Analysis

Prolonged low oil prices will mean more scrutiny of spending in the Middle East

Tim Risbridger, head of infrastructure, EC Harris

As the oil price falls below $50 per barrel for the first time since 2009 Bernadette Ballantyne asks Tim Risbridger, head of infrastructure at consultant EC Harris, to outline the impact on projects in the Middle East 

1. After four years of high oil prices they began to drop in the summer reaching a low of under $50 per barrel in January. What are the likely implications of this for the hydrocarbon exporting nations of the Middle East?  

The Gulf region is one of the low-cost places to extract oil therefore unlike some locations such as the North Sea; it is still profitable even at US$50/barrel. Now having said that, the issue is dependent on how low the price will go and for how long. Allowing for national reserves, if the price starts to increase again over the next three to six months, the impact on the GCC countries is likely to be minimal. However, if the price continues to fall and remains low for 12 months or more, this will certainly impact the region where, even with the recent programmes of economic diversification, the economies are still predominately carbon dependant.

2. How is this likely to affect infrastructure programmes in Middle Eastern countries?

Priority projects which support the development of the wider economy and key social projects will continue unchanged although some scope reduction may be implemented to reduce expenditure in the short term. Secondary projects or projects that are only in the planning stage are likely to be reviewed and some could be delayed or postponed. In some instances, this could lead government departments to consider alternative forms of project funding, such as PPP.  

3. Are any sectors more vulnerable than others to spending cuts?

Not particularly but clearly the larger scale investments such as the GCC railway are likely to come under increased scrutiny.

4. Since 2013 contract awards in the Gulf region have boomed and consultants have been "staffing up". Do you expect this to continue or will the lower oil price mean stabilisation?

I would not say the Gulf region has been booming since 2013 but we have seen steady growth. There is an expectation that committed and commenced contracts will continue unchanged, but the awarding of new works could slow in the short-term.

5. Are there any other major implications for the consultancy sector?

Clearly if projects are put on hold there will be less opportunities going forward.