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19 Dec, 2014

Gulf Arab economies respond tactically to offset oil price plunge

DUBAI, Dec. 16 (Xinhua) — The question of how much the fall in oil prices will affect the Gulf Arab economies in 2015 is the” talk of the town” in the region with officials and business executives differing in their assessments.

The drop in oil would not change the bullish prospects for the United Arab Emirates (UAE), said the Gulf state’s vice president and prime minister Sheikh Mohammed Bin Rashid on Sunday at the Arab strategy forum in Dubai.

But stock markets from Kuwait to Oman dived sharply in recent days, indicating increased worries that the fall in “black gold” might weigh on the real economy.

Stock indices in the UAE and Qatar erased their entire gains from 2014. At UAE markets in Dubai and Abu Dhabi alone, a market value of 65 billion Dirham (17.71 billion dollars) have been erased in the last two weeks.

The Dubai market index DFMGI dived on Tuesday by over seven percent to hit the lowest level in 12 months. And the Saudi Tadawul exchange, the biggest bourse in the region in relation to market capitalization, after gaining 25 per cent in the first nine months this year slipped slightly into an annual loss.

Just six months before most Gulf Arab equity gauges were the top performers not only in the region, but also globally.

Panic selling occurred after oil prices dropped to a near 6-year low on Monday, triggering doubts among investors and analysts that the six Gulf Arab economies around Saudi Arabia can continue to grow by over 4 percent in 2015 like they did this year.

For the UAE, upcoming changes would produce positive outcomes based on the Gulf state’s “diversified and vibrant economic base” as it benefits from international trade, said Sheikh Mohammed.

Dubai’s biggest bank Emirates NBD predicts the UAE would grow by 4.8 percent in 2015, down from five percent this year.

At the same forum in Dubai held last Sunday, OPEC general secretary Abdullah Al Badri said the sharp fall of oil prices by over 43 per cent year on year and by 26 percent in the last four weeks was an “overreaction” the drop was not reflecting the real global demand for oil.

He also denied rumors that the crash of the black gold was the result of a conspiracy of Saudi Arabia and the United States to hurt the economies of Russia and Iran.

The sellout in oil was also triggered by comment made by Saudi Arabian minister of Petroleum and Mineral Resources Ali Al-Naimi who said earlier last week, he saw no reason why the 12-member states oil exporting organization OPEC should change its decision from Nov. 27 in Vienna to leave the daily output at 30 million barrels per day.

Meanwhile, decision makers give public statements on an almost daily basis in order to calm markets, saying the drop in oil would not trigger a crisis for the real economy.

Peter Baltussen, the chief executive of Commercial Bank of Dubai, the ninth biggest lender in the UAE, told Xinhua he did not expect too negative spillover effects for his bank or other lenders.

“This might be some impact on the real estate market, but local UAE banks are mostly focused on the domestic market and we are positive for the UAE economy in 2015, ” said Baltussen.

Earlier in the week, Qatar’s biggest lender Qatar National Bank said the Qatari economy was expected to remain resilient to lower oil prices, since it has ample resources to continue implementing its infrastructure investment program.

“The investment programm should continue to drive non-hydrocarbon growth and lead to further economic diversification going forward,” said the QNB report.

Traders and investors at the Dubai stock exchange DFM said that Saudi investors and funds in particular were pulling out their investments from all GCC markets.

“Of course, oil is only two percent of Dubai’s economy but Saudi Arabia is the biggest oil producer and will suffer more from the crash, therefore Saudi funds are shifting their entire portfolios and exchange Arab shares for Western stocks,” said one Emirati investor.

Frustration is in particular huge at the Dubai market, because the bourse has seen the highest number of new listings this year since 2008.

There are also huge institutions in the GCC which benefit from the current scenario. The GCC airliners Emirates Airlines form Dubai, Abu Dhabi-based Etihad Airways have already slashed ticket prices by over 30 percent in some cases as low oil valuations translate into lower jet fuel costs.

As a result, Air Arabia, the oldest low budget carrier in the Middle East saw its Dubai-listed shares standing stable at around 1.40 Dirham (0.38 dollars) in the last four weeks.

During the same period, the Dubai market index dived by 25 per cent as investors quit in masses. The pieces of the jigsaw for the GCC economy in 2015 have yet to be set.