Will the UK's Gulf money stream run dry?

Will the UK's Gulf money stream run dry?
UK companies could also be hit by low oil prices, as trading partners in the Gulf are expected to tighten their belts in the coming year.
3 min read
07 Jan, 2016
British weapons' makers can probably expect continued sales in 2016 [AFP]
On Thursday, the UK finance minister prepared the British public for another miserable financial year in 2016.

Chancellor of the Exchequer George Osborne warned of a "cocktail of risks" to the UK economy and somewhere in this mix will be low oil prices, he said.

On Thursday, oil hit an 11-year low at $33 a barrel, a huge drop from the 2014 peak of $115.

As the country rejoices at cheap petrol at the pumps, many Brits are wondering how low oil prices can be a bad thing for the country.

Apart from the obvious knock the UK's North Sea oil producers will take in 2016, there are other less obvious implications to consider.

Among those is the financial crisis hitting oil-producing Arab Gulf nations.

Until recently, these booming economies were seen as golden geese for UK trade envoys and manufacturers.

Now things have got so bad that Riyadh may privatise state-owned oil giant Aramco, and will privatise the country's airports next year.

Wide ranging austerity measures have been introduced by all Gulf states to reduce debt.

The UAE have already introduced prudent cuts, despite being better placed than some other Gulf states to weather the story due to its economy having diversified away from oil.

Around 70 percent of the UAE's GDP comes from non-oil products, compared to half of Oman's economy.

The UAE is the UK's largest export partner in the Middle East.

In 2013, UK-UAE bilateral trade reached $18 billion and over 5,000 British companies operate in the UAE.

There are also 100,000 British expatriates working in the country who send a steady stream of income back home.

Trade and decline

Yet with Abu Dhabi and its neighbours pursuing strict austerity polices this could mean lower investments, which may lead to the cancellation of expensive infrastructure projects.

Abu Dhabi has been quick to deny it is in turbulent financial waters, but its economy is inexplicably linked to its Gulf partners and will suffer if they fall.

Emirate Dubai - with limited oil reserves - is a haven for expatriates and citizens of more conservative, more tightly regulated Gulf nations. 

It is also more likely to be impacted from global and regional economic trends - as we saw during the 2008 economic crisis with Dubai's property bubble bursting.

Such an economic disaster would inevitably mean less construction projects for UK firms, lower demand for British products, and fewer citizens from the Gulf visiting London on holiday.

It would also mean tens of thousands of British expatriates  returning home jobless.

Despite official denials, the signs don't look good for the Gulf state. There are already unofficial reports coming out of the UAE of job losses and businesses losing significant revenues. 

UK arms manufacturers might be happy to know that defence spending will likely be ringfenced by Gulf powerrs following tensions with Iran and Saudi reaching a new cruscendo.

This is most notable in the Saudi-led war in Yemen, which sees no signs of abating and brief Gulf-Yemeni advances have met with stalemate.

In the past six years, the UK has sold $8.14 billion in arms to Saudi Arabia alone, while other Gulf states - such as Bahrain, Oman and UAE - are also traditional buyers of British weaponry.

The rocky waters of the Gulf will ultimately lead to some rewards for sections of UK manufacturing.