May 2024 Al-Monitor Trend Report 

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A region beset by unending upheaval faced more in May 2024, with top Mideast powers bracing for major leadership changes after the sudden death of Iranian President Ebrahim Raisi. That came as Saudi Arabia’s 88-year-old King Salman simultaneously fell ill, underlining potential for an imminent royal succession.

Alongside the obvious geopolitical ramifications of these developments, there are economic and investment factors to consider. In Iran, a similarly hardline replacement to Raisi is unlikely to rescue a struggling economy burdened by sanctions, although the rial’s free-market exchange rate suggested there wasn’t much concern among domestic stakeholders. 

A Saudi succession could be a different story for Mohammed bin Salman, or MBS, the country’s de facto ruler since 2017. Although his father has reportedly recovered for now, MBS could soon become fully empowered as king at a pivotal moment for Vision 2030, his sweeping economic transformation agenda that’s increasingly facing big question marks amid reports detailing mounting delays and financial pressures (not to mention a potential management shakeup inside the country’s $1 trillion Public Investment Fund).

Any turbulence around the ascent of MBS to the throne could imperil Vision 2030 — for instance, by potentially scaring away hotly sought foreign investment from global players (like Goldman Sachs and its new regional headquarters in Riyadh). Upheaval could also hurt domestic buy-in for his national overhaul. That will make his first moves as king a key storyline to watch, especially after his initial rise as crown prince boldly upended the Saudi status quo. 

This spotlight on leadership transition comes as May also delivered another temperature check for Mideast economies transitioning to a post-oil future. The International Monetary Fund (IMF) this month published several updates on GCC economies after recent country visits. Unsurprisingly, the UAE remains a bright spot, with the IMF projecting strong real GDP growth of around 4% in 2024, up from previous forecasts of 3.5% (and this month Dubai again topped a global list for the most "greenfield" foreign direct investment). 

In Qatar, the IMF reports that post-World Cup growth normalization could bottom out in the near term, but average growth could reach around 4.5% in the medium term. Meanwhile, Kuwait’s pandemic recovery has been disrupted by OPEC+ production cuts, with its economy projected to contract by 1.4% in 2024. In Iraq, the IMF expects an ongoing fiscal expansion will boost real GDP by 1.4% this year after contracting 2.2% in 2023, while Oman is positioned for moderate growth of 0.9% in 2024 (down from 1.2% previously). We’re still waiting on IMF updates for Bahrain and Saudi Arabia as of this writing, but outside the GCC the situation is less optimistic. The IMF’s Lebanon visit found that its unaddressed economic crisis continues to weigh heavily, with Gaza spillovers exacerbating the situation. 

Looking ahead, June should deliver more clarity on several economic and geopolitical factors influencing local outlooks. That includes a much-anticipated OPEC+ meeting starting June 2, while the UAE is reportedly hosting a special meeting of global leaders intended to accelerate climate finance later in the month. Al-Monitor will be tracking these developments, while our monthly trend report below digs into essential storylines on our radar. 

Malaysia courts Gulf investment and economic ties, but Saudi relations remain question mark

• Under current Prime Minister Anwar Ibrahim, Malaysia has been working to boost ties with Gulf countries, and May 2024 delivered signs that push is working. That comes after recent years featured some turbulence between the Southeast Asian middle power and GCC states. 

• GCC-Malaysia ties had deepened considerably during the tenure of Prime Minister Najib Razak between 2009-2018, who cozied up to Gulf powers. That embrace cooled following the infamous multi-billion dollar graft scandal at the state-owned investment company 1MDB — a blowup that ensnared Gulf money.

• Now, ties are warming again under Anwar at a moment when Gulf sovereign wealth funds have been spending prolifically, led by Saudi Arabia’s PIF, which deployed $31.6 billion in 2023. That comes as Anwar is trying to restore political stability, tackle domestic economic headwinds and attract foreign investment.

• Anwar’s administration has undertaken many high-level Gulf visits, which have featured calls to deepen trade and investment ties spanning clean energy, defense, AI and more. That has started producing results: In October 2023, Emirati clean energy developer Masdar inked an $8 billion agreement to jointly develop up to 10 gigawatts of renewable energy projects in Malaysia by 2035.

