Low prices are a challenge for Gulf oil exporting countries but also present an opportunity for them to implement deep structural reforms and move towards becoming more mature and diversified economies, according to experts from Crédit Agricole Private Banking.
At a media roundtable, they said oil prices are likely to stay relatively low in 2015, or until demand picks up strongly but the region, and the UAE in particular, is in a strong position to cope with the volatility.
They said that while Saudi Arabia is sitting on vast buffers, there could be a cut in government spending to face the decline in oil prices.
“The dramatic drop in oil prices is a game changer, with respect to the macro-economic and market scenarios in 2015 and the medium term,” said Dr Marie Owens Thomsen, chief economist, Crédit
Agricole Private Banking.
“As a result of this low price scenario, it is crucial to note that mature countries (as a group) are no longer in recession and demand could undoubtedly be stronger, but risks to the downside are still manifold.
“However, the supply side emerges as the main cause for the oil prices drop, rather than weak demand. However, a ‘too low’ oil price adds to the macro picture of rising global instability”, she said.
Christiane Nasr, head of MENA Fixed Income and director at the Dubai office, Crédit Agricole Private Banking, added that the Gulf region has “less to worry about” than its global peers.
“In case of a scenario of prolonged decline in oil prices, the GCC region has less to worry as it has solid buffers in terms of foreign exchange reserves and the huge assets of its sovereign wealth funds,” she said.
She added: “The UAE in particular is better positioned to withstand this volatility, due to its diversified economy and the supportive macroeconomic context, robust bond market and ample liquidity.
“Within the current market scenario, we continue to have a bullish stance on Dubai corporates, but Abu Dhabi government related entities have less room for further spread compression from current levels.”
Nasr said that while Saudi Arabia is sitting on vast buffers, there could be a cut in government spending to face the decline in oil prices.
“In such a situation, public and private companies could rely on other refinancing channels such as the global bond market. This is especially true in the context of Saudi Arabia opening its $509bn stock market to foreigners this year.
“This will add more transparency, visibility, liquidity and thus trigger more capital flows to the kingdom’s financial market.”
