth was dragged down by the reduction in oil production, essentially stagnating at 0.8 percent in 2009, after 7.2 percent growth in 2008. Total nominal GDP of the GCC fell by 20 percent to an estimated $841 billion, principally reflecting the drop in oil and gas prices and hence revenues, the report said.

Developments during 2009 have served as a reminder that, while the GCC states are in the midst of an impressive economic transformation which is fueling strong non-oil growth, their economies remain heavily dependent on oil and gas sectors. These continue to account for over a third of economic output, and more than three quarters of budget revenues and export earnings. Oil revenues are a vital source of finance for the economic transformations underway, and underpin the public sectors’ large infrastructure developments. They are also a major driver of liquidity, and oil price fluctuations have a large influence on consumer and investor confidence. The extent to which the GCC can sustainably build on the economic recovery momentum currently under way will thus be substantially influenced by developments in the global oil markets.

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Arab News