The 'Dubai Omen' And Global Risks Of Plunging Oil Prices

Anchoring in Dubai?
Anchoring in Dubai?
Daniel Eckert and Holger Zschäpitz

BERLIN — As the price of oil continues to fall, share prices on the Gulf region's stock markets have plummeted in parallel. The price of oil reached a yearly low of $60 a barrel on Friday, and we're now looking at a possible $50, which would create a truly bleak outlook for economic prospects in the Middle East. On Monday, the price touched a low of $56.25 before a modest rebound.

"The freefall of the price of oil has unleashed panic here," says Wafik Dawood, portfolio manager at Compass Capital in Cairo. On the Egyptian stock exchange, rates fell by 5% on Sunday. In Qatar they fell by 6%, and in Dubai 8%. The region's stock indices therefore lost most of the year's profit. In majority Muslim countries, exchanges tend to be open on Sundays and closed on Fridays.

"Morale is poor," says Sanyalak Manibhandu, head of research at NBAD Securities in Abu Dhabi. "The falling rates of the past few weeks are accelerating."

On the Saudi Arabian stock market, losses were somewhat more limited Sunday, to 4%, although investors fear a more long-lasting downswing. Since September, the exchange has lost 28% of its value in riyals, the Saudi Arabian currency, and is only quoting at November 2013 levels.

Well into autumn, the region's traders were taking the fall in oil prices relatively lightly, as investors were initially counting on commodities as a whole recovering fairly quickly. The cost of exploitation in the Middle East is often lower than in other places in the world so that sinking prices at first didn't seem to impact producers too heavily. But the relative calm is definitely over now that the price per barrel is under the $60 mark, as investors fear a plunge similar to 2008.

"Oil is a major source of revenue for the Gulf States," Bloomberg News quoted fund manager Tariq Qaqish of Al Mal Capital as saying. "Lower oil prices mean lower spending. Lower spending means less economic growth."

Gulf country budgets are particularly dependent on revenues from petroleum sales. That means that lower prices put state finances under pressure, which in turn raises red flags at the rating agencies. Standard & Poor's warned Friday it could downgrade Bahrain's credit rating.

Observers say the fallen oil price starkly reveals the structural weakness of economies such as Bahrain's. The "business models" of other states in the region are also coming in for some critical analysis.

Abdallah Salem el-Badri, secretary general of the Organization of the Petroleum Exporting Countries (OPEC), tried Sunday to contain the panic by saying that the price collapse was being exaggerated. "The fundamentals should not lead to this dramatic reduction in price," Badri said in Dubai. OPEC was striving to arrive at an appropriate and sustainable price level for both producing countries and users, Badri said, but he didn't suggest a specific price.

Canary in mine

Once again Dubai is coming in for particularly close attention. The glitzy metropolis in the desert sands is one of the most indebted economies in the world. The sheikdom's corporations alone are $109 billion in debt. We're living in an age when debts in the billions may seem common, but consider that the economic performance of the entire United Arab Emirates (UAE) — of which Dubai is one — is only $78 billion. That means that liabilities are far greater than economic performance.

In Dubai, but also in other countries in the region, economic models are based primarily on financial services and real estate, alongside oil. Also a priority is lavish state expenditure on the population, which often guarantees them a socially worry-free existence. In times of stable or rising oil prices, this doesn't pose a problem, but in times of financial uncertainty it can boomerang.

Photo: Qf1247

The situation is particularly precarious because most of the Gulf States based their budgets on rising oil prices in 2015, according to the rating agency Moody's. In some countries a price of more than $100 a barrel is a prerequisite for a balanced budget.

The gloomiest picture is in Bahrain. The country needs the oil price to be at $125 per barrel in order to see any surplus, while Saudi Arabia needs a price of $108 and Oman $102. The UAE to which Dubai belongs calculates the barrel price at $75 for budget purposes.

Only Qatar, according to its own calculations, can manage at the $60 rate, while Kuwait can manage with less and still make a profit.

The Gulf State economies may be small and of lesser importance to the world economy. But there are numerous transmission mechanisms that could turn the crisis there into our own. For one thing, there are the billions in sovereign wealth funds. Qatar, Kuwait, Saudi Arabia and others have invested untold billions of petro-dollars in the Western world.

A Qatari oil fund owns 6% of shares in Deutsche Bank, the Kuwait Investment Authority is, with 7%, the largest single investor in the German car manufacturer Daimler, and Qatar owns 17% of Volkswagen.

When oil revenues are down, funds and investors could in a worst-case scenario be obliged to sell their shares. That would put downward pressure on corporate stocks, and would make it impossible for funds to participate in recapitalization in a time of crisis.

