UAE and Qatar least vulnerable to falling oil price while Bahrain and Oman are most exposed says S&P

Posted on 09 November 2014 with 2 comments from readers

The UAE and Qatar are least likely to see their economies suffer as oil revenues decline with falling hydrocarbon prices, while Bahrain and Oman are the most vulnerable says a new report from ratings agency S&P published today. It warns that falling hydrocarbon prices ‘could have a significant impact on the region’s economic and financial indicators… if sustained’.

Indeed as S&P notes: ‘On average, hydrocarbon revenues constitute 46 per cent of nominal GDP and three-quarters of total exports for the six GCC countries… Dubai is the exception in that it relies more heavily on trade, tourism, real estate and construction, and transportation.

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Weaker business environment

‘The lower oil price could slow economic growth for the GCC and weaken the operating environment for the corporate and infrastructure sectors. A prolonged period of lower government revenue given GCC governments’ high infrastructure spending plans may push up sovereign and government-related entity capital market issuance and place a greater onus on the private sector to fund investments.

‘Lower government revenues may also result in increased government efforts to tackle energy subsidy reform. This, in turn, could hurt industries reliant on feedstock subsidies, such as petrochemicals. By contrast, any
change in energy subsidies to the power sector that would pave the way for more cost-reflective tariffs could improve the regulatory environment for infrastructure entities and weigh positively on their business risk profiles.’

Still this report is not entirely bad news as S&P says: ‘We expect total credit in the GCC banking system to grow by about 10 per cent annually in 2014 and 2015 as banks take advantage of growing economies, recovering corporate asset quality, and ample financing opportunities. The system’s asset base will likely climb to roughly $2 trillion by year-end 2015, by our estimates, up from $1.7 trillion as of year-end 2013.’

No Dubai crash

Dubai property is also not about to crash again, according to S&P: ‘Developers are likely to continue to feed the market with new supply -particularly the top-tier players, such as UAE-based Emaar Properties, which can attract off-plan buyers for their launches, meaning they sell properties before they’re built. We thus expect supply additions to outpace demand over the next few years and believe prices are likely to stabilize or soften.

‘Because further price appreciation isn’t desirable from an economic standpoint and could hinder Dubai’s development as an attractive destination for international business, we think authorities are less likely to intervene to manage supply.’