The passing of peak oil?

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Nasser Saidi, chief economist at the DIFC.

That type of demand has not materialised and is unlikely to do so, he argues.

"Those economies subsidising fuel costs, it's just not sustainable in the long term. And you are seeing a lot of substitution into natural gas."

But while Russia, Iran and Venezuela have all based their budgets on oil prices that at the time of writing were close to the market level, it is unlikely that growth in the GCC will suffer.

DIFC chief economist Nasser Saidi says the UAE's economic growth will only slow if there is a significant downturn in its trade with the rest of the world. In a worst case scenario, the country's growth would only decrease by between 1 and 1.5 percent.

"The primary driver of growth is on the investment side [as opposed to consumption] and I think investments will continue at a high pace," he says.

In the 70s and 80s, Gulf states were highly reliant on oil revenues to finance their projects, but over the last five years the situation has changed.

"The accumulated surpluses have given countries a very strong cushion and enabled them to finance infrastructure and investment projects even though oil prices recede to below $80 or $90," Saidi says.

Governments across the GCC are basing their budgets on an oil price of $35 to $55 per barrel. Last week, a report from ratings agency Standard and Poor's said that if oil prices average $79 a barrel in 2009 from an expected $108 this year, Gulf public finances would "remain solid" and most regional countries would continue to post surpluses.

Saidi adds that many of the larger projects underway in the region, such as power plants and public transport systems, will be self-financing in the long term since they are based on user fees.

Merrill Lynch CEO John Thain was slightly less upbeat while talking to reporters in Dubai last week.

"Obviously economies that are petroleum-based have some degree of protection and economies that have strong degrees of domestic demand have some protection," he said.

"No country is decoupled from the global economy. The economies here will slow down, it's just a question of degree."

Despite efforts to diversify their economies, GCC countries still derive up to 90 percent of their export revenues from oil. Kuwait and Saudi Arabia are especially dependant on the oil sector.

About two thirds of the budget in all member states comes from oil.

"70 bucks is still a lot of money," says Dr Eckart Woertz, programme manager of economics at the Gulf Research Centre.

"Now we are comparing prices with $147 three months ago. We don't compare it with $30 five years ago."

Even if oil falls below $50 and some countries' budgets aren't balanced, they have been able so save a lot of money in recent years, and sovereign wealth funds (SWFs) could step in to fill the gap, he adds.

DIFC's Saidi believes SWFs could step up investment in their home markets, but not because they need to shore up their own economies.

Signs that Gulf Arab states are investing more at home comes against a backdrop of higher growth in developing economies, which is underpinned by massive infrastructure projects that are unlikely to be stopped.

"The US going into a recession does not necessarily mean that we are going to shave off half our economic growth," he says.

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