Tuesday, May 26, 2009

Higher Oil Prices Keep Producing Economies Afloat

This is a fairly well-known fact, but the fates of newly emerging economies like Dubai have been closely tied with the price of oil. Although the slowdown in the UAE has been well documented, the projection of higher oil prices does bode well for economies like these. Bloomberg picked up on this theme in an article today:

  • Crude prices that have stabilized above $50 a barrel mean the Middle East’s oil-rich economies are likely to pull out of the global financial crisis sooner than the rest of the world. Saudi Arabia, the largest Arab economy and the world’s biggest oil exporter, is attracting renewed interest from investors including leveraged-buyout firm KKR & Co. Qatar and Abu Dhabi have returned to international capital markets.
  • Stock markets are rallying across the region, led by Saudi Arabia, whose Tadawul All Share Index ended last week up 26 percent for the year to date, after tumbling 56.5 percent in 2008.

“The expected resilience of oil prices puts the Gulf countries in a relatively privileged position compared to Europe and the U.S.,” says Eckart Woertz, an economist at the Gulf Research Center in Dubai. “In 2010, that is likely to lead to some resumption of growth, unlike in developed-market economies.”

The article has plenty more detail, and touches on Dubai's real estate and construction slowdown as well. Strength in these economies will continue to rebound as long as A) there is a demand for oil, and B) Oil prices stay above $60/barrel. Over the next decade, those two are both pretty likely.

Disclosure: Long T Rowe Price Africa and Middle East Fund (TRAMX).

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