The GCC is becoming increasingly vulnerable to the slowdown in emerging markets’ economies, according to a report by the US-based Standard & Poor’s (S&P), published on 31 March.

Despite the GCC’s relative immunity to sell-offs in emerging markets at the beginning of 2014, slower economic growth could impact the region in future, which has strengthened its links with Asia over the past year.

Lower demand for oil could lead to falling prices and reduce the GCC’s real GDP by 0.8 per cent in 2015 and 1.2 per cent in 2016, the report says.

“As growth in emerging Asia is becoming increasingly important in determining oil market fluctuations, our scenario assumes a decline in oil prices of $12 per barrel by 2016, to $90 a barrel from about $102 per barrel in our baseline scenario. In this environment, we expect that GCC countries would be hit mainly through the falling oil market price.”

A fall in hydrocarbon prices is expected to be somewhat offset by GCC countries scaling back their oil production, as they did during the financial crisis, however.

Saudi Arabia, Kuwait and the UAE  - which make up 20 per cent of global crude oil production - can fine-tune their production levels to stabilise the markets. Similar measures were taken in 2009, when oil prices dropped by $32 per barrel, prompting Saudi Arabia to reduce its oil production by 1 billion barrels (11 per cent of its output).

“We expect in our scenario that Saudi Arabia would reduce its oil output by 5 per cent in 2015 and by 6 per cent in 2016. However, the impact of a $12-dollar oil-price fall could be magnified if oil production in the US increased more rapidly than expected, leading to a sharper and more prolonged drop in oil prices,” says S&P.

“Additional recovery of production in countries currently producing below potential, such as Iraq, Iran, or Libya, could also put downward pressure on oil prices.” Libya’s crude oil fields restarted in 2012, enabling crude oil production to rise to 1.4 million barrels per day in 2012 from 465,000 barrels a day in 2011.

If oil prices fall by $12, that would put pressure on the GCC’s fiscal positions. Bahrain would be most vulnerable to a drop in oil prices as it already runs a deficit. Saudi Arabia’s balance as a percentage of GDP would also fall into deficit, declining by five percentage points.

The UAE fiscal balance, by contrast, would stay in positive territory, only falling to 5.7 per cent.