(MENAFN - Khaleej Times) Uae although dependent on hydrocarbon appears most diversified in gc
the significant oil and gas reserves and the high income the oil and gas sector generates result in general government surpluses for most gcc countries. — ap
Heavy dependence on highly-volatile hydrocarbon revenues that account for 46 per cent of the economies of the gulf countries is a key vulnerability of the six-nation gcc and its ratings although the uae and qatar remain least vulnerable to sharp oil price shocks standard & poor’s ratings services said on monday.
The uae economy although dependent on hydrocarbon revenues appears the most diversified in the gcc with oil and gas contributing only 31 per cent of its total exports s&p said.
“qatar and the uae are the least vulnerable to a sharp drop in oil prices. although hydrocarbons account for more than half of qatar’s nominal gdp and 90 per cent of its export revenues it nevertheless has available 100 years of hydrocarbon production at current levels and a low fiscal breakeven oil price” s&p said.
“in the event of a sharp and sustained decline in the oil price or in hydrocarbon export volume the gcc states’ dependence on the oil and gas sector is a key vulnerability particularly in the absence of significant financial buffers” said standard & poor’s credit analyst trevor cullinan said.
“a sharp and sustained fall in the oil price or in hydrocarbon export volumes would significantly dent their economic and financial indicators” he argued.
The significant oil and gas reserves and the high income the oil and gas sector generates result in general government surpluses low government financing needs and net external asset positions for most gcc countries. however their high concentration on this sector in which prices and volumes are highly cyclical is also a credit risk cullinan said in the report titled: “hooked on hydrocarbons: how susceptible are gulf sovereigns to concentration risk”.
The ratings agency said hydrocarbon revenues on an average constitute 46 per cent of nominal gross domestic product or gdp and three-quarters of total exports of the six gcc countries.
“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” said the report.
However some gcc countries appear more vulnerable than others to a drop in oil prices in terms of certain economic external and fiscal risk indicators s&p pointed out.
“we assess bahrain and oman as highly vulnerable to a fall in hydrocarbon prices or production. they have the highest fiscal breakeven oil prices among gcc states. based on 2013 data for bahrain the oil price needs to be 18 higher than the current oil price for the sovereign to achieve a balanced budget. bahrain and oman also have the least amount of time available before their hydrocarbon revenues would be significantly diminished absent any further oil and gas discoveries or changes to current production levels at 11and 21 years respectively” the report said.
“in our view abu dhabi is still heavily oil-dependent with hydrocarbons as a proportion of nominal gdp and government revenues reaching 55 per cent and 65 per cent respectively [excluding dividends from abu dhabi national oil company brings the later ratio to 90 per cent]. however the other six emirates of the federation have a significantly smaller hydrocarbon endowment and have developed other industries as a result” the report said.
Dubai has become a services hub for the region while sharjah has a strong manufacturing base and ras al khaimah produces significant amounts of construction materials such as ceramics cement and glass. the uae as a whole ranks fourth in terms of its hydrocarbon production lifespan. nevertheless the uae’s fiscal breakeven oil price is relatively high at above 80 per barrel indicating that to some extent government expenditure growth has been keeping pace with rising hydrocarbon-fuelled government revenues.
The report observes 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 export dependence by almost 10 percentage points between 2001 and 2013 to stand at 66 per cent of total exports in 2013.
Budget breakeven oil prices for gulf states shot up from an average of 43.2 per barrel in 2007 to 78.8 by 2011 in the wake of the arab spring as governments unleashed billions of dollars of investment to appease their populations according to analyst at deutsche bank.
Breakeven oil prices fell in 2012 but the dip proved to be temporary and breakeven prices have again begun to edge up notes deutsche bank.
“for the region as a whole we estimate that the breakeven price increased by about 6 per barrel to 79 per barrel in 2013 as oil production stabilised but public spending continued to grow. we think that the breakeven price for the region will increase a little further this year to 81 barrel with a moderate increase in oil production helping to offset the impact of further growth in government spending” wrote richard burgess analyst at deutsche bank in a recent note to clients.