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2023 was a year of living dangerously

The Gulf will hope it can maintain its safe haven status

The war in Gaza and the Iranian-inspired attacks on shipping in the Red Sea leave the biggest question marks over trade and oil prices for 2024 Reuters/Mohammed Al-Masri
Palestinians flee the Gaza strip. The war in Gaza and the Iranian-inspired attacks on shipping in the Red Sea leave the biggest question marks over trade and oil prices for 2024

Going into 2023, there were three main areas of concern for global economists and investors: the ongoing war in Ukraine; the strength or otherwise of the Chinese economic recovery from Covid 19 and the spectre of worldwide inflation with the consequential risk of economic recession.

One year on, it is fair to say that only the last of these has ameliorated significantly, while another big geopolitical risk has been added: the war in Gaza and the implications for global trade if fighting escalates there.

In the Arabian Gulf, these stresses had another significant effect – cumulatively, they impacted the outlook for global oil markets.

With the price of crude still the most important single element of regional economies, this was a drag on economic growth in the biggest regional economy, Saudi Arabia, and to a lesser extent the more diversified economy of the UAE.

The war in Ukraine looks no nearer to any kind of resolution. If anything, the pendulum has swung Moscow’s way as the Ukrainian summer offensive failed to achieve strategic results. In a war of attrition, the momentum seems to be with Russia, especially as the resolve of Kyiv’s western backers falters.

However, the world has apparently learned to live with the ongoing brutal conflict. Trade routes across the Black Sea have faced temporary disruptions, but Ukrainian grain exports continued to flow for most of the past 12 months.

Europe too has learned to live without Russian energy, and, after initial energy price shocks, has replenished its reserves of oil and gas for the current winter – as well as burning more coal than its environmentally aware citizens would like.

One notable feature of the year for regional economies – the UAE in particular – was the boost they received from Russians escaping the war, starting businesses or buying property in the red-hot Dubai real estate market. This offset to some degree the negative effects of oil price weakness and cuts by regional producers.

China remains a big imponderable in the global economic outlook. It is not so much economic growth that worries the experts – 4-5 percent is respectable enough, even if it is half the rate Beijing enjoyed for most of the past two decades.

What bothers the policymakers is the high levels of debt China has accumulated, in both public and private sectors, as well as what many perceive as fundamental weaknesses in the Chinese financial sector and real estate markets. These worries will persist in 2024.

The implications for the economies of the Gulf – increasingly turning eastwards for growth – are obvious.

The US economy, still the biggest in the world and a barometer for global economic and financial wellbeing, managed to avoid recession in the past 12 months, even if many Americans say they are unhappy with their living standards.

The prospects for 2024 appear more benign than even the most optimistic member of the Federal Reserve could have imagined in the middle of 2023. The Fed has signaled that it will begin unwinding high interest rates by next spring.

US financial markets have so far shrugged off economic worries, with equity and bond markets soaring in the closing months of 2023.

But realists point to the vulnerability of these markets – near to all-time highs – in 2024 as the US endures what promises to be the most divisive presidential election for many decades.

Nobody has yet really factored in the economic volatility of a second Trump presidency.

Going into 2024, the Arabian Gulf looks well placed to maintain its position as a safe haven in an uncertain global economic scene. If the UAE hits the 4 percent GDP growth target most economists are predicting, it will have performed creditably in a difficult environment.

There is a question mark over growth in Saudi Arabia in 2024. The kingdom has so far shouldered most of the burden of Opec+ production cuts, with an inevitable effect on its public finances.

There is a consensus among the experts that the coming year will witness a recovery from the recession of 2023, but disagreement as to the pace of the Saudi pick-up. Much will depend on the calculations of policymakers in Opec+.

The really big question, for regional as well as global economies, is the war in Gaza.

So far, the escalation many feared has not come about. But Iranian-inspired attacks on shipping in the Red Sea have raised the prospect of a more general conflict that could seriously disrupt trade in the crossroads of the world, especially damaging for the crucial oil markets.

All in all, there are several reasons to be worried about what 2024 may bring – but sufficient positives to think that the Gulf can continue to swim against the tide. 

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He also acts as a consultant to the Ministry of Energy of Saudi Arabia

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