For many of the financially strapped nations of the Middle East, the oil-rich countries of the Persian Gulf have served for years as an economic lifeline, providing jobs for their citizens, who in turn sent millions of dollars back home; tourists, who filled their hotels when Westerners were reluctant to visit; direct investment and the kind of checkbook diplomacy that has helped stabilize an often volatile region.
Suddenly, that lifeline appears frayed, dangerously so for countries like Egypt and Jordan, as the energy-rich nations find themselves pulled into the global financial crisis and undermined by dropping oil prices. Across the Persian Gulf, stock markets are down, causing panic among investors. Even in the boomtown of Dubai, United Arab Emirates (UAE), the once-mighty real estate market has cooled as access to credit has tightened.
Governments across the region have had to intervene.
The UAE injected US$32 billion into its banking system and guaranteed bank deposits. Saudi Arabia has offered billions of dollars to make loans available to its citizens. And Kuwait, which had already cut its benchmark rate, this week moved to prop up its second-largest bank.
But the era of sky-high oil prices, while now a memory, left most of the region’s capitals with enough cash reserves to cushion the blow, economists and financial experts in the region said. And as long as oil sells for more than US$55 a barrel, most of the governments will take in more than they have allocated in their budgets, regional analysts said.
“We are not calling for a recession in the Gulf,” said Marios Maratheftis, regional head of research for Standard Chartered Bank in Dubai. “We are looking at a slowdown.”
A slowdown in the Persian Gulf might feel like a crash landing in places like Egypt, Jordan and Syria, where Gulf money has helped prop up strained economies.
“When there is growth in the Gulf, there will be growth in the whole Arab world,” said Rashad Abdou, a professor of economics and international finance at Cairo University. “There would be more tourism, more money in the stock market, more investments. And the opposite is true. With a shrinking or recession, they will not come for tourism, they will not put their money in the stock market, they will not invest and they will not be able to hire Egyptian workers.”
Egypt receives about half of its US$6 billion in annual remittances from more than 2 million of its citizens living and working in the Persian Gulf area, while about 60 percent of its tourists come from that region, Egyptian economists estimated. Syria has benefited from Gulf investments in large real-estate projects, helping offset some of the economic isolation imposed by US sanctions. Jordan sends a quarter of its annual exports to the Persian Gulf, receives about US$2 billion annually in remittances from workers there and takes in about US$500 million in financial aid from Saudi Arabia alone.
“I expect investments from the Gulf to slow down or stop because they have to deal with their own problems before they invest in other countries,” said Nabil Samman, an economist who runs the Center for Research and Documentation, based in Damascus. “Syria will be affected in terms of the Syrian people who send money from the Gulf, in case there is a slowdown in employment or firing from Gulf States. There are close to a million Syrians in the Gulf area.”
Extravagant oil wealth has helped transform not just the Persian Gulf nations on which it was bestowed but the greater Arab world as well. Egypt, once the cultural and political capital of a region that stretched from Morocco to Iraq, has taken a back seat to the petro-fueled economies and politics of places like Qatar and Saudi Arabia.
The Persian Gulf states took on an aura of invincibility, especially as oil prices crested this summer near US$150 a barrel and as the tiny nation of Qatar negotiated a settlement to Lebanon’s political crisis. And even as the financial crisis spread from the US to Europe and into Asia, there was a feeling in the Middle East that oil-rich nations would be spared. But then the price of oil began to drop precipitously, revealing a financial anatomy in many nations that was far from invincible.
Sparkling Dubai, with its larger-than-anything-else-in-the-world ethos, was powered by the greatest construction boom in Middle Eastern history. But it was a dream built on a promissory note. Debt increased 49 percent from last year to this year, so when the credit crisis came it hit Dubai hard, financial experts there said.
Dubai had to turn to the government of the UAE for an injection of capital to keep its banks afloat. Optimists are hoping that the cooling of Dubai’s overheated real estate market will ultimately have a positive effect on the emirate, though they recognized it would not be without pain.
“The subprime crisis, which started in the US in 2007, has developed into a full-blown international crisis with potentially severe consequences for the GCC [Gulf Cooperation Council] countries and their growth models,” Eckart Woertz, an economist at the Gulf Research Center, wrote in a report issued this month.
The GCC is a regional association that includes Saudi Arabia, the United Arab Emirates, Qatar, Oman, Kuwait and Bahrain.
While the GCC wrestles with its growing problems, its neighbors, already harmed by the financial troubles in the US and Europe, anxiously await the potential fallout from next door. There are signs that the pain is spreading. In Cairo, Karim Hussein, 27, has worked for the last three years in offices that arrange work visas for Egyptians looking for employment in the Emirates. He said in the past they would get requests for up to 70 visas a month. Now, if lucky, they get 10, he said, “if we get anything at all.”
In Amman, Jordan, Manal Saleh, 35, has worked for five years at Al Hadaf, an employment company that sends skilled workers to the Persian Gulf.
She said that opportunities there have dropped by about half since the start of the year.
“In light of the financial situation, demand has shrunk,” she said.
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