Fear that the days of global economic recovery and rising oil prices may fast be fading has sent shivers through Gulf stock markets.
Those worries reduced the market capitalization of the Saudi Stock Exchange, or Tadawul, by around $11 billion in the first half of August to $326 billion. Elsewhere around the Gulf, the Dubai Financial Market's main index has shed close to 5 percent in the last two weeks while Kuwait's index reached a seven-year low on Sunday.
Many investors fear it may 2008 all over again. That was the year the U.S. housing market went under in a sea of mortgage debt, bringing oil prices to as low as $30 a barrel. But economists say that unlike 2008, Saudi Arabia and the region's other governments are adequately cushioned for another slump in the world oil price, if it comes.
"There is definite panic in the markets because they are worries how it will affect them. Two, three years ago they were affected very badly, especially in Dubai," Said Hirsh, Middle East economist for London-based Capital Economics, told The Media Line. "They don't trust the government will spend if oil prices drop."
The nervousness about the global outlook has been growing as Europe fails to put out its debt fire, but Gulf markets swooned after Standard & Poor's cut the U.S. credit rating for the first time ever two weeks ago. Germany's economic growth came to a near-standstill in the second quarter. Reflecting a downgrade in export outlook due to slower growth in the U.S. and Europe, Deutsche Bank this week cut its projection for Chinese growth by 0.2 percentage point to 8.9 percent for 2011.
Meanwhile, the outlook for world oil demand looks increasingly weak. The Organization of the Petroleum Exporting Countries (OPEC) in a report last week said "dark clouds over the economy" had begun to cool demand for oil. It estimated that world demand will average 1.21 million barrels per day this year, 150,000 barrels less than it predicted just a month earlier.
Worries about the global economy and its impact on oil have taken on an added political dimension with the Arab Spring. Saudi Arabia and other Gulf governments have boosted spending this year to create jobs, build infrastructure and hire more security personnel in an effort to prevent the surge of protests from reaching their borders.
The Saudi government's 2011 budget, for instance, forecasts a 7 percent increase in expenditures to $154 billion. On top of that, the kingdom committed itself in February to extra spending of $36 billion, Oswald Clint, a London-based analyst at Sanford C. Bernstein & Co., said in a report this week. High levels of spending not only act to cool the political temperature but have been boosting economic growth.
To pay for all of this, however, the kingdom needs oil prices to remain above $85 a barrel - its so-called breakeven price - assuming they export three quarters of what they produce. Now, with oil prices easing, the Saudis may start cutting oil output "much sooner" than they did after the financial crisis in 2008, Clint said in his report.
But other economists are more sanguine. The price of benchmark Brent crude for delivery was $109.33 a barrel on Thursday, giving the Saudi's a lot of room before their spending begins to fall.
Hirsh said economic growth is likely to drop across the Gulf, but he said markets are overreacting. In Saudi Arabia, the key Gulf economy, the government has built up foreign reserves - by some $40 billion this year alone to $500 billion -- while the country's banking is in better shape than the last time global recessions struck.
"I would not call $85 a danger point, but they would start looking at spending if oil dropped to $60. At $85, it would mean they go into deficit next year, but that's not such a big deal," he said.
Jean-Paul Pigat, head of Middle East and North Africa analysis, Business Monitor International, said that even if the global economy and oil prices do sink, he is confident that the kingdom will keep to its spending plans because of the risk of igniting unrest if it cuts back.
"Even if Saudi Arabia's breakeven has been raised because of the stimulus, it's important to know why they have undertaken it," he told The Media Line. "They would be quite willing to drawn down their foreign assets rather than put a halt to spending measures."
Bahrain, the only Gulf country to see significant unrest, has a relatively high oil breakeven of $100 a barrel, but it will likely get assistance from its wealthier neighbors if the government needs it, said Pigat.
Elsewhere in the Gulf, the situation remains relatively safe, Oliver Cornock, regional editor for the Gulf Cooperation Council (GCC) countries at the Oxford Business Group, told The Media Line.
"We have to be aware of the fact Qatar and Saudi and UAE and Kuwait have all significant buffer," he said. "Over the last eight years these economies have becoming increasingly healthy. They all have more than adequate reserves for a rainy day, and I don't believe that rainy day has come yet."
- Global Health: Meaty Concerns
- Global Health: A Seminal Moment?
- Human Trafficking: The Wound That Shames Our Present
- How New Atrocity-Prevention Steps Can Work
- 9/11 Anniversary: Rethink Needed
- 9/11 Anniversary: From Empire to Decline
- 9/11 Anniversary: Scanning Bodies, Stripping Rights?
- Assassination as Foreign Policy
- Eurozone Manufacturing Slowing
- European Union Spending Cuts and Tax Hikes Hurt GDP Growth
- Who's Worse Off: Europe or the United States?
- Germany: German Tiger or European Growth Engine?
- Greece Forecasts Economic Contraction to be Worse than Expected
- Collateral Deals will Have Negative Impact on Greece
- Spain Announces Temporary Tax Cut to Stimulate New House Sales
- Eastern Mediterranean Olive Oil Producers Seek Markets in Far East
- High North: The New Frontier
- The Politics of the London Riots
- Young Westerners -- Deprived or Decadent?
