The Gulf’s Suspended Oil Slump Succession

Saudi shares remained in a downtrend with the death of King Abdullah as his half-brother formally took the reins, while the Oil Minister vowed not to cut production even if the barrel price reaches $20 which could then trigger automatic rebound according to the views of OPEC counterparts. The leadership transfer should not affect stock market foreign opening, but currency NDFs moved further in the aftermath on incipient doubt about the dollar peg level, although unlike 2008 when GCC monetary integration was posited as an alternative the basic regime rationale is not under fire. With petroleum exports 85 percent of the total the trade surplus has slipped and SAMA reserves were off $5 billion to bridge 2014’s 2 percent of GDP budget deficit but are estimated at $750 billion for a multi-year cushion. Banks have another $50 billion in foreign assets so the recent spot blip to 3.76/dollar will likely fade with repatriation of proceeds also to prepare for possible reissuance of domestic debt which once stood at 80 percent of GDP but was paid off entirely. The non-oil economy may shrink 5 percent in 2015 with spending delays and reductions, although previously pledged infrastructure and social outlays will be maintained. The security fallout from the Yemen crisis could deal another blow, with Houti rebels allied with Iran reportedly now in charge after the President resigned. Unmitigated poverty and violence could again fracture the country which is already host to an Al-Qaeda wing, analysts believe. The UAE has increased crude capacity to 3.5 million barrels/day as 4 percent GDP growth will be flat this year as property lending and sales cooled with prudential rules and price correction. Banks’ loan to deposit ratio reverted to almost 100 percent and private sector credit restraint will be offset by big showcase projects including preparation for the 2020 World Expo. Another Dubai World restructuring was backed by a majority of debt holders and a diminished medium-term load should bolster relative safe haven status versus riskier borrowers like Bahrain, where a $300 million issue just came due. Kuwait’s public debt is under 5 percent of GDP and it has double digit fiscal and current account surpluses, but alone among the Gulf group officials have begun slashing  selected fuel subsidies while leaving petrol and electricity support in place. Business will bear the brunt of the adjustment and households and their parliamentary representative have been less combative toward the royal ruling family than with past budget changes.

Qatar stocks have outperformed with a 10 percent annual gain mostly on geopolitics as regional rapprochement was signaled in advance of the annual GCC meeting in Doha, although the Saudi and UAE split over Egypt lingers. President Sisi repaid the $2.5 billion loan taken during the Muslim Brotherhood’s term as bilateral relations remain tense. However the World Cup’s Ethics Committee cleared officials of wrongdoing paving the way for completion of the first stadium in a succession of 2022 facilities.