(MENAFN- Muscat Daily) Gulf sovereigns' high and increasing dependence on hydrocarbon revenues is a key vulnerability of their economies and their ratings, and some GCC countries are more vulnerable than others to a drop in oil prices, Standard and Poor's (S&P) Ratings Services said on Monday.
In a report titled Hooked on hydrocarbons: How susceptible are Gulf sovereigns to concentration risk, S&P said Bahrain and Oman are the GCC countries that are most vulnerable to a sharp and sustained decline in the hydrocarbon market, while Qatar and the UAE are the least vulnerable."We view the GCC states' dependence on oil and gas as a key vulnerability, particularly absent the accumulation of significant financial buffers, should there be a sharp and sustained decline in the oil price or in hydrocarbon export volumes," said S&P's credit analyst Trevor Cullinan. "A sharp and sustained fall in the oil price or in hydrocarbon export volumes would significantly dent their economic and financial Âindicators."On average, hydrocarbon revenues constitute 46 per cent of nominal GDP and three-quarters of total exports of the six GCC countries. Furthermore, this strong dependence on hydrocarbon revenues appears to be increasing. ''This is partly a result of high oil prices feeding through to the national accounts data, but also, in our view, because these countries have made only marginal progress in diversifying their economies away from hydrocarbons,'' the S&P report said.It added, ''We assess Bahrain and Oman as highly vulnerable to a fall in hydrocarbon prices or production. They have the highest fiscal break-even oil prices among GCC states.''S&P said that, similar to Bahrain, the relatively low lifespan of Oman's current hydrocarbon production increases the sovereign's overall vulnerability. ''Nevertheless, through utilising enhanced oil recovery (EOR) technologies and large upstream investments, Oman has been able to sustain its oil reserve level at 5.5bn barrels. Oman also has the second-highest break-even oil price among the GCC sovereigns, although this is still an order of magnitude lower than that of Bahrain.''The report said Oman's fiscal break-even oil price is close to Saudi Arabia's, and the hydrocarbon sector represents ÂsligÂhtly less than half of GDP. ''HowÂever, Oman's exports are less dependent on hydrocarbons than most other GCC sovereigns, although the dependence remains material,'' the report added.S&P noted said that the UAE and Oman have made the greatest progress in reducing the hydrocarbon component of their exports. ''The concentration of the UAE's hydrocarbon exports as a percentage of total exports has declined by almost 15 percentage points since 2001, mainly owing to re-exports and the services exports of Dubai. Oman reduced its hydrocarbon export dependence by almost 10 percentage points between 2001 and 2013, to stand at 66 per cent of total exports in 2013,'' the report added.The ratings agency said that the Oman government's eighth five-year development plan (2011-2015) aims to continue to push for diversification by focusing on the development of tourism, industry, and the agriculture and fisheries sector. ''That said, the pace and scope of diversification in Oman remains largely linked to the performance of the hydrocarbon sector; the government's public expenditure programs are closely correlated with hydrocarbon revenues. Competing demands for Omani gas in both domestic and external markets may lead to shortfalls in the domest
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