• In May 2024, a consortium including UAE sovereign wealth fund ADIA announced a bid to privatize Malaysia Airports, a deal valuing the airport operator at $3.9 billion. That comes as Malaysia and the UAE are scheduled to finalize a free trade agreement in June 2024.

• Efforts to court Riyadh have proven slower: Anwar took an official visit to Saudi Arabia in March 2023 at the invitation of MBS, but a scheduled meeting with the kingdom’s de facto leader didn’t take place during the trip. That produced some speculation that MBS had snubbed Anwar. 

• Nonetheless, Anwar successfully met with MBS in Riyadh in October 2023 and again in April 2024. This outreach has yet to generate major dealmaking, but that could change as Aramco targets diversification opportunities in Asia — underlined by news surfacing in May that Shell could sell its Malaysian gas station business to Aramco.

The takeaway: Gulf-Malaysia ties have been heating up lately as Kuala Lumpur seeks to enhance investment and trade relations with deep-pocketed GCC states. The UAE has proven most open to Anwar’s outreach, but Saudi Arabia could also be warming to opportunities in Malaysia.

Looking ahead: Malaysia has a major opportunity to preside over breakthroughs with Gulf partners when its hosts a summit between the GCC and the 10-member Association of Southeast Asian Nations (ASEAN) in 2025. 

Another factor to watch: Anwar’s posture on the Israel-Palestine conflict could clash with stances in the Gulf. Anwar’s government refused to cut ties with Hamas after Oct 7. and the PM met with the group’s leadership in Doha in May. 

Why natural gas supply is critical to Saudi economic transformation

• As outlined in a memo by Gerald Kepes, much has been made of Saudi Arabia’s decision to step back from a 13 million bpd crude production capacity objective this year. 

• The underlying reality and factors behind the decision were straightforward: uncertain global oil demand weakened the need to invest in another million bpd of spare capacity, and anticipated liquids from the natural gas program and planned replacement of a million bpd of liquids burned for power from new natural gas and renewables investment already promised 2 million bpd of new liquids capacity. 

• Saudi Arabian natural gas is a big deal, critical to the economic transformation outlined in Vision 2030. The purpose of natural gas is to provide reliable supplies meeting 50% of the power generation capacity (and baseload for renewables power) needed to support development of the non-oil economy. 

• Estimates of recoverable natural gas resource (raw gas) are roughly 480 trillion cubic feet (TCF) of which about 80 TCF is natural gas in unconventional reservoirs (tight, low productivity). Ultimately, recoverable resource estimates are likely to increase as investment in natural gas expands. There is no lack of gas.

• The Jafurah Basin unconventional gas project is the most prominent element of the gas program. The price tag, over $100 billion for a project which will produce 2 bcf/d of dry sales gas, 418 mmcf/d of ethane and 630,000 bpd of condensate and gas liquids, is eye-catching. Much of the capital spend is focused on midstream, gas processing, gas pipelines and other infrastructure. 

The takeaway: Crude oil exports are critical to financing Saudi Arabia’s economic transformation and government revenues. But it is the natural gas sector (and its linkage with the renewable power program) which will build the new non-oil economy in Saudi Arabia. Not enough natural gas production capacity? Vision 2030 stumbles.

Looking ahead: Saudi policy objectives call for a massive increase in power generation capacity: 50% from natural gas-fueled plants; and 50% from renewable power (solar, wind) by 2030. Gas-fired power will provide the baseload complement to the electricity generated by renewables.   

Another factor to watch: Aramco’s diversification keeps going global: On May 24, Reuters reported that Aramco is interested in buying a minority stake in the renewable unit of Spanish oil company Repsol.

Dubai’s real estate boom keeps rolling, emboldening investors despite risks

• An ongoing post-pandemic property boom has made Dubai one of the world’s hottest real estate markets — and a global outlier in a sector severely hampered by high interest rates the past two years. 

• UAE real estate posted another strong year in 2023, powered by Dubai, which saw a record 118,993 residential transactions, surpassing 2022 by 29.6%, according to CBRE. The emirate’s residential values rose 19.4% during 2023, found Knight Frank. That came as average rental prices increased 24%, found UAE property agency Betterhomes.

