Middle East faces challenges and opportunities from shifting oil prices

The recent fall in oil prices will present challenges and opportunities for the Middle East and North Africa (MENA), according to the latest regional report by the Institute of International Finance (IIF).

"While overall growth in the oil exporting countries will moderate and their large fiscal surpluses will decline or shift to significant deficits, low oil prices may encourage these countries to accelerate and deepen structural reform efforts to improve energy efficiency and diversify their economies," said George Abed, Senior Counsellor and Director for Africa and the Middle East." Non-oil exporting countries in the region will benefit from the fall in oil prices through reduced oil import bills and lower fuel subsidies."

The IIF said that the 40% oil price drop from 2014 prices implies a massive shift in external and fiscal accounts. Exports from the MENA oil exporters will be reduced by $300 billion (€280 billion) in 2015. For the Gulf Cooperation Council countries (GCC), the aggregated current account surplus will shrink from $266 billion (€250 billion) in 2014 to about $40 billion (€38 billion) in 2015, and the fiscal position will shift from a surplus of 4.6% of GDP to a deficit of 7.4%.

The IIF projected average growth in the Middle East and North Africa (MENA) region will pick up slightly from 2.8% in 2014 to 3.2% this year, driven by the recovery in Egypt, Morocco, and Iran.

The IIF reduced their growth forecast for the GCC by 0.4 to 3.4% in 2015. However, growth outside the oil sector will remain strong at 4.5%, only slightly lower than last year.

For more on the oil price debate, read our Energy Economics roundtable here