Middle East caught in the crisis
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http://news.bbc.co.uk/go/rss/-/1/hi/business/7684189.stm Version 0 of 1. BBC News is running a series of commentaries this week by economists on the challenges facing the global financial system. Today, Robert Mabro considers the implications for the Middle East. Robert Mabro is an energy economist We live in a globalised world. No country or region can be insulated from financial and economic shocks originating in another part of the world. Contrary to some views, the Middle Eastern countries are bound to be affected, albeit in different ways and degrees, by the financial crisis and the associated recessions. It is useful to distinguish the oil and money-rich Gulf countries from the populated poor countries of the region, such as Egypt and Iran. The Gulf countries, like other oil-exporters, will face a significant drop in oil revenues, because oil prices are bound to be much lower than they were in the first half of 2008. Most of them will be able, however, to balance their budgets at an oil price of $60 (£35) or $70 per barrel. Even a slightly lower price is manageable if unnecessary expenditures are curtailed. A decline in the rate of economic growth will make the millions of Egyptian poor even poorer But governments will not be able to enjoy surplus revenues any longer. Stock market indices have been falling in the Gulf by as much as 40% in some cases. Savers have become poorer. The very wealthy can weather this storm, but many middle class families have placed savings in the stock market. Sovereign Wealth Funds have invested abroad and the value of their holdings are being heavily depreciated. Banks in the Gulf are not yet acknowledging losses from exposure to sub-prime loans and mortgages, but it is known that some are affected. The most vulnerable state in the Gulf is Dubai, because of its hefty indebtedness. Egypt, on the other hand, is a small oil exporter but a big exporter of gas. There is likely to be a loss of revenue from gas exports. The stock market has lost some 30% of its peak value, but this affects fewer people than in the Gulf. A deep world recession could reduce Suez Canal and tourism revenues and lead to the repatriation of money from the Gulf. A decline in the rate of economic growth will make the millions of Egyptian poor even poorer. A big loser will be Iran, which will suffer considerably from low oil prices. The government will have to stop showering money right and left. But this could have serious domestic political implications. <i>Robert Mabro is an energy economist and the former director of the Oxford Institute for Energy Studies.</i> Also in the series: Linda Yueh: <a class="inlineText" href="/1/hi/business/7676957.stm">China, 'engine of growth'</a> Jayati Ghosh: <a class="inlineText" href="/1/hi/business/7680513.stm">India: boom, what boom?</a> Jagdish Bhagwati: <a class="inlineText" href="/1/hi/business/7682669.stm">Capitalism is alive and kicking</a> |