The recent plunge in oil prices is unlikely to cause major economic ructions in the Gulf, but it has taken a toll on local financial markets. Brent crude has plunged from $85pb at the start of October to just under $65pb now, in the process wiping $130bn (9% of GDP) off the Gulf’s oil export revenues on an annualised basis. Budget and current account balances will deteriorate but most of the Gulf economies are well-placed to cope and dollar pegs should remain intact. Lower oil prices have weighed on local financial markets – the MSCI GCC Index has dropped by more than 1.5% over the past month and dollar bond spreads have widened. This is probably a sign of things to come in 2019-20 if, as we expect, oil prices fall further.
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