Geopolitical fears rise, higher oil price offers some relief

Mounting tensions surrounding the conflicts in Syria and Yemen have rattled financial markets in the MENA region, but the associated rally in oil prices should limit the economic fallout for the Gulf. A chemical weapons attack on the Syrian city of Douma has raised the prospect of fresh military action in the country by Western powers, while the Houthi rebels in Yemen have fired more missiles towards Saudi Arabia. It’s unclear how things will develop from here. On the economic front at least, consumer and business sentiment in the Gulf may suffer. But the geopolitics-fuelled rally in oil prices – Brent crude has jumped to $72pb in recent days, the highest since late-2014 – should provide some relief. If prices stay at their current level that would translate into a $100bn (7% of GDP) boost to the Gulf’s oil export revenues compared with last year. Budget and current account positions would improve, providing governments with scope to ease back on austerity and lend some support to economic growth.