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From Disaster To Dreamland: Gulf Economies Are Exploding in 2021

  • Last year, with oil prices floundering near the $40 mark for much of the year, most of the Gulf economies were in dire straits due to their heavily oil-reliant economies
  • According to an S&P Global Ratings estimate, the Gulf Cooperation Council’s central government deficit hit $100 billion in 2020
  • The remarkable recovery of oil prices and the broader energy sector has transformed the economic situation of these countries, with GCC stock markets on a tear

Last year, deep in the throes of the energy crisis, Gulf nations led by Saudi Arabia constantly touted the strength of their economies, claiming they could withstand any scale of shocks. But the truth of the matter is that most Gulf economies were in dire straits thanks to their overreliance on oil. With oil prices stuck around $40/barrel, only Qatar managed to balance its books, while  Saudi Arabia's fiscal breakeven price of $76.10 meant that it faced a glaring deficit. Indeed, S&P Global Ratings estimated that GCC (Gulf Cooperation Council) central government deficits would hit $100 billion in 2020 and nearly half a trillion dollars cumulatively between 2020 and 2023.

But as fate would have it, the remarkable recovery by the global energy sector means that GCC nations are in a much better place now than earlier predicted.

Indeed, GCC stock markets have been on a tear this year thanks to the oil price recovery. From energy and petrochemicals to chemical and banking stocks, Middle East stock markets are thriving even as some of the region's central banks begin to withdraw stimulus - a signal of their belief in the strength of the recovery.

Here's a peek into notable movers in the GCC zone.

Budget deficit

Gulf
Source: Reuters

Saudi Arabia

Saudi Arabia's stock market benchmark index, the Tadawul All Share Index (TASI), has been a standout performer this year, climbing  32.3% YTD and 42.2% over the past 12 months.

Related: U.S. Shale Is Finally Ready To Drill Leading the charge is market heavyweight Al Rajhi Bank (1120.SE), up 67.0% YTD; Saudi Telecom Company (7010.SE) has gained 19.3% while chemical makers Sahara International Petrochemical (2310.SE) and Saudi Basic Industries (2010.SE) have advanced 152.6% and 26.1%, respectively.

Surprisingly, oil giant Saudi Aramco (TADAWUL:2222) has been a laggard, managing a mere 3.3% YTD gain.

Bloomberg has reported that Saudi Aramco is in advanced talks to buy a ~20% stake in Reliance Industries' oil refining and chemicals business for $20B-$25B in shares, with an agreement anticipated in the coming weeks. Based on Aramco's market valuation of $1.9T, a deal would give the Indian company a ~1% stake in the world's biggest energy company.

UAE

The Dubai Financial Market General Index (.DFMGI) is up 14.2% YTD, with financial stocks giving the most support. Amanat Holdings (AMANT.DU), an integrated healthcare and education investment company, is up 35.0%, while Dubai Islamic Bank (DISB.DU) has gained 8.7% YTD.

Abu Dhabi's stock market index, ADSM All Shares Index (.ADI), has been UAE's top performer after climbing 51.6% YTD. First Abu Dhabi Bank (FAB.AD) has gained 35.9% YTD; Emirates Telecommunications Group (ETISALAT.AD) is up 41.0%, while Dana Gas (DANA.AD) has climbed 49.2% over the timeframe.

Related: Is China’s Digital Yuan The Death Knell For Crypto?

Last month, the United Arab Emirates central bank (CBUAE) announced it would start to gradually withdraw stimulus measures introduced last year to mitigate the economic impact of the COVID-19 pandemic. However, the bank said lowered reserve requirements for banks would remain unchanged, meaning the UAE economy is not totally out of the woods yet.

Qatar

The Qatari index (.QSI) has rallied 10.0% year-to-date, with industrial and financial shares supporting the index the most. 

Industries Qatar (IQCD.QA), a Qatar-based company that acts as a holding company with operations in petrochemicals, fertilizer, and steel, has climbed 41.2%, while Commercial Bank (COMB.QA) has gained 40.4%.

Here's how other GCC stock markets have performed this year:

  • Bahrain All Share Index (.BAX)-- +15.1% YTD
  • Oman’s Index (.MSI)--+7.0% YTD
  • Kuwait's benchmark premier index (.BKP)--+6.9%
  • CAIRO SE EGX30 INDEX (.EGX30)--minus 0.29% YTD

By Alex Kimani for Oilprice.com

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  • Mamdouh Salameh on October 04 2021 said:
    This will be the case for the Gulf Cooperation Council (GCC) countries until they diversify their economies.

    And to diversify their economies, they need a relatively high Brent crude price exceeding $80 a barrel not only to balance their budgets but also to generate enough oil revenues to enable them to finance major investments in the non-oil sector of the economy.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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