Oil boom fuels banking growth.

Author:Ford, Neil
Position:BANKING SPECIAL REPORT
 
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The results of our survey of the Top 100 Arab banks reveal the full extent of the rise of Middle Eastern banking over the last 12 months. Sustained high oil prices over the past two years have continued to drive growth in banks based in the Middle East's main oil producing states. A certain degree of banking sector liberalisation in some states, plus some economic diversification, have also boosted the success of the financial industry but there is little doubt that oil continues to underpin the economic success of the entire region, as it has done for many decades.

It is often quoted that a $1 rise in the value of a barrel of oil increases the combined income of Middle Eastern governments by $6bn, yet this calculation may now actually underplay the scale of the current oil boom. Firstly, Saudi Arabia, the United Arab Emirates, Kuwait and the rest of the region's oil producers are now producing substantially larger volumes of oil today than four years ago in an effort to satisfy growing global demand and suppress prices. Higher output obviously yields higher revenues. Secondly, the $6bn per $1 figure was based upon total oil production several years ago. There are now many more barrels of oil produced every day, so more barrels benefit from a higher than predicted oil price.

Another factor is also making a growing contribution to Gulf revenues. Despite its recognised gas wealth, the region has long struggled to make the most of its gas reserves. While Qatar, Saudi Arabia and Iran all boast far larger total reserves, Indonesia--a country with far less gas--was able to establish itself as the world's biggest liquefied natural gas (LNG) exporter. However, Qatar is set to overtake Indonesia by the end of this year; the first stage of the Dolphin Project to integrate the gas transmission infrastructure of Gulf states is approaching completion; while Iran is making progress on several fronts in its efforts to make the most of its giant gas reserves. Gas revenues are already increasing liquidity in Qatar and the prospect of new projects is exciting the markets.

Throw strong growth in the petrochemical sector into the mix and it is clear that Gulf economies are performing well, although still across a fairly narrow range of industries, and there is plenty of surplus income available for investment. Ever since the Middle East became a major source of global oil supply, governments and banks in the region have invested in the industrialised West during years of bumper...

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