2011-21

"Arab Spring" see:

Issue Guide: 2011's 'Arab Spring'

After a year of protests, Arab countries continue to endure the pangs of revolution--some further along the road to democracy than others.

Older material (pre-2009)

Gulf coast countries & global finance:

As the amount of wealth has grown (partly in repsonse to higher oil prices), there has been a mad rush by banks to set up shop in the Gulf region to tap into that capital. Banks from London and NYC have stepped up operations in Dubai to connect capital, especially Sovereign Wealth Funds, with international markets, especially emerging markets of India, Africa, etc...

Dollar peg & Inflation worries

The dollar peggers (implicit or explicit) in the Middle East , continue to struggle between inflation and Fed easing. After recovering from a dreadful 2005-2006 stock market bubble and crash, the GCC risks another asset bubble – this time in real estate – as oil revenues and low real interest rates support non-oil diversification projects that involve massive construction and imports of foreign labor that drive up domestic demand. At the same time, CPI inflation is surging: Saudi Arabia , has seen its annual inflation rise from 1% in 2003 to 7% in January, losing its crown as the lowest-inflation member of the GCC to dollar de-pegger Kuwait . The U.S. dollar's deepening decline has tested the resolve of policymakers to uphold the dollar peg. Read: “Will the GCC Follow Kuwait and Revalue or Depeg From the Dollar?”, “Risk of GCC Asset Bubbles and the Policy Options” and “GCC Inflation: Imported Goods, Labor Not So Cheap Anymore”

In the Gulf, loose fiscal policy – spurred by strong commodity prices – has been combined with loose monetary policy and a weak exchange rate. All push the boom on. Tourism and property development are booming along with the petroleum sector. And rising inflation also creates pressure to loosen fiscal policy (why should living standard be falling when oil is high?) which only adds to inflationary pressures and pushes real rates down further. January inflation was up in Saudi Arabia. SAMA cut rates. Real rates moved into even more negative territory.

The Saudis have kept lending rates higher than deposit rates. But with inflation at 7% now and in my view set to rise toward 10% over the course of the year, the expected real lending rate is still quite negative. The underlying pace of growth in the money supply, even with Chinese style rising reserve requirements, remains quite fast.