Gulf oil producers will be looking to invest their massive financial surpluses spawned by strong oil prices over the past two years but they could be scared off by the present global financial turmoil, a Kuwait bank has said. 

The six Gulf Cooperation Council (GCC) countries, which control over 40 per cent of the world’s recoverable crude resources, achieved substantial fiscal and current account surpluses through 2010-2011 and are expected to record equally large balance this year due to expectations of high oil revenue, National Bank of Kuwait (NBK) said in a study. 

Large surpluses would be attained this year despite a projected six per cent increase in public spending, mainly in Saudi Arabia, the world’s dominant oil power and the largest Arab economy. 

NBK said political unrest in the Arab world would continue to spur GCC nations to spend more on development and this would keep public expenditure high despite slower growth this year compared with 2012. 

“With oil production high and prices remaining above the $100 mark, the GCC will see a further year of large fiscal and current account surpluses, possibly in the range of 10-20% of GDP for the region as a whole,” it said. “This will once again see the region stand out in a year of financial austerity and deficits elsewhere in the world. Indeed, one major challenge will be to decide how to invest these surplus revenues safely given the prevailing uncertain global economic outlook.” 

But NBK said that despite the prospect of further turmoil in global financial markets, GCC economies should see another year of solid growth in 2012. Real GDP growth is projected at around 4.6%, compared to oil-boosted growth of 7.9% in 2011, the report said. 

Oil markets are assumed to remain firm, while further increases in GCC expenditure will support investment and consumer spending, it added. 

“Meanwhile, the risks from an external financial shock from Europe or elsewhere seem manageable… GCC banks are liquid and well-capitalized, direct exposure to risky Eurozone government debt is negligible, and financial and economic excesses are much smaller now than in 2008.”