In global crisis, oil insulates Gulf
Economists say that Arab states such as Saudi Arabia will feel the pinch, but a year of record oil prices provides a deep cushion.
Riyadh, Saudi Arabia
Against the backdrop of an imploding global financial system, one of the world's richest men unveiled plans to build the world's tallest building in Saudi Arabia.Skip to next paragraph
Subscribe Today to the Monitor
Prince Alwaleed bin Talal bin Abdul Aziz revealed a display model of Kingdom City, a $26.7 billion mini-city to be constructed near the Red Sea port of Jeddah. At its center will be a tower more than a kilometer high (the exact height is a secret) for offices, luxury residences, and a five-star hotel.
Still, his apparent confidence about the future reflects the predominant view in oil-rich Saudi Arabia and its Gulf neighbors about how the fiscal tsunami sweeping the rest of the globe may affect them.
Despite repercussions here that have included a downward slide in oil prices and trouble in stock markets, government officials and outside experts forecast that their region will suffer, but not as much as most.
But, he predicts, the effects will not be as severe as in the G-7 industrialized nations, where "we're talking about zero growth or contraction." Gulf nations' growth will slow down, but remain "positive," he adds.
"Gulf countries are going to feel the pinch," says Howard Handy, chief economist at Samba Financial Group in Riyadh. "But I think from everything I've seen so far, it is not going to be fatal." Given their "vast reserves and surpluses" generated by record high oil prices earlier this year, the Gulf states are facing the global crisis "from a position of great strength," he adds.
Even with less revenue from falling oil sales, Saudi Arabia and other states will be able to pay their bills and finance many of their large development projects.
Those projects "will be fulfilled," says Abdurraham al-Humaid, a retired accountancy professor and private consultant, though "the time span" for their completion may be longer.
With international credit possibly becoming inaccessible, local banks or the Saudi government will have to step up to provide credit to keep those big projects on track, Mr. Humaid adds.
Saudi Finance Minister Ibrahim al-Assaf assured Saudi television viewers that "oil revenues will definitely cover these projects in addition to what we have in reserve."
Mr. Assaf added that Saudi banks had shown "excellent third quarter results," proving "that they were not affected by the subprime mortgage crisis in the US."