The jump in oil prices, from $51pb at the start of September to around $59pb at the time of writing, should provide a fillip to the large frontier oil economies, such as Saudi Arabia, Nigeria and Kazakhstan. If sustained, we estimate that this would translate into a $50bn boost to their hydrocarbon revenues on an annualised basis. This would help to narrow the large budget and current account deficits that have opened up over the past few years, allowing some countries to ease austerity.
Despite this, financial markets in these countries have continued to struggle. Equity markets have been treading water and dollar bond spreads over US Treasuries have widened. This subdued performance may reflect a growing realisation that, while the near-term outlook has improved, longterm economic growth is likely to be subdued. Investors in the Middle East may also be wary given that higher oil prices partly reflect growing geopolitical tensions in the region.
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