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Dubai, May 16 (PTI) In the short term, Gulf Arab states are more insulated from the impact of the European sovereign crisis than other MENA (Middle East and North Africa) countries, such as those in North Africa, a recent research report has said. According to a Credit Agricole note, however, any precipitous and sustained price drop in commodities such as oil or global equities would not bypass the Gulf and for Gulf oil exporters, uncertainty about the direction of oil prices is the most potent risk related to the European debt crisis. "Oil prices averaging above USD 55/barrel for the year would be high enough to enable the UAE, Kuwait, Qatar, Oman and Bahrain to balance their fiscal budgets while keeping state spending at elevated levels to support an economic recovery," it said. "In 2009, as WTI averaged USD 62/barrel, Saudi Arabia witnessed a very manageable USD 18.7 billion budget deficit," the research note said. It also said that given European banks'' rather large claims on the GCC (UAE in particular), some deleveraging in Europe could affect the GCC markets. However, abundant forex reserves and government proactivity would likely lead to some mitigation of the impact. "Oil price fluctuations will, however, hurt business confidence and, if sustained, will affect private sector psychology. Oil at USD 55/bl, while providing sufficient state revenues, would shake confidence greatly," the report said. For each dollar drop in the price of oil, the weekly opportunity cost amounts to USD 56 million for Saudi Arabia, USD 19 million for the UAE, USD 11.5 million for Kuwait and USD 9.6 million for Qatar. According to the research note, Saudi Arabia, Kuwait, as well as Oman (due to higher price pressures) are set to benefit most from the currency effect resulting from a structurally weaker euro, which will make imports of machines, luxury goods and vehicles and other items more competitive. PTI CORR ARV.
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