'Saudi Arabia & Iran will bail out regional allies facing political opposition'

Oxford Analytica: Excerpts:
"... Strategic summary
*Saudi Arabia and Iran will bail out the economies of regional allies facing political opposition.
*Reconstruction and resumption of Libyan oil and gas production will take time, causing further economic disruption to neighbours.
*Egypt and Tunisia's economic performance will improve slowly, but significant foreign investment will not return until after elections.
*Qatar and the UAE will be the biggest winners, with healthy growth and minimal concern about political instability...
The UAE and Qatar will enjoy budget surpluses in the fourth quarter and remain safe-haven economies in a turbulent region. Sparsely-populated and rich in hydrocarbon reserves, these countries have not been affected by significant civil unrest as elsewhere, and consequently have not needed to increase public spending to keep their population on side. The UAE announced some stimulative spending and a pension increase for its military in February, but at a relatively small cost of 0.5% of GDP. Bahrain, Kuwait, Oman and Saudi Arabia have so far spent at least 1.25% of their GDP in response to this year's protests.
Morgan Stanley has said that it may soon reclassify the stocks of both countries from "frontier" to "emerging"...
Investor confidence will slowly return to Egypt and Tunisia
Egypt and Tunisia will continue to feel the negative economic impacts of their uprisings, although foreign investment will begin to return. Their governments will face higher spending and social welfare demands at a time when revenues continue to be squeezed by both the global downturn, inflation, and uncertainty over the outcomes of their own transition processes. The delay of elections in both countries could improve the long-term outlook by laying better foundations for future governance. ...
Tunisia faces similar issues. Given the troubled state of Europe, the retail and tourism sectors will both suffer. Tunis reported a 50% drop in tourist arrivals in the first half of 2011 compared with the first half of 2010, and some resort hotels were reporting occupancy rates below 20% during summer.
Saudi spending solutions
Sustained high oil prices should allow Saudi Arabia to put off serious structural economic as well as democratic reforms by giving it the revenues to continue its spending programme. The government has responded to protests both at home and in the wider region by increasing bonuses and wages for government workers, creating jobs and stepping up housing construction. The race to build homes, crucial to house a young and growing population as well as to avoid unrest, will be a major economic driver...
Saudi aid will play a vital role in helping its regional allies survive a difficult economic period
Saudi Arabia's concerns over the stability of its regional allies will play a vital role in helping their economies through a difficult period in the fourth quarter. The kingdom is expected to contribute the majority of a 25 billion dollar aid package set to flow from the Gulf Cooperation Council (GCC) to other Arab states. While straining Saudi Arabia's budget, the aid will enable countries such as Egypt, Jordan, Bahrain, Oman and, to a lesser extent, Morocco, shore up their balance sheets and increase subsidies to stave off public discontent and the need for democratic reforms...
Shoring up Sunni monarchies
Jordan and Bahrain are likely to benefit most from GCC aid in the fourth quarter. The Hashemite kingdom has already accepted a 400 million dollar cash grant from Saudi Arabia to help defray the costs of spending and wage hikes for government workers and military.
Bahrain's dependency on Saudi aid will deepen as Saudi Arabia supports the Sunni ruling Al Khalifa family in the face of Shia-dominated unrest. Bahrain's public debt-to-GDP ratio had reached 29.9% prior to the February uprising. It has since introduced various costly measures including increased food subsidies and a 2,660 dollar cash transfer to each Bahraini family. Questions over the country's long-term political independence will loom as it becomes increasingly dependent on Saudi financial aid.
Conflict countries
1.        Libya
The economy will remain static in the fourth quarter regardless of how quickly the Transitional National Council can restore security, basic services and infrastructure, and encourage foreign companies to return. Post-conflict reconstruction, the unfreezing of the former regime's assets, and resumption of oil production will be the priorities; they will overshadow the formulation of a clear economic policy. Libya may be able to resume production of about 450,000 barrels per day (b/d) by the end of the year, which, combined with sovereign assets, should be enough to finance the immediate needs of the transition. However, a return to its previous capacity of 1.6 million b/d may take up to three years even if the security situation stabilises quickly.
2.        Syria
Syria's economy will suffer from expanded EU sanctions, including on its vital oil export industry, which are expected to take effect in November. Knock-on effects on growth, job creation and poverty are likely to cause further political unrest, particularly in poorer rural areas. It will become increasingly dependent on close ally Iran for trade and financial aid. Iranian aid has increased significantly in recent weeks, providing the embattled regime of President Bashar al-Assad with a 1.5 billion dollar short-term loan and oil hand-outs, as well as a 5.8 billion dollar grant.
3.        Yemen
Yemen's economic situation will decline rapidly as President Ali Abdallah Saleh and opposition factions fail to agree on an agreement over his transition, potentially leading to all-out civil war. Foreign exchange reserves will dwindle as the value of the riyal falls, and the security situation will hamper any revival of economic activity. The elites have all supported a move to re-open a crucial oil pipeline that had been blocked by tribesmen. This may help ease the situation, but international aid agencies are drawing up contingency plans for a possible humanitarian crisis..."