“For the GCC economies, we’ve identified three channels of transmission of the COVID-19,” Mohamed Damak of S&P Global Ratings said, referring to the novel coronavirus that was first detected in China last year. He spoke to CNBC’s “Capital Connection” on Thursday.
The World Health Organization on Wednesday declared the virus a global pandemic after it spread to more than 110 countries and infected at least 121,000 people.
Iran, the worst hit Middle Eastern nation, reportedly has around 9,000 confirmed cases and over 350 deaths, according to the Associated Press. Countries such as Saudi Arabia, Bahrain, the UAE and Oman also have multiple cases of infection.
Here are three ways Gulf economies can be impacted by the virus:
Oil is one of the “principal” export products of Gulf Cooperation Council countries, and prices have fallen dramatically this week after OPEC and its allies failed to reach an agreement to cut output.
Crude futures plunged more than 20% Monday after Saudi Arabia said it would raise production and give discounts on its oil. On Thursday afternoon in Asia, Brent crude was down 6.01% at $33.64 a barrel, while U.S. crude traded at $31.15 a barrel, down 5.55%.
That is likely to be problematic for countries in the region, many of which rely heavily on oil revenues.
Damak added that S&P Global Ratings revised its price forecast from $60 a barrel to $40 a barrel for the year. That figure is below the fiscal breakeven oil prices for all Middle East and North Africa oil producers, according to IMF data.
“And if you look at the geographic distribution of exports, you can see for example that for Oman, more than 53% of exports go to countries where we see cases of COVID-19 either high or spiking,” he said.
Spending by foreigners is also likely to take a hit because of the coronavirus, particularly in Saudi Arabia and the UAE.
The UAE attracts more than 17 million visitors every year, Damak said, and this year it hopes to attract 25 million travelers to Expo 2020 Dubai in October.
Saudi Arabia receives 20 million tourists annually, most of them for religious purposes. The kingdom has temporarily suspended entry to the country for the purpose of Umrah and visiting the Prophet’s Mosque, an important site for Muslims.
Damak said, at this stage, it’s difficult to tell if Expo 2020 and the pilgrimage season — which starts in July — will be affected by the virus outbreak.
“If that were to be the case, then obviously the economic impact on both Saudi Arabia and the UAE would be higher than what we currently expect,” he said.
On the real estate side, he pointed out that Chinese buyers alone contributed to 1% of real estate transactions in Dubai in 2018. But purchasing decisions may be put off due to the “psychological effect” of the coronavirus despite falling interest rates, he said.
There has been “extreme volatility” in capital markets recently, and that may mean companies with “weak credit stories” will have trouble coming to the market, said Damak.
“This means that Bahrain, Oman and maybe also some corporates in the UAE will probably find it a little bit more difficult to get to the market this year.”