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A Tale of Affected Cities By Oil Prices

The dwindling financial value of the oil comes with a greater cost attached to the Gulf countries. While it may not have a staggering effect on most of the economies at the moment; if persistent, may have a hazardous effect in the long haul. The Organization of the Petroleum Exporting Countries (OPEC), especially the countries of the Persian Gulf will be affected on the account of falling oil prices and some of the governments’ rising spending. The oil exporters, according to The New World Bank Report Details the Varying Impacts of the Decline in Prices on the Region’s Oil Importers and Exporters published on 29th January, 2015 will likely run larger fiscal and current account deficits, or their surpluses will shrink substantially.

The Gulf Cooperation Council (GCC) figures of the projects awarded drive the point home. Although, the level of projects awarded rose to highest in these first months of 2015, it was confined only to Qatar and Kuwait displaying 287% and 72% increase respectively. The other countries – Oman, and U.A.E. had a fall in the value of projects awarded. The cues being fall in number of projects, some of them put on hold or being canned altogether. In Qatar chemical projects bore the brunt, while in Saudi Arabia, the hydrocarbon projects were doomed. Most of the projects which saw a similar fate in the U.A.E. were the ones from the real estate sector. Most of the GCC countries have seen a surplus in the financial year of 2014, leave for the exception of Bahrain. These countries have had huge amounts of surpluses lubricating their economies since years; moreover they have money holed up in foreign reserves.

The cause and the effect: The affected countries whether direly or not, are looking at re-thinking their spending. In U.A.E., construction projects saw a drop; around 40% of the planned construction projects, mostly by smaller developers were on hold in the first three months of 2015. The value of the projects awarded took a dive in U.A.E. whereas Qatar and Kuwait saw less number of projects being awarded, but a growth in the value. Saudi Arabia had a better standing, about 72% of all the planned projects were awarded. The project market is expected to rise in 2015, albeit at a sluggish pace when compared to the growth of the two preceding years. The other areas that might be affected would be infrastructure spending (Qatar), reduced subsidies (Kuwait – diesel and U.A.E. – electricity), energy and fuel prices (Saudi Arabia), scrounging for budget support (Bahrain) and additional sources of revenue (U.A.E.). The New World Bank Report Details the Varying Impacts of the Decline in Prices on the Region’s Oil Importers and Exporters published on 29th January, 2015 had Lili Mottaghi, World Bank MENA Economist and the author of the report saying that “The oil shock could threaten the ability of some of the oil exporters to meet domestic spending commitments. Their options include drawing down reserves, accumulating debt, and cutting spending on fuel subsidies and public-sector salaries.”

The next three months of 2015 could see a better potential for key developmental projects; projects in connection with the theme park (Dubai), Etihad Rail and Saadiyat museums (Abu Dhabi) are expected to be granted.