Surging oil prices in 2005 will likely boost credit quality in the Gulf region in the current year 2006. Increased government revenues throughout the Gulf state have allowed for significant investments in various sectors such as industry, real estate and infrastructure.
According to a recent report of Standard & Poor’s quoted in Gulf News, Gulf states are investing in new infrastructure while intensifying diversification efforts.
Some $44.3 billion was spent on project financings in the Middle in 2005, the report said.
Konrad Reuss, a credit analyst for Standard & Poor’s, pointed out reasons behind the trend: “Windfalls from high oil and gas prices spawned substantial budget and current account surpluses across the Gulf and led to significant inflows of capital into the region’s economies," he said.
“Furthermore, in contrast with previous oil booms, governments have made good use of higher revenues by investing in downstream as well as upstream operations," Reuss added.
“Some risks remain, however," he warned. "The boom conditions have rippled through to the stock and real estate markets, which if not checked could create instability. In addition, geopolitical risk - in the form of accession and system legitimacy - temper sovereigns’ balance-sheet strength."
The trend is likely to continue, with the Gulf's petrochemicals industry expected to continue to post double-digit growth over the medium term.
Consequently, some 20 percent of the world’s production of ethylene, one of the key components in making plastics, is expected to be located in the Middle East by 2010.
