Saudi Arabia's Grand Plan to 'Hook' Poor Countries on Oil

Michelle

Energy

Economic

Summary:

Climate scientists say fossil fuel use needs to fall rapidly – but oil-rich kingdom is working to drive up demand.

Saudi Arabia's Grand Plan to 'Hook' Poor Countries on Oil_1

A Saudi Aramco oil refinery, one of the organisations involved in the oil demand sustainability programme.

Saudi Arabia is driving a huge global investment plan to create demand for its oil and gas in developing countries, an undercover investigation has revealed. Critics said the plan was designed to get countries “hooked on its harmful products”.

Little was known about the oil demand sustainability programme (ODSP) but the investigation obtained detailed information on plans to drive up the use of fossil fuel-powered cars, buses and planes in Africa and elsewhere, as rich countries increasingly switch to clean energy.

The ODSP plans to accelerate the development of supersonic air travel, which it notes uses three times more jet fuel than conventional planes, and partner with a carmaker to mass produce a cheap combustion engine vehicle. Further plans promote power ships, which use polluting heavy fuel oil or gas to provide electricity to coastal communities.

The ODSP is overseen by Saudi Arabia's de facto ruler, the crown prince Mohammed bin Salman, and involves its biggest organisations, such as the $700bn Public Investment Fund, the world's largest oil company, Aramco, the petrochemicals firm Sabic, and the government's most important ministries.

In publicly available information, the programme is largely presented as “removing barriers” to energy and transport in poorer countries and “increasing sustainability”, for example by providing gas cooking stoves to replace wood burning.

However, all the planned projects revealed in the investigation by the Centre for Climate Reporting and Channel 4 News involve increasing the use of oil and gas. An official said this was “one of the main objectives”.

The head of the World Bank said recently that rich countries and companies needed to help developing countries leapfrog over the fossil-fuelled economic growth of the past and roll out renewable energy. If they did not, Ajay Banga said, there was no hope of ending carbon emissions by 2050, as the world's scientists had repeatedly made clear was necessary to avoid climate catastrophe.

Saudi Arabia has said it is committed to the Paris agreement's climate goals to restrict global heating to well below 2C while aiming for a 1.5C rise at most. To achieve this, fossil fuel emission must fall rapidly and most oil and gas reserves must be kept in the ground, meaning climate policies, such as support for electric cars, pose a significant threat to the oil-rich state's revenues.

A significant issue at the UN's Cop28 climate summit, which will begin on Thursday, is whether countries can deliver a pledge to phase down – or phase out – fossil fuels. This year the climate crisis has smashed temperature records and supercharged extreme weather has taken lives and livelihoods around the world.

Mohamed Adow, the director of the thinktank Power Shift Africa, said: “The Saudi government is like a drug dealer trying to get Africa hooked on its harmful product.

“The rest of the world is weaning itself off dirty and polluting fossil fuels and Saudi Arabia is getting desperate for more customers and is turning its sights on Africa. It's repulsive.

“Africa cannot catch up with the rest of the world by trudging along in the footsteps of the polluting nations. It would mean we miss out on the benefits of modern energy solutions that Africa can take advantage of due to its massive renewable energy potential. We have the latecomer advantage, which means we can leapfrog to a genuine energy transition.”

António Guterres, the UN secretary general, said in 2021: “We need to see adequate international support so African and other developing countries' economies can leapfrog polluting development and transition to a clean, sustainable energy pathway.”

The Saudi Arabian ministry of energy did not respond to a request for comment.

The brief information on the programme's English-language website calls it the oil sustainability programme, while on the Arabic version it is described as the oil demand sustainability programme.

Its stated objective, according to the Arabic site, is to “sustain and develop the demand for hydrocarbons as a competitive source of energy, by raising its economic and environmental efficiency, while ensuring that the transition in the energy mix [is] sustainable for the kingdom of Saudi Arabia”.

An announcement in June to the Saudi stock exchange about a memorandum of understanding signed by ODSP and the Saudi Industrial Export Company initially said it would enable “activities in the fields of sustaining the demand of oil”. A correction the following day replaced this phrase with enabling “activities to increase energy access”.

