CAIRO: While consumers in the West might be happy about falling gas prices, the oil-producing countries in the Gulf region are certainly not. In a region that over the last couple of years has been used to oil prices as high as $147 a barrel, the current level at $37 is very bad news, keeping in mind that for some countries like Saudi Arabia and Kuwait oil provides 90 percent of their incomes. "What they require are higher prices around $60-70 to balance the budgets, Manouchehr Takin, a senior petroleum upstream analyst with the Center for Global Energy Studies in London told The Media Line. "The price of oil has gone down and revenues have gone down, so they [Gulf countries] will have financial difficulties that are obvious, Takin said. Since the discovery of oil in the region in the 1950s, the arid desert kingdoms have gone through an enormous transformation. One of the best examples is Dubai which, until oil was discovered in the tiny desert kingdom in 1958, was only a small village whose only asset was a port surrounded by a calm bay. While oil has provided tremendous wealth, it has also created massive costs for the countries which have all created welfare states that provide for its citizens from cradle to grave, covering expenses ranging from healthcare and education to guaranteeing employment and subsidizing basic food items. In 2006, then minister of economy of the United Arab Emirates, Sheikh Lubna Al-Qassimi, estimated that Middle East countries would have to spend $1 trillion in order to create 100 million new jobs for the growing number of youths in the region. Acknowledging that even the huge and highly bureaucratic public sector that many states have created would not be able to create the quantity of jobs needed, many governments started encouraging their citizens to take up positions in the private sector. The encouragement served two purposes: in addition to alleviating pressure on the public sector to employ all citizens, it also aimed to lessen the countries' dependence on foreign labourers to take up positions varying from construction to management. Diversification has become a key word for many Gulf countries and Dubai is the star of the class mostly due to the fact that it has relatively little oil and it simply has no other choice but to focus on fields such as tourism and real estate. "They are double hit; they are hit not only by the oil commodity prices slump but also by the liquidity crisis and the global economic crisis, Philippe Dauba-Pantanacce, senior economist of Middle East & North Africa with Standard Chartered Bank in Dubai told TML. "We don't see any of the GCC [Gulf Cooperation Council] countries entering into recession for 2009, but we do see a substantial slowdown for each of them with Qatar being a distinctive example as we see it being the top performer in the GCC region, said Dauba-Pantanacce. The reasons that Qatar will fare better then the rest are twofold: first its economy is based on gas and not oil as are the others. One of the main differences between gas and oil is that gas prices are determined by long-term contracts and hence react less to market volatility. Secondly, while Doha has been trying to open up its economy to foreign investors, it has not come as far as Dubai, which leaves Qatar less affected by the current global economic slowdown. "Generally speaking, for the GCC in the upcoming future in 2009-2010, even if they are hit now they have the cushions to weather the storm because they have accumulated substantial surpluses in the past five years, Dauba-Pantanacce told TML. A good example of how much money some states have managed to accumulate are the sovereign wealth funds (SWF) that oil producing countries ranging from Algeria to Saudi Arabia have established to channel the massive wealth the countries have amassed from their export of oil. The largest SWF is the Abu Dhabi Investment Authority (ADIA), which is estimated to have $875 billion in its coffers and can count a 4.7 percent stake in US financial institution CitiGroup among its investments. Dubai's SWF, the Investment Corporation of Dubai, which is smaller at $82 billion, has chosen a different path than ADIA and focuses on establishing and developing locally based companies into global players by acquiring foreign assets. Among its more famous investment was the purchase in 2006 of the British firm Peninsular and Oriental Stem Navigation Company (P&O) by Dubai-based DP World, which included the operations of six major US ports. The buy led to a harsh political debate in the US and in the end the operations of the ports were sold by DP World to an American company. Recently, there has been speculation that many of the Gulf-based SWFs are biding their time and waiting for the global economy to fall even more before making substantial investments in Western companies, which have become great value bargains due to the falling stock markets. However, there are exceptions, such as the Libyan SWF, the Libyan Investment Authority, which is considering heavy investments in a number of Italian banks, according to news agencies. - The Media Line
