Slamming the brakes on the Gulf's Growth

As the Arab "Boom Years" draw to a close, we now see events over the last 4-5 years (for example, the Arab Spring) form as a catalyst for the recent Oil price decline... Almost 50% from this time last year.

Simultaneous challenges of the threats from ISIS, political transitions &  falling Oil prices have remained extremely prevalent in 2015 and more so impacting the Oil rich states of North Africa over the Middle-East.

Slamming the brakes on the Gulf's Growth 

As Political turmoil spreads, the jihadi threats hover over Syria, Iraq & more recently producing itself in the conflicts around Libya's oil fields, as well as recent violence in Tunisia (post-Arab spring transitions).

The recent weeks headlines have been focused around Yemen and the coalition of Sunni Islamic states prodding their Gold feet over the Pan-Arabian Muslims - attempting to constrain an unwanted addition of rival Iran.

Libya, once Africa's richest nations is now on the verge of Bankruptcy.. being named "The New Somalia", as their new Government warns of an "Oil Production Shutdown" given the ongoing threats from ISIS and their "Black-Market" demands.  No-one could of imagined in Post-Gaddafi Libya that their nations Energy sector would be so badly affected.

Economic Impacts

Since the recent Egyptian revolution in 2011, Egypt's credit rating fell 6 points... Tunisia, since it's revolution has declined 4 points...  Egypt has been under the spotlight since 2011 as Ibrahim Mahlab's party seeks stability & attempts to gain against it's economic shortfalls.

These Gulf states were somewhat supported by years of $100+ oil prices, as well as donations from other powering Arab nations (For example, UAE donating almost $20bn to Egypt + a further $12bn from Saudi & Kuwait... for aid & "investment")

Egypt, in particular is viewed as pivotal in bridging the gap between the Middle-East & the North African states... as the UAE's Minister of State quotes "Egypt is central to the prosperity of the Middle-East" . However, the fall in Oil prices provokes pressures and furthermore, an instant-stimulus for these struggling economies.

Private Investor's eyes 

Most Foreign Investor's are burdened by the risks of domestic unrest and in attempting to control the "social peace", economic reforms to boost investment & reduce subsidies could be expected.. The overall thought is that the plunging Government revenues will surely filter into the real economy and the Growth forecasts become largely cloudy.

Already, real estate prices in the once BOOMING Dubai are now largely reducing and empty skyscrapers now account for 25% of Dubai's population. More-over, core infrastructure projects around the Gulf will be haltered, for example new Transport lines... at least until the Oil market stabilizes... if that.

With $20 Oil on the horizon.... Will these Economies Survive? 

If Yemen only produces 0.2% of the World's Oil, why is the price of Oil rising?

Dear Readers

As the advancements began yesterday on the Houthi controlled Yemen, we saw the price of oil jump almost 5%.

In this post, I attempt to break down the Economic reasons for this geo-political market shock & question the continuation of this rise or (as per my previous posting) a fall lower to $20 - possibly $10.

Fact

Yemen produces 0.2% of the World's oil!

Why did it have such a shock on the market? 

Albeit an insignificant Oil producer, the geographic location of Yemen is extremely relevant.

The nation shares it's main border with Saudi Arabia - the world's biggest Crude exporter and sits on one side of the oil shipping point used by crude tankers heading West from the Persian Gulf (transiting nearly 7 million barrels of oil a day).

Yemen is also located on Bab el-Mandeb, the 4th biggest shipping chokepoint in the wold by volume! It's closure may keep tankers from the Persian Gulf and reaching the Suez Canal & SUMED Pipeline.

Will Oil continue to rise?

"As the regional conflict intensifies, the price of oil will continue to rise" Kleinmen, Citibank Analyst. 

Even though prices are still down 40% from last year, a rally from $50 would be significant for the markets... adding an extra spice into the current EU Crisis and perhaps a catalyst for a USD reversal. 

However, other analysts & even the Foreign Minister of Yemen says that this attack is a "Necessary, short lived attack" to suppress the Rebel forces.. Which would imply this rally being concluded as a shock and the coming week(s), the markets could return below $50 per barrel. 

The fact is that the Oil market is still heavily over-supplied & storage levels are running at almost full capacity. Although, some more bullish investors are seeing this as a market-bottom - hinting at a reversal. 

I personally think, it just reminds people how sensitive the price of oil is - especially in relation to geo-political shocks & impacts on supply lines. 

Trading Oil with Atom8... Coming soon for April 2015 

Thank you for reading & as always... 

- Peace & Love

Anish