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Brent crude is currently trading at $61 – a rise of over $10pb since the start of the year which takes it back to its pre-pandemic level. If this is sustained as strategists at Capital Economics expect, the Gulf countries will benefit as oil output is raised and officials hold back from further harsh austerity.

Key quotes

“While OPEC+ plans to maintain its current production quotas through to the end of March, ministers may be tempted at their meeting early next month to ease production quotas from April. Higher oil production would help to boost GDP mechanically via an increase in output in the mining sector, providing a lift to economic recoveries in the Gulf.”

“The rise in prices (and higher output) will help to narrow twin budget and current account deficits. If oil prices stay at their current level for the rest of this year, we estimate that this would translate into a 45% rise in hydrocarbon export revenues from the Gulf compared with 2020. This would, on average, lead to an improvement in current account positions equal to 8% of GDP.”

“Budget deficits would narrow and, in the case of Qatar and Kuwait, may even return to a surplus. This would reinforce our view that policymakers in the Gulf are unlikely to pursue further harsh austerity. Equally, though they are unlikely to loosen the purse strings and this will hold back recoveries in non-oil sectors.”