1. Economic Development and Globalization Division Financing for Development Section

2. The impact of the global financial crisis on the world oil market and its implications for the GCC countries Salaheddin Abosedra, Regional Advisor, ESCWA

3. Overview Expected impact of the crisis on the oil market conditions (largely based on the EIU estimations): –Oil demand –Oil supply –Oil prices Scenarios for the future of oil prices Outlook for the GCC economies Conclusions

4. Impact on oil market conditions: Demand Decrease of world oil demand…: –It declined by 0.2% in 2008 –Is expected to decline by 0.4% in 2009 …Largely driven by OECD’s demand…: –A decline of 2.9% in 2008 –An expected decline of 1.8% in 2009 …While non-OECD demand is expected to grow: –By 1.4% in 2009

5. Impact on oil market conditions: Demand Oil consumption200820092010 EIU estimates China7.908.108.38 Other Asian countries9.499.529.69 Total OECD47.7746.90 Total non-OECD38.1438.6839.57 World total85.9185.5886.47 US Department of Energy estimates China7.988.178.41 Other Asian countries9.249.169.24 Total OECD47.4745.8445.76 Total non-OECD38.1838.4339.38 World total85.6584.2785.15 Table 1: World oil demand, 2008- 2010 In million barrel/day

6. Impact on oil market conditions: Supply A total cut of 4.2 million b/d in OEPC’s output: –A cut of 1.5 million b/d (November 2008) –A further cut of 2.7 million b/d (January 2009) An expected growth in non-OPEC production (by 2.7% in 2009) An expected fall in global output (by 1.15% in 2009)

7. Impact on oil market conditions: Supply Oil production200820092010 EIU estimates OPEC37.1834.8736.12 Non-OPEC48.9850.2951.23 World total86.1685.1787.36 US Department of Energy estimates OPEC35.7133.7835.44 Non-OPEC49.7549.7649.95 World total85.4683.5385.39 Table 2: World oil supply, 2008- 2010 In million barrel/day

8. Impact on oil market conditions: Prices The crisis has affected oil prices mainly thru two channels: –Many operators have liquidated their positions in the commodity markets fall in oil prices –The severe slowdown in world demand fall in oil prices However, the EIU expects a recovery in 2010, with an increase in oil prices by almost 43%

9. Impact on oil market conditions: Prices Prices200820092010 EIU estimates West Texas Intermediate (WTI) 98.5335.7051.00 US Department of Energy estimates WTI99.5752.6462.92 Table 3: Crude oil prices, 2008- 2010 In US dollar/barrel

10. Three Scenarios for the future of oil prices Scenario 1: Two turbulent years followed by moderate growth in 2011, due to…: –Loss of confidence in the stock markets –More bank failures –Further tightening of financial capital –Declining housing prices …And resulting in: –A decline in world GDP by 0.4% in 2009 –A sluggish recovery of 1.5% in 2010 $35 in 2009$50 in 2010 – Average oil price of $35 in 2009, and $50 in 2010

11. Three Scenarios for the future of oil prices 200520062007200820092010 Real GDP growth (%) USA2.92.82.01.1-2.00.7 Japan1.92.42.10.3-0.50.7 Euro Area2.02.92.61.1-1.20.5 World3.54.03.82.3-0.41.5 World trade growth (%) Goods7.59.17.44.9-1.52.5 Inflation USA3.43.22.94.00.31.0 Japan-0.30.20.11.60.00.3 Euro Area2.0 2.13.41.71.5 Table 4: Global outlook

12. Three Scenarios for the future of oil prices Scenario 2: Six turbulent months followed by moderate growth in late 2009, due to: – Confidence in the US economic recovery –Low oil prices –Strengthening of the US dollar The average oil price in this scenario would be $45 in 2009 and $60 in 2010

13. Three Scenarios for the future of oil prices Scenario 3: Three turbulent months followed by moderate growth in the second half of 2009 –It differs from scenario 2 in two aspects…: A less pronounced decline in demand and employment A faster impact of the three positive effects of scenario 2 –…Resulting in an average oil price of $50 in 2009 and $65 in 2010

14. Three Scenarios for the future of oil prices Chart 1: GCC oil and gas revenues as percentage of total revenues, 2004, 2007 In percentage

15. Three Scenarios for the future of oil prices Chart 2: GCC oil and gas exports as percentage of total exports, 2004, 2007 In percentage

16. Outlook for GCC economies A/ Fiscal balance –Expected decline in surpluses Table 5: Budget balance Percentage of GDP Country200520062007200820092010 Bahrain7.54.33.46.4-1.6 Kuwait39.429.142.431.54.05.6 Oman2.03.73.06.13.45.0 Qatar9.29.78.010.92.33.6 Saudi Arabia18.421.012.311.6-2.8-3.1 United Arab Emirates (UAE) 8.111.614.213.81.71.1

17. Outlook for GCC economies B/ Economic growth –Expected decline in growth rates Table 6: Economic growth Percentage change, market exchange rate weights Country200520062007200820092010 Bahrain7.96.78.16.13.04.3 Kuwait11.46.34.78.54.25.5 Oman5.87.55.86.43.26.2 Qatar6.15.111.312.718.716.7 Saudi Arabia5.53.23.46.13.04.6 UAE8.29.47.67.94.05.6

18. Outlook for GCC economies C/ Inflation –Lower expected inflation rates Table 7: Consumer price inflation Percentage change Country200520062007200820092010 Bahrain2.62.03.37.04.53.9 Kuwait4.13.05.511.79.07.3 Oman1.23.05.913.59.66.0 Qatar8.811.813.715.211.88.9 Saudi Arabia0.62.34.19.44.33.8 UAE12.513.513.314.47.58.6

19. Outlook for GCC economies D/ Current account –Moderate expected current account surpluses Table 8: Current account Percentage of GDP 200520062007200820092010 GCC27.127.922.725.68.110.1 Bahrain11.013.817.211.31.11.9 Kuwait42.550.742.339.719.019.4 Oman16.014.25.112.00.22.1 Qatar17.617.916.021.313.121.3 Saudi Arabia28.828.022.529.14.35.3 UAE20.921.418.313.93.75.1

20. Outlook for GCC economies: “sensitivity” check If oil prices were to stabilize at higher levels, this would mean: –A moderate decrease in fiscal surpluses –A less severe economic slowdown –Higher current account surpluses

21. Conclusions The current crisis has a particular feature: it is accompanied with falling oil prices: –Thus significantly hurting GCC countries However, the impact would likely be short lived

22. Thank you