Windfall testing for oil prices Gulf’s financial restraint  

• With the aid of rising oil prices and years of fiscal reforms, the six Gulf Arab states of Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain, and Oman are on track for budget surpluses, some for the first time in a decade.
• Analysts claim that they must continue to take this cautious stance.
• Saudi Arabia, Kuwait and Bahrain have cut spending in their current budgets, although the UAE, Qatar and Oman are spending more.

As governments work to protect citizens from inflation, a petrodollar bonanza is aiding some Gulf Arab states in debt repayment and giving others the money they need to diversify their oil-dependent economies. However, it is also putting governments’ vows to fiscal restraint to the test.

With crude prices surging higher, Gulf oil producers have pledged to be more prudent this time around in an effort to learn from earlier prosperous eras that quickly gave way to tightening budgets and significant deficits.

With the aid of rising oil prices and years of fiscal reforms, the six Gulf Arab states of Saudi Arabia, the United Arab Emirates, Kuwait, Qatar, Bahrain, and Oman are on track for budget surpluses, some for the first time in a decade.

Analysts claim that they must continue to take this cautious stance.

According to Karen Young, senior scholar at the Middle East Institute in Washington, “the temptation to revert to pro-cyclical expenditure is significant, especially since government contracting continues to drive economic activity in the largest economies, like Saudi.”

Some indications are positive. Saudi Arabia, Kuwait and Bahrain have cut spending in their current budgets, although the UAE, Qatar and Oman are spending more. The majority of budgets were created prior to Russia’s invasion of Ukraine, which helped drive up oil prices from about $80 per barrel at the end of 2021 to over $100 per barrel today.