The Middle East economy is dominated by the
countries comprising the Gulf Cooperation Council, or GCC. The GCC nations
include Kuwait, Qatar, Saudi Arabia, Yemen, the United Arab Emirates (UAE) and
Bahrain. The Gulf not only has a sizable economy, but also a high average GDP
per capita of USD 36,000. In fact, Qatar has the highest GDP per capita in the
world. The Gulf nations control almost 40% of the world’s oil reserves, and oil
and natural gas is the biggest sector in the Gulf economy. Qatar has another
distinction of being the largest natural gas producer in the world. Clearly,
the Middle East economy is awash in oil and money!
How does the Gulf impact Oil Prices?
Saudi Arabia, the largest of the GCC nations,
accounts for one tenth of the world’s oil production. Even with dwindling oil
reserves, the Gulf region controls over 40% of the world’s oil reserves. This
combination of factors is the reason why the Gulf region has a large impact on
oil prices. Saudi Arabia is the de facto leader of the Organization of
Petroleum Exporting Countries, or OPEC. OPEC makes decisions on oil production,
which in turn impacts the price of oil.
Oil and gas is the largest sector of the
GCC economy. However, all the nations in the GCC are attempting to diversify
their economies, given the aspirations of their relatively young populations,
finite oil reserves, and plenty of financial resources from selling oil.
Therefore, in Saudi Arabia, the non-oil sector accounts for 60% of the economy.
Saudi Arabia’s economy is dominated by petrochemicals and manufacturing.
In Qatar, while the hydrocarbons segment
accounts for 38% of the economy, financial, insurance, real estate and business
services constitute the next largest segment, accounting for 13% of GDP.
Construction adds another 13%, and manufacturing 9%. Kuwait may be small, but
it accounts for 8.6% of the world’s proven oil reserves. Nevertheless, the
Kuwaiti government is committed to diversification of the economy, through privatization
of state assets and a large development plan for the economy.
The Middle East economy not only impacts
oil prices, but also plays a large role as an international investor. The
sovereign wealth funds (SWFs) in the region have invested in government debt
worldwide, particularly in emerging market sovereign debt. In fact, the SWFs of
UAE, Saudi Arabia and Kuwait rank in the top ten SWFs of the world, according
to the Sovereign Wealth Fund Institute.