Details of the ODSP's projects were exposed after undercover reporters posed as potential investors and met officials from the Saudi government. This revealed that increasing demand for oil and gas in developing countries was a thread running through the planned projects.

The presentation used by the officials said the strategy was to “unlock demand in emerging markets by removing barriers to energy access through infrastructure investments”.

When asked by the reporters whether the aim was to artificially stimulate demand in some key markets, an official said: “Yes, it's one of the main objectives that we are trying to accomplish.

“We don't believe it's possible that [developing countries] can skip this [fossil fuel] phase because, in order to implement electric vehicles fully, you'll need a ready infrastructure.

“A lot of African countries now do not have enough grid [electricity] to support their day-to-day lives. We believe they deserve the chance to get the required energy for their development now. Then in the future they can work to improve or to transit into more efficient energy sources.”

One of the criteria for the selection of the ODSP's 46 projects was the “incremental demand potential”, the officials said, with the programme facilitating the finance required for the projects.

The projects are in three categories: transport, utilities and materials, with the third promoting the replacement of some cement, steel and wood used in construction with oil-derived plastics.

“The objective of the transportation sector is to enhance the long-term sustainability of transportation fuel. We're talking about diesel, gasoline, and jet fuel,” an official said, with financing roads part of the plan.

“We aim to accelerate and enhance the impact and adoption of internal combustion engine [ICE] technology and optimisation.

“We have also an opportunity for increasing availability and adoption of low-cost cars, especially in emerging markets. Only 3% of people are owning cars in Africa.”

According to the presentation, the plan is to “partner with a car [manufacturer] in … the development and production of a highly competitive low-cost car” that will “have an oil uplift for the kingdom”.

The ODSP is additionally targeting bus, ride-sharing and delivery services, according to the presentation: “The goal is to support the deployment of ICE fleets across developing countries to capture the increasing gasoline/diesel demand.”

In aviation, the ODSP plans to increase flights by facilitating investments to “acquire or launch” a low-cost airline. The officials said work had begun on “fast-track development of commercial supersonic aviation”, which “consumes more energy per-seat-km – 3x [that] of subsonic commercial aircraft.”

The plans for electricity production include “oil-powered mini grids”, which would burn diesel or heavy fuel oil, an official said. Investments would also be facilitated in ships that provide “floating power plants” driven by heavy fuel oil or gas.

Saudi Arabia signed agreements in November with Rwanda to “develop demand for hydrocarbon resources”, with Nigeria on “promoting collaboration and strengthening our partnership in the oil and gas sector” and with Ethiopia to “cooperate on oil supply”.

“The fact that African countries are so desperate that they fall for this trick rests on the failure of the historic polluting nations to honour their climate finance pledges,” said Adow.

“But we need investment from rich countries that claim to be climate leaders. Otherwise we can expect more dodgy deals like this one, which endangers not just Africans but the global effort to ensure a safe and prosperous climate for all.”

Source: The Guardian

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Glendon

Stocks

Bond

Higher bond yields are presenting tough questions for equity investors. While the risk/reward trade-off for equities might be less favorable than in the past, historical return patterns suggest that US stocks can still do well in this environment.

Making investment decisions about any asset is a function of risk versus reward. For investors in stocks, the equity risk premium (ERP) is a common way to measure the risk/reward trade-off. Simply put, the ERP is the excess return that investors expect to earn over a risk-free rate. It measures the compensation that investors expect for investments in stocks, which are generally seen as riskier assets than bonds or cash. A higher ERP signals that investors can expect a relatively greater reward from stocks than they would in a lower-ERP environment, and vice versa.

Is Today's Lower ERP a Bad Signal for Stocks?

This year, the ERP for US stocks has declined. Our ERP metric shows the earnings yield of the S&P 500 minus the yield of the 10-Year US Treasury note, a proxy for the risk-free rate. That spread declined to 1.2 percentage points at the end of October, from an average of 3.1 percentage points between 2009 and 2022 (Display). The ERP has narrowed because rising interest rates lifted the Treasury yield from near-zero levels to 4.9% at the end of October.

