Oil windfall fuels faster growth in UAE

The steady rise in oil prices in the first five months of this year and significantly higher average oil prices last year, than what was predicted, have prompted analysts to forecast that the UAE and some of its Gulf neighbours are headed towards another oil-led economic boom.

Oil prices (the reference price for the Organisation of Petroleum Exporting Countries or Opec) rose to an average of $123 (Dh452.39) per barrel in March, the highest monthly average since July 2008, mainly owing to geopolitical tensions.

Analysts say, for the UAE, which has a relatively high budget break-even oil price (in the range of $95 to $107), the high oil export earnings should come as a big incentive to increase its fiscal outlay.

“In the UAE, higher oil prices should provide authorities with additional comfort to push ahead with recently approved infrastructure projects and spending,” said Khatija Haque, senior economist at Emirates NBD.

Higher than forecast oil prices are certain to boost accumulated fiscal reserves, providing a bigger cushion against any future negative oil price shocks. Furthermore, to the extent that governments repatriate oil revenues, domestic banking systems should continue to benefit from improved liquidity.

Economists say the UAE is on a strong footing, with Dubai seeing robust performance in its core non-oil sectors, with trade, tourism and retail benefiting from regional dynamics, while Abu Dhabi is benefiting from elevated oil prices and high crude output.

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Article by Links Group on Jun 3rd 2012

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