Is lending to bankrupt countries really a good idea?

GULF COUNTRIES - Report 18 Sep 2019 by Rory Fyfe and Justin Alexander

There are a number of Middle Eastern states that would struggle to access international bond markets without the backing of the wealthy Gulf states. We analyze how this politics of support is unfolding across the region and examine differing oil price scenarios out to 2030 using our measure of debt affordability. In the near term, heightened political tensions in the region have strengthened the likelihood for financial aid as the wealthy rivals are more eager to buy influence in their less well-off neighbors. This report was drafted before the drone attacks on Saudi’s Abqaiq and Khurais oil fields but we don't see that this significantly changes the calculus over the medium term, and the attacks are in line with our expectations for gradually escalating tensions with Iran. However, in the longer term, we find that Saudi Arabia, currently the main provider of support, is unlikely to be able to continue in that role, and the other wealthy GCC states are less likely to provide the same level of support. Oman is the greatest concern as politics have already undermined its financial backing. Saudi would probably drop Lebanon before Bahrain. Jordan should find willing support from the UAE and Qatar.

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