- Explanations and Excuses for English Riots
- Many British Households See Steeper Rise in Debt
- Young Turks Returning Home to Chase Economic Dreams
- The Pain in Spain
- Multiculturalism and Dutch Political Culture
- Macedonia Eyes Its Future in Antiquity
- The Saudi Counterrevolution
- Libya Threatens to Become Terrorist Arms Depot
- Libya: Protection Challenge For The Opposition
- Libya After Gadhafi: Transitioning from Rebellion to Rule
- Why Are Some Progressives Gloating over Libya?
- Egypt's Reluctant Rulers
- Fear and Blogging in the Arab world
- Middle East: The Future of Women
- Middle East: Bread and Dignity
- Middle East: Palestine Towards Statehood
- Israeli - Arab Crisis Approaching
- The Upcoming Palestinian Uprising
- Israeli Settlements Keep Middle East Unsettled
- Syrian Opposition Tries to Unite
- Assad Rejects International Calls to Resign
- Obama Calls for Syrian President Assad to Step Down
- Cranking up Pressure on Syria
- Violence in Iraq Raises Questions About American Withdrawal
- Egypt's Brotherhood Declares War on the Bikini
- Labor Pains in Saudi Arabia as Hiring Deadline Nears
- Gulf Markets Worry About Oil Outlook
- Jordanian King Promises Reform to Skeptical Public
- China and the United States' Debt
- China's New Aircraft Carrier Bolsters Its Regional Reach
- China Outpaces United States in PC Market
- Moody's Downgrades Japan Credit Rating Over Deficit Concerns
- Kim Jong-Il Pushes China for New Nuclear Talks
- North Korea's Rare Pledge to Abandon Nuclear Activities
- Indonesia: Pluralism vs Vigilantism
- South Sudan: Labor Pains
- Somalia: Pro-government Rally Held in Mogadishu
- Kenya: 'Perfect Storm' Brewing Among Urban Poor
- Latin America's Security Dilemma
- A President-for-Life in Argentina? Not Likely
- There's Hope for Mexico and Central America
- Chile: The Fight to Make Education a Guaranteed Right
- Death of Layton Poses Challenge for NDP Interim Leader
- Global Economic Downturn: A Crisis of Political Economy
- Crisis of Confidence: Debt Debate Erodes US Global Standing
- United States Debt Downgrade Won't Have Much Short-Term Effect on Foreign Policy
- The Empathy Deficit
- Stiglitz Upbeat About China and Latin America
- China Trade Surplus Rises
- China Sees Inflation Rate Hit 6.5%
- Latin America Not Immune to U.S. Debt Deal
- Is Japan Now a Good Bet?
- Is Germany the New Safe Haven?
- Islam and Arab Political Change
- Iran Reshaping Persian Gulf Politics
- Diplomatic Pressure on Al-Assad Gaining Momentum
- Arab Nations Join Call For Al Assad To Stop Civilian Attacks
- Bahrain and Kuwait recall Syria envoys
- Clinton Says Syrian Government has Lost Legitimacy
- September Looms Large in Israeli-Palestinian Conflict
- Israel's Growing Wealth Gap Fuels Economic Anger
- Israel and Cyprus Forging Ahead on Gas Bonanza
- Major Israeli Defense Merger Dropped
- Israel Approves 1,600 Settler Homes in East Jerusalem
- Mini UAV Chopper For Urban Warfare Revealed
- Roman-era Sword Uncovered in Ancient Ditch in Jerusalem
- Hamas: Palestinian Authority is Clamping Down On Our Preachers
- Warnings of 'Somalization' And All Out Civil War in Yemen
- Missing Out on Vital Medicines Because of Economic Crisis
- Jordanians Lash Out Against Planned Nuclear Reactor
- Jordanian Mosque Named After Jesus
- Troop Withdrawal Rests on Decision From Iraq
- Somali Forces and African Union Peacekeepers Gradually Expand Control In Mogadishu
- Somali President: Combat Operations Against Al-Shabaab Will Continue
- Al-Shabab Pullout: The Beginning Of The End in Somalia?
- Africa: Tough Choices As Food Prices Continue To Rise
- Nigeria: Jail Threat for Polio Vaccination Refuseniks
- Congo: Implement Anti-Discrimination Law, Urge Indigenous Peoples
- Congo: High-Tech Measures To Curb Illegal Fishing In Congo
- Raw Sewage Kills in Madagascar
- Tanzania: Violence Against Children Rampant
- Maternal Deaths Quadruple In South Africa
- United States and Pakistan Navigate New Tensions in Fraught Relationship
- Pakistan's Forgotten 2005 Quake Victims Still Need Help
- China Announces Sea Trial Of Its First Aircraft Carrier
- Indonesia's Global Significance
- Seoul Blasts Pyongyang For Fabricating Shelling Incident
- North Korea Planned Assassination of South Korean Defense Minister
- Calls For End To Torture and Extrajudicial Killings By Bangladeshi Police
- Muslim Rebels Seek Substate In Philippines
- DOJ Places Former Philippine President On Immigration Watchlist
- Britain Sticks With Austerity Plan
- Cameron Announces Crackdown On Facemasks
- Norway: The Sky Is Weeping
- Norway Attacks a Tragic Result of Failed Immigration Policies
- Norway: Blaming the Muslims
- Norway: Breivik's Real Enemy: Himself
- Brazil Joins Race for Globalized Students
- OAS Is a Basket Case - but a Needed One
Available at Amazon.com:
Copyright 2011, AHN - All Rights Reserved