DOHA: The economic consequences could be dire for the GCC states if political leaders in the US fail to agree on lifting their government’s debt ceiling by Thursday, economists here warn.
For one, the oil-rich GCC states have massive investments in the US, the currencies of most of them are pegged to the dollar, and more importantly, a debt crisis in the US would likely have a disastrous impact on the world oil market.
“A continuing debt ceiling crisis in the US would hit China hard, and this would have a cascading effect on the rising Asian economies,” said celebrated financial expert Abdullah Al Khater.
Since the GCC states are dependent on revenues from oil and gas, the impact on Asian economies would mean that GCC oil and gas exports would suffer hugely, Al Khater told The Peninsula yesterday.
Recalling the days of oil embargo in 1973, he said the GCC economies suffered immensely then as they posted huge budget deficits. “If the US fails to lift the debt ceiling, we would be entering a phase of uncertainties and immense difficulties.”
When told about a recent Washington Post report that put the GCC’s exposure to the US at $257.7bn, Al Khater said that was a very conservative estimate. “I expect the figure to be much higher.”
He said if one took into consideration the assets of the sovereign wealth funds of the GCC states as a whole, it would be in hundreds of billions of dollars.
And much of these assets should be based in the US and Europe. “So I don’t think the Washington Post figure reflects the actual exposure.”
Talking about Qatar, Al Khater said the assets of its sovereign wealth fund alone were estimated to range between $100bn and $200bn. “Anyhow, as I said, the crisis could lead to a depressed oil market and the value of the GCC investments overall would also be affected.”
A Saudi economist, meanwhile, also said he doubted the GCC exposure to the US could be as low as $257.7bn. Mohamed Al Omran was quoted by Kuwait’s Al Sabah daily as saying that Saudi Arabia has huge cash reserves, much of which were invested in the US bonds.
“The GCC economies are, thus, going to be hugely affected should the debt ceiling crisis linger in the US. They would suffer immense losses,” Al Omran said.
Media reports said if the value of the bonds went down due to the lingering crisis, the GCC states would lose several billions of dollars in one go.
Oil prices in the international markets are presently stable but if the dollar sheds value, the rates could show up.
According to Aljazeera.net, it would difficult for the GCC states to liquidate their US bonds if the dollar loses its value.
Inflation could go up as a result of plummeting value of the GCC investments.
As it is, according to economist Fadal Al Buanain, the GCC currencies that are pegged to the dollar have lost considerably to major currencies of the world, including euro, in the past several years.
“The GCC dollar assets are also losing their value as the currency has been taking a beating.”