Is Equity Risk Worth the Reward in a World of Higher Bond Yields?_1

To equity investors, that sounds worrying. After all, the ERP is likely to be lower in the coming years, as bond yields won't be suppressed by low inflation, ultralow interest rates and the Federal Reserve's quantitative easing programs that prevailed from the global financial crisis through the COVID-19 pandemic. From 2009 to 2022, when the ERP was much higher, US stocks returned 13.1% annualized on average. So does that mean the lower ERP is a warning sign for equity investors?

Not necessarily. We've experienced periods of lower ERPs in the past, and stocks have done relatively well. For example, from 1983 through 2008, the ERP was also low at 1.0%. Yet during that period, the S&P 500 returned an annualized average of 10.2%. Future conditions may well be different than in the past, and the lower ERP does set the bar higher for equities. Still, history suggests that stocks can still deliver solid returns in higher-bond-yield environments.

Equities Can Help Portfolios Cope with Inflation

Yes, we understand that bond yields of close to 5% these days are an attractive proposition for investors and offer a sense of safety in an unstable world. Yet we believe stocks and bonds both have important roles to play in a diversified investment portfolio today.

In particular, we think stocks offer a good hedge against inflation. Our research suggests that in periods of moderate annual inflation of between 2% and 4% between 1948 and the third quarter of 2023, the S&P 500 returned 2.5% per quarter. That's a solid real return, which helps protect the purchasing power of portfolios if inflation stays relatively high, as we expect.

Equities can also offer a rising stream of income via increasing dividends. We measure equity income by using the free-cash-flow (FCF) yield, which calculates the excess cash that a business generates after deducting all operating costs. Our research suggests that the FCF yield of US stocks should rise over time, above the Fed's long-term inflation target of 2%.

This contrasts markedly with a popular investment strategy these days—cash. Interest rates on cash are very attractive now, but they may not be for long if the Fed cuts rates, as many investors expect (Display). If yields do decline, investors who stay too long in cash would miss out on the potential for increasing dividends and the prospect of share-price appreciation along the way.

Is Equity Risk Worth the Reward in a World of Higher Bond Yields?_2

Selectivity Is Crucial When the Hurdles Are Higher

Bonds and stocks can and should coexist in a diversified investment allocation. In fact, if rates continue to fall over time, the ERP would rise, providing another impetus for equity returns.

For now, equity investors must be particularly selective to navigate a low-ERP environment. It's especially important to identify quality companies with strong balance sheets that benefit from sources of consistent growth potential and cash-flow generation, and with share prices that trade at reasonable valuations. When carefully curated in an active equity portfolio, companies like these can help provide equity investors with both resilience and the ability to deliver return potential in a world of higher macroeconomic and market hurdles.

Source: Alliance Bernstein

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FastBull Featured

Daily News

[Quick Facts]

1. Saudi Arabia's request for OPEC+ members to increase production cuts meets with resistance.

2. The temporary Israel-Hamas truce has been extended by two days.

3. BofA expects a weaker U.S. dollar but a stronger Australian dollar in 2024.

4. Russia's oil processing volume has reached its highest since August.

[News Details]

Saudi Arabia's request for OPEC+ members to increase production cuts meets with resistance

Saudi Arabia is reportedly asking other OPEC+ members to cut their crude output quotas to shore up the global market, but some members are resisting the request. The delegates said that Saudi Arabia has been unilaterally cutting oil supply by 1 million barrels per day (bpd) since July and is now seeking further support from its OPEC+ partners.

The Saudi proposal came in the tough negotiations among the oil-producing countries of the bloc. Angola and Nigeria resisted cutting their 2024 quotas, so OPEC+ had to postpone a policy meeting by four days to Nov. 30. Before the weekend, these oil producers were moving toward a compromise, but no agreement had yet been reached, delegates said. Some speculated that internal conflict could even lead to several members quitting OPEC.

