Dubai immune from oil price decline: S&P

Dubai is immune from oil price slide and the recent decline in oil price is unlikely to have any major impact on Dubai thanks to its economic diversification, according to a new study by international ratings agency Standard and Poor’s.
 

“Dubai is the exception as it relies more heavily on trade, tourism, real estate and construction and transportation and is enjoying favourable economic conditions. Shifts in the real estate and construction sector have been behind Dubai's economic swings in the past; the sector accounted for just over 20 per cent of GDP in 2013 (down from about 30 per cent in 2008),” S&P said in its study titled ‘Lower Oil Prices Will Test GCC Corporate and Infrastructure Issuers’ Resilience.’

S&P recently revised its Brent crude oil price assumption to $85 per barrel for the remainder of 2014 and $90/bbl for 2015 and beyond.

US crude futures rose towards $79 a barrel on Monday on geopolitical tensions in Libya and Ukraine.

S&P report said Dubai real estate rents and prices have stabilised after a period of rapid growth, as supply additions have caught up with demand. Although market sentiment may drive prices in the near term, the amount of new supply (and the extent to which the authorities manage it) will be the key to market developments going forward. Current prices allow for robust margins for developers that acquired land at historically low rates, and will therefore likely keep the supply pipeline healthy.

“We view Bahrain and Oman as most vulnerable to a decline in the hydrocarbon market, and Qatar and the UAE as the least vulnerable,” it said.

On average, oil revenues constitute 46 per cent of nominal GDP and three-quarters of total exports for the six GCC countries. Therefore, the recent drop in hydrocarbon prices, if sustained, could have a significant impact on the region’s economic and financial indicators, S&P said.

Due to slide in oil prices, some of the GCC countries are considering withdrawing subsidies due to shrinking budget surpluses.

Quoting a Kuwaiti news agency report, Reuters said last month that the country’s cabinet ‘accepted’ a report by a committee at the Ministry of Electricity and Water on hiking prices of diesel and kerosene more than threefold.

Harald Finger, the IMF’s head of mission for the UAE, said the government of Abu Dhabi is looking at ways to reform its system of subsidies for electricity and water.




 

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