Prospect of US-Iran conflict threatens Gulf economies

1 Day Ago, Bernhard Schneider

Economies of Gulf,even now strained by years of low oil prices, face a double-edged sword with the prospect of conflict with Iran increasing oil prices while also threatening exports. If the US killing of Iranian general Qasem Soleimani on Friday leads to conflict between Washington and Tehran, oil facilities could be targeted in Gulf states, which also host US military bases, including the headquarters of the US Fifth Fleet in Bahrain.

Beholder say such a clash might send oil prices above USD 100 a barrel but could also lead to a massive disruption of exports if Iran closes the Strait of Hormuz, a strategic waterway which serves as the main artery for Middle East oil.

"With Iran vowing to retaliate, there is an augmented risk of attacks on oil facilities and other targets," in the Gulf states, said M R Raghu, the head of research at Kuwait Financial Centre.

The oil price crash of mid-2014 cost Gulf economies hundreds of billions of dollars, with Saudi undergoing the most loss. Since then, they have increased borrowing amid persistent budget deficits, weak economic growth and lower foreign investment inflows.

In October, the International Monetary Fund cut its forecasts for Gulf economic growth in 2019 to just 0.7 per cent, down from 2.0 percent the last year. Saudi Arabia was pared to a meagre 0.2 per cent over low oil prices.

Even if the Strait of Hormuz was closed, few Gulf countries, especially Saudi Arabia and UAE, have other export routes on the Red Sea and the Arabian Sea. Oman lies outside Hormuz.

But the Saudi East-West pipeline, with a capacity to move five million barrels a day to the Red Sea, was hit by drones flown by Yemen's Iran-backed Huthis in the summer, causing disruption for several days.

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