The temporary Israel-Hamas truce has been extended by two days

Majed al-Ansari, spokesperson for the Foreign Ministry of Qatar, announced on Nov. 27 that Hamas and Israel agreed to extend a previously reached temporary truce by two days, following tense negotiations between the two sides over the further release of hostages held by Hamas in Gaza. Al Jazeera quoted Hamas saying that the temporary truce in the Gaza Strip has been confirmed to be extended for two days, with the same conditions as before. Ten Israeli detainees will be released each day for the next two days, totaling 20 people.

BofA expects a weaker U.S. dollar but a stronger Australian dollar in 2024

The dollar is expected to weaken in 2024 while the Australian dollar is expected to rally as the Federal Reserve cuts interest rates, according to strategists such as Athanasios Vamvakidis at Bank of America (BofA). The FOMC is expected to cut rates in 2024 as the Fed's concerns shift from inflation to economic growth, and other major central banks are likely to start cutting rates as well.

Russia's oil processing volume has reached its highest since August

Russian refineries are processing large volumes of crude oil as the seasonal maintenance has ended and the government eases restrictions on fuel exports. Russia processed 5.65 million barrels of oil a day between Nov. 16 and 22, 100,000 bpd more than the previous week, climbing to the highest level since mid-August, according to a person familiar with the matter. Russia's refining capacity stood at 5.55 million bpd in the first 22 days of November, up about 236,000 bpd from most of October, according to Bloomberg calculations based on historical data.

However, Russia's seaborne oil exports fell to the lowest level since August in the week ended Nov. 19, despite an uptick in domestic processing, tanker-tracking data monitored by Bloomberg show. Shipments decreased by 580,000 bpd from the previous week, the biggest week-on-week drop in more than four months.

[Focus of the Day]

UTC+8 15:00 Germany Gfk Consumer Confidence Index (SA) (Dec)

UTC+8 22:00 U.S. FHFA House Price Index MoM (Sept)

UTC+8 23:00 U.S. Conference Board Consumer Confidence Index (Nov)

UTC+8 23:00 FOMC Member Waller Speaks

UTC+8 23:00 FOMC Member Bowman Speaks

UTC+8 05:30 Next Day: U.S. API Weekly Crude Oil Stocks

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Michelle

Economic

We entered 2023 with a pessimistic consensus outlook for U.S. economic performance and for how rapidly inflation might recede. As it happened, there was no recession, and personal consumption posted sustained strength. Inflation, except shelter, declined dramatically from its 2022 peak.

The big economic driver in 2023 was job growth. Jobs had recovered all their pandemic losses by mid-2022 and continued to post strong growth in 2023, partly due to many people returning to the labor force.

When the economy is adding jobs, people are willing to spend money. The key for real GDP in 2023 was the strong job growth that led to robust personal consumption spending. For 2024, labor force growth and job growth are anticipated by many to slow down from the unexpectedly strong pace of 2023, leading to slower real GDP growth in 2024.

And there is still plenty of debate about whether a slowdown in 2024 could turn into a recession. Followers of the inverted yield curve will point out that it was only in Q4 2023 that the yield curve decisively inverted (meaning short-term rates are higher than long-term yields). It is often cited that it takes 12 to 18 months after a yield curve inversion for a recession to commence. Using that math, Q2 2024 would be the time for economic weakness to appear based on this theory. Only time will tell.

The rapid pace of inflation receding in the first half of 2023 was a very pleasant surprise. Indeed, inflation is coming under control by virtually every measure except one: shelter. The calculation of shelter inflation is highly controversial for its use of owners' equivalent rent, which assumes the homeowner rents his house to himself and receives the income. This is an economic fiction that many argue dramatically distorts headline CPI, given that owners' equivalent rent is 25% of the price index.

Once one removes owners' equivalent rent from the inflation calculation, inflation is only 2%, and one can better appreciate why the Federal Reserve has chosen to pause its rate hikes, even as it keeps its options open to raise rates if inflation were to unexpectedly rise again.

The bottom line is that monetary policy reached a restrictive stance in late 2022 and was tightened a little more in 2023. For a data dependent Fed, inflation and jobs data for 2024 will guide us as to what might happen next. Good numbers on inflation or a recession might mean rate cuts. Otherwise, the Fed might just keep rates higher for longer.

