The Gulf Cooperation Council countries’ currencies have been pegged to the US dollar (Kuwait’s is pegged to a dollar-dominated basket of currencies) for nearly three decades and the dollar peg has served these countries well. It has provided a credible anchor of stability, reduced transactions costs and simplified the conduct of macroeconomic policy. Meanwhile, despite some progress in diversification, GCC countries remain dependent, to varying degrees, on oil and gas and related activities.
With the oil price plunge since mid-2104, conditions changed in fundamental and possibly irreversible ways. As a result, GCC countries have had to call into question the appropriateness of policies that had been in place for decades. The issues are especially pressing for Saudi Arabia, with the largest and most complex of the six economies in the region and, appropriately, with the most ambitious plans to overhaul its economy. Read more
The consent of Russia and other non-Opec oil producers to production cuts of 558,000 barrels a day to support Opec members’ agreement on a 1.2mbd cut for the first six months of 2017 represents an important breakthrough whose strategic significance, both for the oil market and for Middle East geopolitics, should not be underestimated.
Three aspects of this agreement underlie its significance. First, it is clear that Saudi Arabia has permanently abandoned its market share-focused strategy and gone back to defending the price of oil. Second, all indications are that this agreement, in contrast to other Opec agreements in the past, will be sustained, perhaps even beyond the agreed period. And finally, the agreement may have opened an exceptional opportunity for President Vladimir Putin to further deepen Russia’s involvement in the Middle East. Read more
Egypt’s agreement with the IMF on a $12bn, three-year loan will help finance Egypt’s import needs while cushioning the effects of the reduction in fuel subsidies and the floating of the pound, prior actions that had been demanded by the Fund. Egypt has already received the first tranche of $2.75bn after having secured $6bn in additional financing. Read more