Nervous investors are already on to the idea that the Dubai crash could bode ill for global financial markets — and indeed the last stock market crashes did carry something of a "Dubai omen."

Whenever rates in the emirate fell, a global convulsion followed shortly afterwards. The bankruptcy of Dubai in the spring of 2008 helped accelerate the global financial crisis. There is no rational explanation for why Dubai is like the proverbial canary in the coal mine. But when the air in the markets thins out, the emirate so dependent on international capital and stable commodities prices feels it earlier than others.

Investors in virtually any sector should keep eyes peeled on the daily developments in the Gulf.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!

What It Means When The Jews Of Germany No Longer Feel Safe

A neo-Nazi has been buried in the former grave of a Jewish musicologist Max Friedlaender – not an oversight, but a deliberate provocation. This is just one more example of antisemitism on the rise in Germany, and society's inability to respond.

At a protest against antisemitism in Berlin

Eva Marie Kogel


BERLIN — If you want to check the state of your society, there's a simple test: as the U.S. High Commissioner for Germany, John Jay McCloy, said in 1949, the touchstone for a democracy is the well-being of Jews. This litmus test is still relevant today. And it seems Germany would not pass.

Incidents are piling up. Most recently, groups of neo-Nazis from across the country traveled to a church near Berlin for the funeral of a well-known far-right figure. He was buried in the former grave of Jewish musicologist Max Friedlaender, a gravesite chosen deliberately by the right-wing extremists.

The incident at the cemetery

They intentionally chose a Jewish grave as an act of provocation, trying to gain maximum publicity for this act of desecration. And the cemetery authorities at the graveyard in Stahnsdorf fell for it. The church issued an immediate apology, calling it a "terrible mistake" and saying they "must immediately see whether and what we can undo."

There are so many incidents that get little to no media attention.

It's unfathomable that this burial was allowed to take place at all, but now the cemetery authorities need to make a decision quickly about how to put things right. Otherwise, the grave may well become a pilgrimage site for Holocaust deniers and antisemites.

The incident has garnered attention in the international press and it will live long in the memory. Like the case of singer-songwriter Gil Ofarim, who recently claimed he was subjected to antisemitic abuse at a hotel in Leipzig. Details of the crime are still being investigated. But there are so many other incidents that get little to no media attention.

Photo of the grave of Jewish musicologist Max Friedlaender

The grave of Jewish musicologist Max Friedlaender

Jens Kalaene/dpa/ZUMA

Crimes against Jews are rising

Across all parts of society, antisemitism is on the rise. Until a few years ago, Jewish life was seen as an accepted part of German society. Since the attack on the synagogue in Halle in 2019, the picture has changed: it was a bitter reminder that right-wing terror against Jewish people has a long, unbroken history in Germany.

Stories have abounded about the coronavirus crisis being a Jewish conspiracy; meanwhile, Muslim antisemitism is becoming louder and more forceful. The anti-Israel boycott movement BDS rears its head in every debate on antisemitism, just as left-wing or post-colonial thinking are part of every discussion.

Jewish life needs to be allowed to step out of the shadows.

Since 2015, the number of antisemitic crimes recorded has risen by about a third, to 2,350. But victims only report around 20% of cases. Some choose not to because they've had bad experiences with the police, others because they're afraid of the perpetrators, and still others because they just want to put it behind them. Victims clearly hold out little hope of useful reaction from the state – so crimes go unreported.

And the reality of Jewish life in Germany is a dark one. Sociologists say that Jewish children are living out their "identity under siege." What impact does it have on them when they can only go to nursery under police protection? Or when they hear Holocaust jokes at school?

Germany needs to take its antisemitism seriously

This shows that the country of commemorative services and "stumbling blocks" placed in sidewalks as a memorial to victims of the Nazis has lost its moral compass. To make it point true north again, antisemitism needs to be documented from the perspective of those affected, making it visible to the non-Jewish population. And Jewish life needs to be allowed to step out of the shadows.

That is the first thing. The second is that we need to talk about specifically German forms of antisemitism. For example, the fact that in no other EU country are Jewish people so often confronted about the Israeli government's policies (according to a survey, 41% of German Jews have experienced this, while the EU average is 28%). Projecting the old antisemitism onto the state of Israel offers people a more comfortable target for their arguments.

Our society needs to have more conversations about antisemitism. The test of German democracy, as McCloy called it, starts with taking these concerns seriously and talking about them. We need to have these conversations because it affects all of us. It's about saving our democracy. Before it's too late.

Keep up with the world. Break out of the bubble.
Sign up to our expressly international daily newsletter!