Source: CME Group

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Glendon

Economic

U.S. furniture company head Jordan England thinks his firm's Chinese suppliers are among the best in the game, but geopolitics and a slowing economy have pushed him to source more products from Southeast Asia, Eastern Europe and Mexico.

"I'm looking to move away from it (China)," said England, CEO and co-founder of Florida-based Industry West.

"It was always 'China plus one,'" he said, referring to the diversification strategy many businesses began implementing after Washington imposed trade tariffs on Beijing in 2018 to ensure they were not wholly dependent on Chinese suppliers.

Now "it's like 'plus-10' and then China," he added, with the latter down to providing half of Industry West's products and being trimmed more.

Foreign investors have been sour on China for most of this year, but data released over the past month has provided clear evidence of the negative impact de-risking strategies are having on the world's second-largest economy.

Activity surveys showed manufacturing unexpectedly contracted in October, while exports accelerated their decline. China recorded its first-ever quarterly deficit in foreign direct investment in July-September, suggesting capital outflow pressure.

West's De-Risking Starts to Bite China's Prospects_1

Nicholas Lardy, senior researcher at the Peterson Institute for International Economics, said in a note the new data imply that foreign firms are not only declining to reinvest earnings, but are selling existing investments and repatriating funds.

This trend could further weaken the yuan and clip China's economic growth potential, he added.

"In recent years, the scale, proportion and growth rate of foreign investment absorbed by China have all remained at a relatively high level," He Yadong, a Chinese commerce ministry spokesperson, said in response to a question from Reuters.

LONG-TERM PROSPECTS

Businesses have longstanding worries about geopolitics, tightening regulations and a more favourable playing field for state-owned companies. But for the first time in the four decades since China opened up to foreign investments, executives are now also concerned about long-term growth prospects.

A survey released last week by The Conference Board, a think tank, showed more than two-thirds of the CEOs who responded said China's demand has not returned to pre-COVID levels, with 40% expecting a decrease in capital investments in the country over the next six months and a similar proportion expecting to cut jobs.

China is outwardly confident about growth despite a global economic slowdown, with policy advisers favouring a target of about a 5% expansion of gross domestic product in 2024 and the country aiming to double the economy's size by 2035.

But England said he is concerned about how his Chinese suppliers that also produce for the domestic market will cope with the country's severe property market downturn.

"I'm worried about these factories going from 500 workers to 200, to 100," he said.

OPEN FOR BUSINESS?

Premier Li Qiang's overtures declaring China open for business to foreign investors after the pandemic have been greeted with scepticism in some Western boardrooms in light of a broader anti-espionage law, raids on consultancies and due diligence firms and exit bans, trade bodies say.

Li is expected to make a similar call on Tuesday at the country's inaugural China International Supply Chain Expo, which it is expected to use to tout its supply chain advantages.

"Foreign business executives here are eager to continue in China," AmCham President Michael Hart said. "But boards back in the U.S. are wary."

European firms have raised fair competition concerns about state-directed lending to Chinese manufacturers, while Noah Fraser, managing director of the Canada China Business Council, said "bad blood" remains over the detention of two Canadians from 2018 to 2021.

West's De-Risking Starts to Bite China's Prospects_2

In private equity, while Asia-focused funds have allocated capital to China, data from Preqin shows that as of Nov. 24, no China-focused buyout fund had been raised in 2023 in any currency, compared with $210 million in 2022 and $13.2 billion in 2019, before the pandemic.

Primavera Capital founder Fred Hu cites mounting macroeconomic uncertainty, a "murky capital market outlook," and lingering concerns over past regulatory crackdowns on high-growth industries such as technology and education.

"Tech firms and other private enterprises must be able to tap public markets for financing and liquidity, so the current market conditions in China do considerable harm to the real economy," said Hu, adding China-focused private equity firms were diverting capital to Southeast Asia, Australia and Europe.

Despite the challenges, foreign investment flows are not unidirectional. Many firms, especially in the retail sector, still target China's giant market. McDonald's said last week it had struck a deal to boost its stake in its China business.

An executive at a European hotel chain, who spoke on condition of anonymity due to the topic's sensitivity, said his firm was happy to reinvest profits in China for now.

