Middle East market comprises of 15 countries with the population of 320 million people. Most of the countries in the Middle East region are dependent on petroleum as their source of revenue. Six of them are the major oil producing countries formed an intergovernmental institution known as the Gulf Cooperation Council (GCC).
GCC countries -Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE have a combined wealth of US$2 trillion. While some markets are diversifying their economy into other sectors, most are still heavily dependent on oil and when the prices dropped to its lowest recently, they are struggling to patch up their budget. The region’s Budget was prepared in Q4 2019 and it was based on crude oil price of US$55-65 per barrel but the price has gone down more than 50% from the anticipated price.
Whilst the the effect of lower crude oil price is different among the countries in the region, Oman and Bahrain will be hit harder due to their low financial reserve. However, Saudi Arabia, UAE, Kuwait and Qatar are more resilient to the price drop.
The production cost of oil in the Gulf countries is relatively low especially the Saudi Arabia, Kuwait and UAE but due to high Government spending and generous subsidies for citizen, they need a price in the range of US$70 – US$80 per barrel or higher to balance up their budgets (CNN Business News).
Despite the oil price decline, it is anticipated that public spending across GCC will continue and no drastic slowdown is expected out of the drop in oil prices. Government subsidies is perceived as the people share of the region’s oil wealth, hence reforms will take effect on gradual basis. Salaries and wages cut are not likely to happen immediately.
GCC countries particularly Saudi Arabia and UAE foresee the slowdown in non-oil activities is temporarily and should pick up once the pandemic is over, at least by the second half of 2020. UAE is hosting the Dubai Expo 2020 in October where the event is anticipated to boost tourism and consumption activities.
The immediate impact of the two events is not seen in the region’s food consumption pattern. Since 90% of GCC food consumption comes from imports, the region will continue to import food items such as food grains, process food, vegetable oils and others. It is estimated that in 2020, the region’s spending on food import is around US$53 Billion, spending on food import garnered mostly by the population growth and tourism industry. Food import accounted for 8% of the total import in value term (The Economist Intelligence Unit).
As far as Malaysian palm oil is concern, the import in the first two months of 2020 has yet to reflect the current happenings in the market. GCC countries imports recorded almost 50% increase, contributed mostly by jumped in import by Saudi Arabia. Trade source indicated that import of Malaysian palm oil by Saudi Arabia escalated as importers are sourcing from Malaysia due more competitive prices.
Malaysia Palm Oil Export to GCC Jan – Feb 2020
|Jan – Feb 2020||Jan – Feb 2019||Change (MT)||Change (%)|
Source : MPOB
However, export Malaysian palm oil in the coming months is expected lower due to COVID effect which halt traveling and tourism activities. Saudi Arabia has closed its Umrah pilgrimage activities since the beginning of March 2020. Tourism activities in GCC also in complete stand still especially when most of major gulf airlines are suspended to curb COVID spread in the region.
Prepared by: Fatimah Zaharah
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