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Falling oil prices – impact on Gulf & west African markets

22 December 2015


Since the price of oil began its 55%-60% collapse last autumn from $110/barrel to ~$40/barrel now, the number of jobs lost from oil and gas companies around the world has surpassed the 250,000 mark (as at Nov 2015), with still more to come, according to industry consultant Graves & Co.

The industry has idled more than 1,000 rigs and slashed more than $100 billion in spending this year to cope. Oil services, drilling and supply companies are bearing the brunt of the downturn, having accounted for 79% of the layoffs. Oil and gas projects around the world have been postponed or cancelled altogether as a result.

There are clear implications for economic growth across Middle East and West African markets, particularly given their high reliance on hydrocarbon receipts. With little indication of a rapid rebound in oil prices, the economic challenge is manifesting itself in different ways. All economies in these territories are expected to post their first fiscal deficit since the 'great recession'.

United Arab Emirates

Moody's estimates that 70%-75% of the country's income came from the hydrocarbon sector in 2014, putting it in a very challenging position. This dependency is of course varied, with oil making up less than 4% of GDP in Dubai, while for Abu Dhabi and Sharjah the figure is nearer 50%. 

The government responded to the economic challenge by slashing energy subsidies, which account for 7% of GDP or $106 billion. This has seen prices at the pump falling, while expat utility bills have climbed sharply as utilities are now offered at cost price. Lower fuel prices are expected to boost the country's manufacturing and logistics sectors, one of the main pillars of growth historically.

For Abu Dhabi, an ongoing consolidation of office space requirements by local and global oil corporates threatens to undermine rents and may lead to a supply glut. However ongoing economic diversification efforts by the government are fostering growth in the healthcare, aviation, education, healthcare and hospitality sectors, which may offer some temporary respite, especially to the residential market.

In Dubai, this is less of an issue but given its economy is now more intrinsically linked to the global economy than ever before, it too is slowing in line with global growth. However, with mega infrastructure projects both linked to hosting the World Expo in 2020 and to boost growth still ongoing, the medium term prospects for the residential and commercial markets are brighter. Projects include the $32 billion expansion of Al Maktoum International Airport - the world's largest airport with a planned passenger capacity of over more than 260 million, more than Heathrow and Gatwick combined twice over.

Like Abu Dhabi, Sharjah's office market is highly reliant on the hydrocarbon sector and the recent contraction in requirements and space occupied has undermined office rents. Its residential market, too, has cooled in line with Dubai as it adjusts to remain competitive when compared to Dubai.

Overall, the picture is slightly less rosy than it was last year, however, the unknown impact of the lifting of the trade sanctions on Iran in the Spring is something we're monitoring closely. Iran and the UAE share a close historic trading relationship that goes back centuries and lifting sanctions after 10 years is expected to directly benefit Dubai as it resumes its position as the world's gateway to Iran. Iranian High Net Worth Individuals (HNWI) are also expected to target residential assets in Dubai as they seek out investment safe havens while the government adjusts to the removal of sanctions and restrictions on overseas investment. This is expected to provide fresh demand to Dubai's slowly maturing residential market. 


This is an economy that has only recently begun to find its feet following a period of years of domestic disturbances. The collapse in oil prices has stalled this recovery and also means the government has lost an estimated 60%-70% of its annual revenue this year, according to the latest official estimates.

There is a rush to review fuel subsidies, following in the UAE's footsteps, but this may impact Bahrain's long term competitiveness if business and housing costs rise; something Bahrain has long prided itself on.

The country remains heavily reliant on Saudi weekend tourist traffic, which has boosted its second home and retail markets, but these are likely to be undermined as Saudi Arabia faces its own economic rebalancing challenges.


Like Bahrain, the country remains almost entirely reliant on hydrocarbon income and its nascent tourism sector.

Thus far, to cope with the oil price collapse, the government has boosted oil production to record highs to compensate for the fall in oil prices, flooding the market with surplus oil. This has helped to sustain government revenues and therefore spending, which has helped to maintain public confidence.

Continued infrastructure spending has also boosted business confidence and has contributed to stability in the country's residential and commercial markets.

While there is a question mark over the government's response to the oil price challenge, it is our view that the real estate sector will record declines as the low oil price era beds in and government spending levels retreat.


The country held its fifth democratic elections since the end of military rule in 1999 during the spring, with high expectations that a new government would drive change and root out corruption. This expectation has been tarnished to an extent by the oil price rout as the country, like the Gulf States, struggles to rebalance its economy while reclaiming its position as the gateway to West Africa.

The drop in government revenues has stalled several government backed infrastructure projects, denting confidence, especially in Lagos. The Naira has also subsequently seen repeated devaluation as the country works to maintain its competitiveness.

This has coincided with government restrictions on in-country foreign exchange and import restrictions, which has stifled the retail and industrial sectors in Lagos, both of which are now expected to record contractions and concurrent reductions in rental and capital values.

Separately, the Lagos office market which has long enjoyed rents as high as those in the City of London, faces a supply glut. The backbone of requirements has always stemmed from the oil and gas sector, but with redundancies mounting in the sector and ongoing consolidation of space, the office market in prime areas is seeing a rise in the amount of recycled space returning to the market. This is coinciding with a sharp upturn in completions, predominantly thanks to schemes that were being rushed out of the ground 18-24 months ago due to a supply shortage then.

We are therefore also expecting office rents to slide in Lagos as the fall in oil prices takes its toll on the market.

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