Building a bridge to recovery

December MENA Monthly

Building a bridge to recovery

Optimism over vaccines against COVID-19 has rallied oil prices this month, with Brent crude up 14% in November to USD 46 pb as we go to press today. While this still falls short of the USD 60 pb that I think is necessary for the economic wheels of oil-exporting economies in MENA to turn again, it is at least positive news for these countries. The largest economies in the region are slowly moving away from being dependent on hydrocarbons, but oil remains a lynchpin of activity. This could partly explain the tepid rebound in Saudi Arabia; GDP expanded by 1.2% YoY during Q3, from the 4.9% contraction in the previous quarter. But with OPEC+ inching closer to delaying the output agreement till mid-2021, downside risks to recovery continue to prevail. This is testing the economic resilience of many in the region as countries are struggling to create enough fiscal space.

In this MENA monthly, we provide insights on Saudi Arabia and discuss how the government might need to further diversify its sources of finance. Its sovereign wealth fund, the Public Investment Fund (PIF) will have a more prominent domestic role in supporting the recovery going forward and will likely offset some of the austerity effects. In our MENA monthly, we also discuss Oman’s financial support from Qatar. We expect the sultanate will receive a further support package from its GCC neighbours. On the political front, we look at the renewed fighting in Western Sahara and the additional instability from the fragile ceasefire in Libya.

We provide further insight on the UAE, Egypt, Libya and Morocco. Additionally, as always, we provide an update on the latest Sino-MENA developments. In our Energy Outlook, we discuss the possible volatility in oil markets and the critical choices that need to be made as the Biden administration seeks to reengage with Iran.