The demand for crude oil in China has slumped 20 percent, which is the biggest importer of crude oil as coronavirus takes the worst toll. On Sunday, the oil-rich Gulf state’s stock market dropped after the worst week for oil since 2008, when it has witnessed one of the worst economic downturns. The impact of coronavirus has deepened the scratches across the sectors. This is expected to undercut the major gulf economies such as the Kingdom of Saudi Arabia, the United Arab Emirates (UAE), Oman, Kuwait, and Qatar. This has come at a juncture when GCC economies are already crippled with slowdown and struggling to maintain its cash flow and liquidity.
Deadly coronavirus has forced China to cancel flights, shut businesses and led to the quarantine of millions. According to the reports of FGE Consultant, quoted by Bloomberg News suggest that global consumption will fall this year for the first time since the financial crash in 2008. The KSA stock market (TADAWUL), the region’s largest and one of the world’s top 10 equity markets, closed down 3.7 percent to its lowest level in 18 months. One of the sharp fall which has trapped most of the business sector to its fold. Oil giant, Saudi Aramco’s equity value has dropped 2.1 to SAR 32.65, one of the worst performances since it’s listing on December 11, 2019.
CNN reported that the other five regional markets operating on Sunday were also hit badly as oil prices sagged below $50 a barrel. US oil was trading at $44.76, a 16.2 percent weekly decline. The Kuwait stock market, where the All-Share Index fell 10 percent flat, led the region’s slide, triggering its closure. The Dubai Financial Market dipped 4.5 percent, while its sister market in Abu Dhabi was down 3.6 percent at the close of trading, both one-year lows.
Crude prices have plummeted further as coronavirus has crossed china, analysts believe that crude price may reach $30 per barrel if OPEC does not agree to cut the output. KSA Oil Minister Prince Abdulaziz bin Salman bin Abdulaziz al-Saud has already stated that “they are in talks with Russia to regain market confidence and it will do necessary that optimizes the market in terms of supply and price,” however, this has not waved any confidence in gulf market.
Abu Dhabi Commercial Bank (ADCB) stated that “The main feed-through into the GCC is from the hydrocarbon sector, and we have lowered our average oil price and production assumptions for 2020. Consequently, we have made some tentative downward revisions to our headline GDP growth, fiscal and current account forecasts,”
S&P analysts stated that they expect implications of the new coronavirus outbreak could weigh on growth prospects in the Gulf Cooperation Council (GCC), given the importance of the Chinese economy to global economic activity. China contributes between 4 percent and 45 percent of GCC countries’ total good exports, with Oman being the most exposed. “Virus-related travel restrictions, if not lifted as we expect, could weigh on the GCC’s hospitality industry, but more so in Dubai, which received almost 1 million visitors from China in 2019.
IATA, which represents over 290 global airlines has said that projected growth in passenger demand in the Middle East which is 4.6 will become just 203 percent. Analysts feel that this could dent the growth in the non-oil sector further, which is bad news for KSA, which is heavily investing in the non-oil sector.
Dubai is set to host Expo 2020, starting October this year. Expo is expected to attract 25 million visitors over the six-month period. The market expects the virus outbreak will be contained much ahead of the Expo and is unlikely to impact the event or visitor numbers.
The latest data suggest the virus has cast its dark shadow over the Middle East, as it does globally, and the impact on regional economies are far greater than the original estimates. Worldwide, at least 86,000 people have now been infected, with close to 3,000 deaths.
Mohammed Shariff is a senior journalist who has earlier worked with Indian Express, Times of India, and currently works with Madhyamam.