Video: The economic outlook for the Middle East

If commodity prices hold, the region's short-term outlook is good. Longer term, it must develop downstream industries so it is less reliant on energy exports.

Interview Transcript

Despite the turmoil and the…violence in places like Syria and…and continuing in Libya, and even Egypt, the good news is the Middle East is doing relatively well, and growth will probably hold up, unless of course there's, say, a hard landing in China and with that comes a big drop in commodity prices, including oil prices. If that doesn't happen I think the region can grow at a…at a decent pace.

Now, Iran, things are looking better, largely because we've had a limited lifting of sanctions. There's still sanctions on the energy sector and financial sector, but even that limited removal of sanctions means Iran will actually enjoy positive growth this year compared with a two year recession. So, even Iran is doing reasonably well now compared with last year.

I think the longer-term challenges for the Middle East come from competitiveness, and specifically the fact that the US is now a major, and low-cost, producer of both oil and natural gas. This means that it is no longer going to be an easy ride in the…in the medium- to- long term for the countries, and the gulf region in particular. And including Iran. So, in that sense they have to be more efficient, and they have to truly think now about diversifying as well in terms of going more downstream, in terms of various industries, like petrochemicals. Some have already done that, but more…and even into other areas.

Iran, I think, has some specific challenges, which are as much economic as geopolitical. And so in that sense, Iran also has to improve its competitiveness. But also, clearly a resolution of the whole nuclear issue is key to Iran's future prospects.

Nariman Behravesh, Chief Economist, IHS