"We know what's going on politically and yes, economically," he said, adding the latest data "was nothing to be proud of."

"It's slow, but only warrants taking a 'wait and see approach.'"

Source: REUTERS

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Justin

Central Bank

Forex

Two weeks left for the last ECB meeting for 2023

With the Thanksgiving holiday break behind us, we are on the homestretch now for 2023. The market is counting down to the last round of central bank meetings starting with the RBNZ this week and concluding with the BoJ meeting on December 19. The ECB gathering is scheduled for December 14 and the market would be very interested in any rhetoric change by President Lagarde.

Ahead of this busy period, ECB members have been flooding the airwaves with their comments. They have been trying hard to convince the market that (1) rate hikes are not completely off the table, (2) rates will probably stay at the current levels for a while and it is too early to talk about rate cuts, (3) the current weak growth patch is expected to continue in 2024 but they do not expect a recession and (4) inflation is expected to edge a bit higher over the coming months.

At the end of the day though, their approach is data dependent. Since the October ECB meeting, euro area economic data prints have been mostly mixed. The weak preliminary GDP for the third quarter of 2023 has been followed by subdued retail sales, revealing the impact of a rather long period of continued price increases. Inflationary pressures have been abating but core inflation remains stubbornly high, complicating the outlook. At least, PMI surveys have been picking up pace, although the German PMI manufacturing survey is stuck at an extremely low level.

Has Inflation Fire Been Extinguished by ECB?_1

November inflation report in focus

Τhis week we will get the preliminary inflation report for November. On Wednesday, the various German states will publish their figures with the German national figures expected after 13.00 GMT. The annual German inflation figure has been on an aggressive downward trend since the November 2022 peak of 8.8% with forecasts revolving around another deceleration to 3.5%.

The euro area aggregate print is expected on Thursday. With the headline indicator gravely affected by the weaker energy prices and thus seen recording a 2.8% YoY change, the core indicator is bound to get more attention. The core index, excluding energy, food, alcohol and tobacco, has been falling from the March 2023 peak of 5.7% and it is forecast to fall below the 4% level for the first time since July 2022.

However, it remains at an elevated level, and above the headline figure. ECB members are worried that the supply issues and stronger wage increases across the euro area are potentially supporting the stickiness of core inflation.

With the market fixated with rate cuts – the first 25bps rate cut is fully priced in by June 2024 – a possibly strong inflation report is unlikely to affect market expectations. In fact, only a combination of stronger growth indicators such the PMI surveys and repeatedly stronger inflation prints could convince the market that rate cuts are probably not around the corner at this stage.

Euro in danger of losing its recent hard-earned gains

The euro has been outperforming the pound since late August, but these hard-earned gains could be under threat now. Last week’s UK Autumn Statement appears to have invigorated the pound bulls but the next leg in the euro-pound pair will probably depend on this week’s data calendar, and predominantly the November inflation report.

A strong set of data this week could help the euro-pound pair climb above the August 23 ascending trendline and potentially open the door for a move towards the 0.8794-0.8815 area. On the flip side, weak data results and dovish rhetoric from ECB officials could mean the current correction might have legs, with 0.8635 being the next credible target.

Has Inflation Fire Been Extinguished by ECB?_2

Source:XM

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Devin

Economic

Gulf countries must focus on building resilience against impending threats to economic stability and growth as the risk of regional conflict rises following heightened geopolitical tensions in the Middle East, experts told Arabian Business.

Geopolitics can have a "direct, obvious impact on economies," according to Abishur Prakash, founder of geopolitical consultancy The Geopolitical Business.

Economic shifts can have far-reaching consequences such as China's foreign direct investment going negative for the first time since record-keeping began in 1998 or the "brain drain" taking place in Russia as technology talent leaves.

"Globally, we are going through a period of elevated geopolitical risk from the war in Ukraine and Russia's challenge to the global economic order to deteriorating relations between China and the US," said Nemr Kanafani, Senior Economist at the Conference Board.

