As Gordon Brown gets set to return from his whistlestop tour of the Middle East in search of additional finance for the IMF there is some concern that so-called promised finance may not actually appear. There are many reasons why the Gulf States can, would want to and decide not to join the worldwide financial rescue package and this has led to the uncertainty.
There are many factors to consider and until the promised billions of dollars actually materialise there are concerns about the Western world’s ability to bail out the many economies which have collapsed and are on the brink of collapsing.
Some of the issues to consider include:-
Reasons why the Gulf States may join the party
Increased financial strength
Over the last 12 months as the price of oil peaked at $150 a barrel the various Gulf States have literally seen trillions upon trillions of dollars added to their already substantial income streams. This now puts them in a very strong financial situation in which they can look to revive, or at least assist, the worldwide economy. Even though the price of oil has fallen back to around $70 a barrel this is still a major increase on the price just a couple of years ago.
Falling property markets
The new found wealth in areas such as Dubai has been invested into local economies and seen the creation of a very lucrative property markets in the region. However, having been seen by many as immune from the worldwide slowdown, the property markets in the Gulf States have now been dragged into the slowdown which has seen interest in the property market evaporate and prices start to stall. A revival of the worldwide economy would ensure the return of substantial investment to the region and support a developing property market.
Increased presence in the international community
This increased wealth of the Gulf States could see them make the best investment of all time and secure a stronger position in the international arena with the likes of the US, UK and other developed nations desperate for their financial assistance. There is no chance that the Gulf States will hand over billions of dollars without an increased say in how and where the money is used. This could literally be a major turning point in the influence of the Middle East on worldwide economies.
Demand for oil
When you consider that countries such as the US have historically been the largest consumers in the oil industry it is in the best interests of oil producers to see a revived US economy. However, a buoyant worldwide economy in itself would also lead to a massive increase in the demand for oil, likely push prices higher and increase the already lucrative income streams to the Gulf states.
Reasons why the Gulf States may not join the party
There is a feeling that inward investment of the new found wealth into the region would better benefit the Gulf States directly. The trillions of dollars of additional income received over the last couple of years could be used to improve infrastructure, build on the success of developing property markets, and to attract more international companies to the region – allowing the Gulf States to return to their former safety bubble prior to the collapse in the worldwide market.
Demand for oil
Even if the leaders of the Gulf States decide to join the funding committee of the IMF it is debatable how committed they need to be to this organisation. They know that the Western world will need to do whatever it takes, with or without their help, to refloat economies at which point the demand for oil will grow. As the demand grows, this will see more income for the oil producing nations of the world.
The desperation of Western governments
In recent times the Gulf States have to some extent been in the pockets of countries such as the US which is closely connected to a number of governments in the region. However now the Gulf States have the upper hand and after being ignored and refused entry to these powerful international committees why should they be at the beck and call of countries such as the US after being sidelined for so many years?
Reduced impact in the Gulf states
While it would be wrong to suggest that the Middle East and Gulf States have not been impacted by the credit crunch and worldwide economic slowdown the effect has been markedly less than that seen elsewhere in the world. The governments of the region may well decide that the funds that they are being asked to contribute would benefit the wider world economy more than local economies.
Even though there has been a slowdown in property markets in the Gulf States they have still faired , and continue to, better than many around the world. This has seen the area move towards the top of the international investment league and while there are major benefits to a recovery in the worldwide economy this would see more traditional property markets for example move with back onto investor radars. Many people, even after the recent slowdown in the region, still see the Gulf States with their massive oil assets as a safer bet than many of the world’s most traditional economies.
How ironic that after years of trying to dictate to the Middle East, the Western world has now been forced to go cap in hand, asking for finance to bail out their ailing economies. There is still uncertainty as to whether the Gulf States will join the party but ultimately their stronger position in the worldwide pecking order could see them up there with the likes of the historically dominant US.
In conclusion, it would seem sensible for the Gulf States to join the party put they are likely to be the ones dictating the terms and take more of a hands-on approach in the future. This could well be a major turning point which could see the likes of the United Arab Emirates emerge as an international power in the future.