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Economic Development and

Globalization Division
Financing for Development Section

The impact of the global financial crisis


on the world oil market and its
implications for the GCC countries
Salaheddin Abosedra, Regional
Advisor, ESCWA

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

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 OECDs 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

Impact on oil
market conditions: Demand
Table 1: World oil demand, 20082010
In million barrel/day
Oil consumption

2008

2009

2010

China

7.90

8.10

8.38

Other Asian countries

9.49

9.52

9.69

Total OECD

47.77

46.90

46.90

Total non-OECD

38.14

38.68

39.57

World total

85.91

85.58

86.47

China

7.98

8.17

8.41

Other Asian countries

9.24

9.16

9.24

Total OECD

47.47

45.84

45.76

Total non-OECD

38.18

38.43

39.38

World total

85.65

84.27

85.15

EIU estimates

US Department of Energy
estimates

Impact on oil
market conditions: Supply
A total cut of 4.2 million b/d in OEPCs
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)

Impact on oil
market conditions: Supply
Table 2: World oil supply, 20082010
In million barrel/day
Oil production

2008

2009

2010

OPEC

37.18

34.87

36.12

Non-OPEC

48.98

50.29

51.23

World total

86.16

85.17

87.36

OPEC

35.71

33.78

35.44

Non-OPEC

49.75

49.76

49.95

World total

85.46

83.53

85.39

EIU estimates

US Department of Energy
estimates

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%

Impact on oil
market conditions: Prices
Table 3: Crude oil prices, 20082010
In US dollar/barrel
Prices

2008

2009

2010

98.53

35.70

51.00

99.57

52.64

62.92

EIU estimates
West Texas Intermediate
(WTI)
US Department of Energy
estimates
WTI

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
Average oil price of $35 in 2009,
2009 and $50 in 2010

Three Scenarios for


the future of oil prices
Table 4: Global outlook
2005

2006

2007

2008

2009

2010

USA

2.9

2.8

2.0

1.1

-2.0

0.7

Japan

1.9

2.4

2.1

0.3

-0.5

0.7

Euro Area

2.0

2.9

2.6

1.1

-1.2

0.5

World

3.5

4.0

3.8

2.3

-0.4

1.5

7.5

9.1

7.4

4.9

-1.5

2.5

USA

3.4

3.2

2.9

4.0

0.3

1.0

Japan

-0.3

0.2

0.1

1.6

0.0

0.3

Euro Area

2.0

2.0

2.1

3.4

1.7

1.5

Real GDP
growth (%)

World trade
growth (%)
Goods
Inflation

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

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

Three Scenarios for


the future of oil prices
Chart 1: GCC oil and gas revenues as percentage of total
revenues, 2004, 2007
In percentage

Three Scenarios for


the future of oil prices
Chart 2: GCC oil and gas exports as percentage of total exports,
2004, 2007
In percentage

Outlook
for GCC economies
A/ Fiscal balance
Expected decline in surpluses
Table 5: Budget balance
Percentage of GDP
Country

2005

2006

2007

2008

2009

2010

Bahrain

7.5

4.3

3.4

6.4

-1.6

-1.0

Kuwait

39.4

29.1

42.4

31.5

4.0

5.6

Oman

2.0

3.7

3.0

6.1

3.4

5.0

Qatar

9.2

9.7

8.0

10.9

2.3

3.6

Saudi Arabia

18.4

21.0

12.3

11.6

-2.8

-3.1

United Arab
Emirates
(UAE)

8.1

11.6

14.2

13.8

1.7

1.1

Outlook
for GCC economies
B/ Economic growth
Expected decline in growth rates
Table 6: Economic growth
Percentage change, market exchange rate weights
Country

2005

2006

2007

2008

2009

2010

Bahrain

7.9

6.7

8.1

6.1

3.0

4.3

Kuwait

11.4

6.3

4.7

8.5

4.2

5.5

Oman

5.8

7.5

5.8

6.4

3.2

6.2

Qatar

6.1

5.1

11.3

12.7

18.7

16.7

Saudi Arabia

5.5

3.2

3.4

6.1

3.0

4.6

UAE

8.2

9.4

7.6

7.9

4.0

5.6

Outlook
for GCC economies
C/ Inflation
Lower expected inflation rates
Table 7: Consumer price inflation
Percentage change
Country

2005

2006

2007

2008

2009

2010

Bahrain

2.6

2.0

3.3

7.0

4.5

3.9

Kuwait

4.1

3.0

5.5

11.7

9.0

7.3

Oman

1.2

3.0

5.9

13.5

9.6

6.0

Qatar

8.8

11.8

13.7

15.2

11.8

8.9

Saudi Arabia

0.6

2.3

4.1

9.4

4.3

3.8

UAE

12.5

13.5

13.3

14.4

7.5

8.6

Outlook
for GCC economies
D/ Current account
Moderate expected current account surpluses
Table 8: Current account
Percentage of GDP
2005

2006

2007

2008

2009

2010

GCC

27.1

27.9

22.7

25.6

8.1

10.1

Bahrain

11.0

13.8

17.2

11.3

1.1

1.9

Kuwait

42.5

50.7

42.3

39.7

19.0

19.4

Oman

16.0

14.2

5.1

12.0

0.2

2.1

Qatar

17.6

17.9

16.0

21.3

13.1

21.3

Saudi Arabia

28.8

28.0

22.5

29.1

4.3

5.3

UAE

20.9

21.4

18.3

13.9

3.7

5.1

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

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

Thank you