Europe’s Crisis May Hurt Arab Economies, Azzam Says
2010-05-23
May 21 (Bloomberg) -- The economic crisis in Europe may affect the economies of Gulf Arab states by sapping demand for oil, said Henry Azzam, chief executive officer for the Middle East and North Africa at Deutsche Bank AG. A slowdown in the euro zone economy as a result of the mounting debt burden may also hurt exports, tourism and remittances in North Africa, he told reporters today at an economic conference in Beirut. “To stop the decline in oil prices, Gulf countries could be forced to reduce production,” he said. “By doing so, the real oil-sector gross domestic product will decline. So we start with a financial problem and end up with a real problem.” Crude oil was poised for a third weekly decline as European leaders struggled to contain the region’s debt crisis and reports cast doubts on the strength of the economic recovery in the U.S., the largest energy consumer. Crude for July delivery fell as much as $1.49, or 2.1 percent, to $69.31 a barrel today in electronic trading on the New York Mercantile Exchange. It was down 0.8 percent at $70.26 at 10:03 a.m. London time. Oil and gas exports are the main source of revenue for the Gulf Arab countries, which include Saudi Arabia, the world’s top oil producer. The debt burden in Europe may also prompt European banks to cut financing for projects in the Arab world, Azzam said. “So far, the major players in the project-finance market are the international banks, the European banks,” he said. “If they start reducing their exposure, then the project finance will be affected.” North Africa Outside the Gulf region, the economies of North Africa may be hurt because of their strong trade ties with Europe and their reliance on European tourists, though Egypt may be less affected than the rest, he said. “So, less tourists, less remittances, less exports and less capital investments from Europe,” he said. The Middle East is emerging from a sovereign debt crisis in Dubai that roiled international financial markets last year. Dubai World, the state-owned holding company, said yesterday that it reached an agreement with its main creditor group to restructure $23.5 billion of liabilities. Asked about the possibility of another sovereign debt crisis in the region, Azzam said Lebanon needs to “put a hold on this increase in debt.” The government should sell state assets to reduce the liabilities “so that going forward you would have a much better debt structure,” he said. Prime Minister Saad Hariri’s government has to finance public debt that reached $52 billion at the end of February, or about 147 percent of GDP. Lebanon accumulated the debt as it rebuilt the country after a 15-year civil war that ended in 1990 and a monthlong conflict with Israel in 2006.
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