Introduction

After a hefty spike in oil prices in the preceding year, reaching as high as $147 a barrel in July 2008, prices plummeted in the subsequent four months to below $55 a barrel on the close of trading day of November 14 - a a sharp price decline of close to two-thirds. The decline is quite far-reaching, given that oil revenues provide 70 to 80 percent of government revenues in OPEC countries. According to the International Monetary Fund (IMF) a decline of $1 in the price of crude would translate into a loss in revenues of $3.5 billion in Saudi Arabia, $300 million in Qatar, $1 billion in the United Arab Emirates (UAE) and $960 million in Kuwait, calculated in an annualized basis. [1] Some of the countries concerned, such as Saudi Arabia, Kuwait, and the United Arab Emirates, have deep pockets and would survive the dip in revenues, certainly in the short term. According to data from the Institute of International Finance, GCC governments had foreign assets of $1.8 trillion at the end of 2007, and the tally was expected to top $2 trillion by end of the 2008. [2] In other countries, particularly Iran and Iraq, oil shocks could trigger serious economic dislocation. [3]

Falling Crude Price and the Financial Crisis

The sharp decline in the price of crude has coincided with, and perhaps resulted from, a global financial crisis, and the two issues have become intractably intertwined. Through November 12, the stock exchange of Dubai, Saudi Arabia and Kuwait declined by 62.5 percent, 50.4 percent and 29.5 percent, respectively. [4] On November 14 alone, the Saudi stock exchange declined by more than 7%. A Kuwaiti court took the unprecedented step of ordering a closure of the Kuwaiti stock exchange for a few days, to stop the hemorrhaging. [5] The broad MSCI Arabian Market Index recorded a loss of $256 billion in the market capitalization of the 15 MENA (Middle East and North Africa) stock exchanges in the month of October. [6] By one estimate, the losses in the various stock markets, the decline in the price of real estate, and the losses suffered by the sovereign wealth funds on their investments in both Western and emerging markets were estimated at $750 billion. [7]

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