The days when Gulf Arabs would pass the long summer days in Europe are increasingly on the wane, partly because of the rising cost. Many Gulf families are eschewing London, Paris or Geneva for summer holidays in Cairo or Dubai, where their dollar-linked currencies go further.
With the US dollar at its lowest against the euro and at a 26-year low against sterling, consumers in some member states of the Organisation of the Petroleum Exporting Countries have begun to adapt their spending patterns to the new environment.
In the Persian Gulf region, US car brands such as Chevrolet?have?received?a boost as they have become cheaper relative to traditionally more popular European and Japanese brands. General Motors says June was the company’s best ever sales month in the Gulf region. But the lower purchasing power of the oil barrel when adjusted to a weaker dollar is unlikely to derail Opec’s economic boom, especially in the Middle East.
With years of sky-high oil prices trickling down through these economies, it is not surprising that consumer spending is soaring. A regional survey by Mastercard showed consumer confidence at near all-time highs in countries such as Saudi Arabia, Kuwait, United Arab Emirates and Qatar.
Opec calculates that the oil barrel purchasing power, when adjusted for inflation and currency movements, is about $45 (£22, €33) a barrel, well below the spot price of close to $75 a barrel. While in US dollars oil prices have surged by almost 170 per cent since 2003, in euro terms the increase has been about 100 per cent.
Despite the lower purchasing power of the barrel, HSBC estimates imports from members of the Gulf Co-operation Council rose in 2006 to about $190bn, or more than double the 2002 level. And most analysts agree that although a weak US dollar is denting the purchasing power of Middle East countries, the economic impact is relatively minor.
Monica Malik, an economist with regional investment bank EFG-Hermes in Dubai, says: “With oil prices very high and these states’ fiscal positions strong, it’s still a positive scenario. Oil price increases [until 2006] minimised the impact of the weak dollar with regard to purchasing power.”
Simon Williams, of HSBC in Dubai, added: “The weak dollar is reducing the purchasing power of local Persian Gulf countries’ currencies. But the economies are as strong and resilient as ever to reasonably sail the period of weak dollar.”
Despite concerns about the dollar, Iran has been the only oil-producing country to consider publicly moving its oil exports away from the US currency. Tehran, partly for political reasons, recently asked Japanese refineries to pay for their crude oil purchases in yen. Some European refineries pay in euros.
Hojjatollah Ghanimifard, director of international affairs at the National Iranian Oil Company, recently said: “We’re losing our purchasing power if we stick with the dollar. As long as the dollar is weak, the best decision is for us to move away from it.”
In the past five years the dollar has fallen by about 20 per cent against a broad index of currencies and by about 60 per cent against the euro. The rising euro is a particular source of concern for Opec members such as Algeria or Libya, whose imports come largely from Europe.
The eurozone is also the main source of imports for Opec Gulf countries, according to Deutsche Bank data. Saudi Arabia imports about 26.5 per cent of its goods and services from the eurozone and another 5 per cent from the UK. The US, on the other hand, accounts for about 12.2 per cent.
Julian Lee, of the Centre for Global Energy Studies in London, said: “Over a period of several years the eurozone has become more important for Opec, in particular for the Persian Gulf countries.”
Kuwait in May surprised the region by abandoning its peg to the US dollar, moving to a currency basket including the euro, sterling and yen to reflect more accurately its trading patterns.