Can the Middle East weather the financial storm?

DUBAI Mon Nov 3, 2008 4:08am EST

Traders monitor stocks from the trading floor at the Doha Securities Market building in Doha October 19, 2008. REUTERS/Fadi Al-Assaad

Traders monitor stocks from the trading floor at the Doha Securities Market building in Doha October 19, 2008.

Credit: Reuters/Fadi Al-Assaad

DUBAI (Reuters) - Middle East investors are facing their biggest challenge in six years as the world's worst financial crisis since the 1930s threatens to engulf the oil producing nations and slow booming economic growth.

The advent of the financial crisis has all but halted interbank lending across the Gulf Arab region, raised the specter of a property crash hitting its commercial hub Dubai and turned stock markets so jittery investors from Kuwait have called for government intervention. Meanwhile Qatar's sovereign wealth fund has stepped in to shore up ailing banking stocks.

The region -- which used a more than six-fold rise in oil prices since 2002 to pour billions of dollars into infrastructure projects -- has now seen crude almost halve since July, leaving questions hanging over future growth.

Regional budgets range from $40 to $50 a barrel, but Qatar's prime minister last week signaled $70 to $90 would make it satisfied. In response to the oil price decline, OPEC at the end of the month cut production by 1.5 million barrels.

"The confidence has collapsed," said Mustafa Alani at Dubai-based think tank Gulf Research Center. "It's a wait and see time and whether it's sovereign wealth funds or private investors, the whole environment is holding on to its cash."

Gulf investors are keen to dismiss the scaremongering.

Last week, Sultan Ahmed bin Sulayem Chairman of Dubai World said Dubai's largest property firm Nakheel was not facing any problems in its home market and its financial position was a strong as ever.

This came as Fitch Ratings reaffirmed its assessment that Dubai debt alone amounted to $70 billion and it could well face difficulties refinancing debt in the long term. Any shock in the Dubai market would have a profound impact on its neighbors, analysts say.

"I think we will witness in the coming months a complete paralysis in the world investment market," said Alani. "We will see a lot of promises and statements saying there is no problem, but investors departing with their money is another thing."

Internationally, Middle East investors are increasingly seen as the cash kings. Bin Sulayem pointed out that current asset prices globally were providing once-in-a-lifetime opportunities.

Investments in British bank Barclays from Qatar and Abu Dhabi highlighted that for the right price, Middle East investors would step in.

How much so remains to be seen. Britain's Prime Minister Gordon Brown flew into the Gulf this weekend, saying regional money was vital to dampening the crisis. He follows the U.S. deputy treasury secretary and France's trade minister.

"That deal (Barclays) was in favor of the investors ...they will never get such a deal in normal times, but for Brown, I think he will get nothing, apart from a smile," said Alani.

Top executives will address the Middle East financial climate in

light of the ongoing financial crisis at the Reuters Middle East Investment Summit in Dubai and Kuwait from Nov 3 to 5.

(Reporting by John Irish; Editing by Jason Neely)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.