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Impact of global uncertainty: What does it mean for the Middle East
Source: Frost & Sullivan , Author: Posted by BI-ME staff
Posted: Thu August 11, 2011 10:15 am

UAE. According to Frost & Sullivan, as the currencies of the Gulf Cooperation Council (GCC) countries are pegged to the US dollar, they are expected to depreciate in the short term like the dollar. 

Since oil is the biggest revenue generator for the Middle East region, the short term decline in oil prices might be leading to fiscal pressures. However, the opportunity cost of providing subsidized fuel to the power intensive companies in Middle East is expected to decline.

This might partially mitigate the fiscal pressures. The cost of refinancing might increase in the short term especially if Moody’s and Fitch downgrade their rating of the US economy.

This might also prompt the institutional investors in the Middle East to diversify their holdings in the medium term to reduce dollar denominated exposure.

In the short term, the stock prices may depress. This may further provide excellent buying opportunity for the long term value investor and may moderate the stock prices decline.

If the crude oil prices decline below US$80/barrel, the Organization of the Petroleum Exporting Countries (OPEC) might consider cutting down their production to arrest the downward trend in the prices.

Note: Perspective by Shrikanth S, Industry Analyst, Business and Financial Services Practice, Frost & Sullivan.

 

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