Strong economic growth will continue over the next 12 months in the Gulf, however rising regional instabilities will persist and see the region enter a “dangerous phase”, experts at the Gulf Research Centre (GRC) have warned.
At the centre’s “Gulf Yearbook 2006/2007” launch Abdulaziz Sager, GRC chairman, said that the Gulf region was passing through a “dangerous phase”, particularly in light of the tragic situation in Iraq, which he described as “akin to a civil war”, and which holds the “potential to disintegrate”.
“There is also the complication of the Iranian nuclear file in light of the faltering diplomatic efforts and the sanctions imposed by the United Nations Security Council, which may even lead to a military confrontation,” he added.
Dr Christian Koch, director of international studies at the GRC, said 2006 witnessed a steady deterioration in regional stability. “Despite efforts by the US to undertake a more realistic assessment of the Iraq situation, Washington did not have any solutions that could quell the violence.” Iran’s sense of confidence and its willingness to take tough positions “raises fears that the Arab Gulf States could find themselves in a situation that is not of their own making,” Koch said.
Dr Eckart Woertz, programme manager for economics at the GRC, said that the long-term outlook of oil price remained “positive”, but that there could be some “soft spots” over the next two years due to an economic slowdown in the US and China, and some incremental oil production coming on the market from non-OPEC countries like Brazil.”
Woertz also stressed the increased importance of the GCC countries in financing the US current account deficit. “With the GCC current account surpluses now larger than China’s, petrodollar recycling and the investment options of GCC countries are naturally followed closely by the international banking circuit.
“As the US deficit continues to mount, the dollar is likely to slide further and GCC countries need to worry about currency diversification and modification of their currency peg to the dollar,” he added.
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