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GCC economies at risk from coronavirus, OPEC+ cuts: S&P Global Ratings

Highlights

Low oil prices, geopolitics already affecting Gulf states

Oman most exposed to China, UAE least exposed

More OPEC+ cuts could hurt fiscal balance

  • Author
  • Dania Saadi
  • Editor
  • Jonathan Dart    Claudia Carpenter
  • Commodity
  • Natural Gas Oil
  • Topic
  • Coronavirus and Commodities

The six countries in the Gulf Cooperation Council are at risk of tepid economic growth following the outbreak of the coronavirus in China, a major importer of oil and natural gas from the Persian Gulf region, according to S&P Global Ratings.

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"Recent developments could weigh on growth prospects in the GCC, already affected by low oil prices and geopolitical uncertainty," S&P Global Ratings said Monday in a report. The GCC consists of Saudi Arabia, the UAE, Bahrain, Oman, Kuwait and Qatar.

"Under our base-case scenario, however, we expect the impact on our ratings to be limited for now."

Brent crude futures have fallen over 10% since the beginning of January due to the outbreak of the deadly virus, which has disrupted global travel, dampened Chinese demand for energy products and stoked fears of a hit to the global economy.

China contributes between 4% to 45% of GCC countries' total exports of goods, the ratings agency said. Oman is most exposed to China with 45% of its goods exports going to China, and the UAE is the least exposed at 4.2%, it said.

"We think the impact of the new coronavirus on GCC economies will be felt mainly in terms of export volumes," the agency said. "Exports could decline in view of an anticipated slowdown of economic growth in China, which in our base case we project at 5% in 2020 compared with 6.1% in 2019."

Saudi Arabia accounts for 12.4% of China's total oil/gas imports, while Oman represents 7.2%, the agency said. The UAE's share is 2.8% while Kuwait is 5%.

OPEC+ impact

Gulf economies could falter if OPEC+ oil cuts are extended beyond March, hurting the countries' fiscal balance, the ratings agency said.

An extension of the cuts beyond March "could affect our estimates of fiscal and current account receipts for GCC sovereigns," it said.

OPEC+, led by Saudi Arabia and Russia, is in the midst of cutting 1.7 million b/d through to March to soak up excess supply. The group, which deepened its cuts from 1.2 million b/d in 2019, is mulling shaving another 600,000 b/d from production on expectations that the coronavirus will reduce Chinese oil demand. Saudi Arabia, the UAE and Kuwait are OPEC members, while Oman is part of the non-OPEC group. Together OPEC and non-OPEC signatories to the production cut deal are called OPEC+.

"Notwithstanding the spread of the virus, we still expect oil prices to remain at $60/b in 2020 and decline to $55/b from 2021," ratings said.