He added that they both point to "the possible retreat of globalisation and international cooperation at a time when that is needed most of all, not least to address the challenges of limiting global warming."

Threats stem from both within the region and escalating global tensions. "The risk remains relatively contained for the GCC given that the conflict has not yet spread beyond Israel and the Occupied Territories," said Kanafani. However, should Iran enter the Gaza-Israel conflict directly or indirectly through its proxies in Lebanon or elsewhere, "the risks could rise for the GCC."

For the Gulf in particular, Kanafani noted that conflicts endangering vital oil routes through the Strait of Hormuz or a broad regional war enveloping Iran would pose some serious economic harm.

Slowing Chinese consumption paired with difficulties maintaining production cuts also jeopardises Gulf budgets, he said, as oil income underpins state spending and living standards across the region. A faltering global or domestic economy adds strain.

But beyond a regional war, economist Omar Al Ubaydli, director at Bahrain-based thinktank DERASAT, believes "the biggest risk" for the Gulf is a sharp decline in oil prices which would generate "considerable economic and social stresses" for the hydrocarbon-reliant region.

To strengthen resilience against these mounting pressures, the experts unanimously stressed the need for Gulf states to continue to diversify their economies, safeguard fiscal sustainability and deepen regional coordination.

Currently, GCC countries possess fiscal cushions and security cooperation insulating against localised violence. But the three experts concurred greater fortification is imperative against broadsides.

Diversifying non-oil industries remains a core defensive tactic. "Most shocks either adversely impact oil prices, or adversely affect their ability to export oil, both of which negatively impact their economy," Al Ubaydli told Arabian Business. Transitioning away from over-reliance on the energy sector through economic visions like Saudi's Vision 2030 remains paramount.

Yet he advocates "allocating greater resources to diversification research", recognising uncharted terrain requires adaptive strategies.

"The Gulf countries have significant room for improvement when it comes to dealing with geopolitical shocks," he said, as most shocks either negatively impact oil prices or the nation's ability to export oil – adversely impacting the economy. GCC members are aware of this, which is why they continue to diversify their economies and international partnerships simultaneously, to limit the negative impact of global shocks.

However, Prakash cautioned that diversification alone is insufficient without supporting reforms and robust macroeconomic policy.

Fortifying public finances also absorbs blows. "Sustainable debt levels and healthy non-oil government revenues are some of the policy objectives that we see in the GCC that ensure resilience," added Kanafani.

Regional collaboration likewise reinforces defenses by pooling capabilities and risks. With rising geopolitical polarisation fracturing global cooperation, Prakash advocates a "bloc-based approach, not global." Revitalising initiatives such as the India-GCC economic corridor could help diffuse external pressures.

As uncertainty mounts, Gulf states face growing urgency to fortify their economies. By doubling down on diversification, maintaining fiscal discipline, and deepening regional alliances, experts argue the region can strengthen its resilience against escalating global instability and conflicts close to home. The costs of inaction could be severe as geopolitical headwinds batter global growth.

Threats to Gulf economic resilience

However, according to Prakash, "several big threats could spell disaster for the global economy." This includes a massive state-driven cyberattack that shuts down key sectors of a major economy.

He also said that a permanent deterioration of US-China ties "could spill over into a crisis over Taiwan or a new economic war between the West and Beijing."

Additionally, the new era of "nuclear chess" is underway, as nations move nuclear weapons a tipping point could emerge where the placement of nuclear weapons begins to affect economic integration and flows.

Lastly, the AI threat. "As AI advances, the propensity for deepfakes to sow chaos in societies is high. When the Ukraine war began, the EU warned that disinformation could cause a run on the banks," added Prakash, who believes the next economic crisis could be started by AI-driven disinformation.

Steady fortification from various angles can better garrison Gulf economies against surging global volatility. Diversification, fiscal prudence and regional solidarity construct resilience for navigating turbulence ahead. With diligence, GCC nations can reinforce defenses against coming geopolitical storms.

"Resilience is connected to fallout," said geopolitical analyst Prakash.

"A geopolitical event can take place in one part of the world, but if the "effects" of that event do not make it beyond an initial radius, then most countries and companies do not need to be resilient."