JOIN USIn 2008, a barrel was fetching just short of $150. Average prices for 2007 were not far short in real terms of all-time high during the Pennsylvanian oil boom of the 1860s, or the period after Iranian revolution of 1979.
For the six states of Gulf Cooperation Council (GCC), almost all of whom are major energy exporters, the boom has transformed their world. Saudi Arabia, the United Arab Emirates, and Qatar have been propelled from being energy exporters to being major financial and political players beyond the Gulf. Kuwait, Bahrain and Oman have become financial, cultural and tourism centres between Europe and Asia.
The six states averaged, between 2005 and 2008, a GDP growth of 6 per cent per year, engendering an anything-is-possible attitude, as in contrast to previous oil booms, this one was accompanied by a willingness to change rules and invest at home, rather than spend the wealth abroad. By 2008, however, financial storm clouds that had formed elsewhere were also appearing over the Gulf. Talk turned to prophesies of property
market doom, and the question if and how the GCC could avoid capitalist contagion.
It couldn’t. In figures published by International Monetary Fund (IMF) May 10, GDP growth estimates for the six states have been slashed to just 1.3 per cent in 2009. After the bloc boasted budget surpluses of hundreds of billions of dollars in 2008, it now expects figures to slide into the red for 2009.
Stock markets and property indices have fallen sharply, wiping inestimable sums out of private wealth. Credit flows from outside have shrunk by more than $50 billion since 2008, putting jobs and infrastructure at risk.
Home prices fall
Things could yet get worse. But the bad news is unevenly distributed. While it is true that home prices in Dubai’s runaway market fell by some 40 per cent in the first quarter of 2009, values elsewhere — such as in neighbouring Abu Dhabi — are holding up. Government spending in Saudi Arabia, largest economy in the region, is plugging the gap left by sagging private demand. And Qatar, is still expecting double-digit GDP growth through 2010.
But overall, the GCC is now in a new reality. Irrational exuberance is just a textbook term, no longer a reality. What, then, of real utility that has come out of the boom time, when money can evaporate just as fast as it arrived? There are examples of products of the boom which are either forward looking, or will have implications for decades to come.
The boom has also seen significant convergence of wealth and religion, in the shape of an Islamic finance industry that is on the verge of becoming mainstream, and a Bahrain-based regulator has begun laying foundations of a unified system for a Sharia-based financial system. The GCC is now a major node on world’s economic map. But perhaps the greatest legacy has been the benefits of an open and — somewhat —transparent economy.