• Dubai’s luxury real estate market set a record with 431 homes selling for more than $10 million last year, up 92.4 % over 2022. That came as Henley & Partners forecasted that the UAE recorded a net inflow of approximately 4,500 high-net-worth individuals (HNWIs) in 2023, trailing only Australia globally.

• Industry players are optimistic: Bloomberg reported in April that Dubai Holding (owned by the emirate’s ruler) had refinanced a $8.2 billion loan to better position itself to capitalize on this real estate boom, while in February 2024 the developer Emaar Properties announced two new luxury projects worth $26 billion combined. 

• Although the UBS Global Real Estate Bubble Index rated Dubai as fairly valued in 2023, this rally isn’t without pessimism and has attracted some ominous headlines since 2022. For instance, in January 2024, Reuters published an article entitled “Dubai's property boom shows signs of fizzling out.” 

• The Reuters article detailed how developers, investors and brokers were privately asking how quickly the market could turn and whether they could rule out another correction akin to the 2008 property crash (and ensuing debt crisis that ultimately required a $20 billion bailout by Abu Dhabi).

• One factor: dwindling Russian investments. In 2023, Russians ranked third among foreign buyers in Dubai’s real estate market behind India and the UK, but they dropped to 9th in Q1 2024. 

The takeaway: Dubai’s real estate market remains red hot, which has bullish developers eager to tap surging demand. However, this upbeat market also faces uncertainty and vulnerabilities, from rising living costs to slowing inflows of Russian wealth, among other headwinds.

Looking ahead: Destination Dubai’s property market should continue riding high in 2024, but boom times won’t last forever. Prices could moderate this year even with undersupply, but a major correction is unlikely, especially if interest rates come down in H2.

Another factor to watch: Many are cashing in on this boom: on May 14, Dubai-based online real estate portal Property Finder announced that it raised $90 million in debt to help buyout its first institutional investor. The firm, founded in 2007, is now focused on increasing its market share in Saudi Arabia and Turkey.

Sovereign fund-led economy: Oman takes a page from Saudi Arabia

• As outlined in a memo by Sebastian Castelier, March 2024 saw S&P Ratings lift Oman’s outlook to positive from stable on an improving fiscal landscape and successes in deleveraging the country and its state-owned enterprises. That was the latest in a series of rating improvements received by the sultanate.

• This reflects an underlying trend that has been in the making since Sultan Haitham bin Tariq ascended to the throne in 2020. State-owned enterprises play a central role in the Omani economy, operating across numerous sectors, but little attention was paid to their performances under Sultan Qaboos bin Said’s rule.

• Under new leadership, Oman’s public debt is back under control at 38% of GDP after ballooning from 4% of GDP in 2014 to 68% in 2020. Oman allocated part of its 2022 and 2023 surpluses to pre-paid debt, which “smoothed its debt profile” according to Fitch. After rising from 16% to 41% of GDP between 2015-2021 at $35.9 billion, state-owned enterprises’ debt declined to 30% of GDP in 2022 and a total of $33.9 billion in 2023. 

• The deleveraging of state-owned enterprises is part of a 2020 decision to streamline the performance and efficiency of government assets by clustering 160 companies under the Oman Investment Authority (OIA), the Sultanate’s sovereign wealth fund. 

• One of the takeover’s objectives was to inject a new spirit into state-owned enterprises, with a focus on robust governance, stricter allocation of resources and deleveraging. The strategy mimics Saudi Arabia’s move to engineer a sovereign wealth fund-led economy by pooling assets under the PIF.

• OIA’s overhaul includes a stricter selection of state-owned enterprises it owns to take maximum advantage of their value. In 2022, Oman said it plans to list 35 state-owned enterprises on the Muscat Stock Exchange by 2027. The divesting will convert stakes into capital that OIA can redeploy into assets yielding greater return on invested capital.

The takeaway: Efforts by Omani leadership to enhance public sector efficiency are paying off, resulting in ratings improvements. Part of the shift in sentiment results from Oman’s decision to follow Saudi Arabia’s path in centralizing control of state-owned enterprises under the OIA.

Looking ahead: Oman’s improving outlook could see its web of state-owned enterprises exit rating categories viewed as "speculative grade" and enter "investment grade.” That new tag would lower borrowing costs and attract more foreign capital. 

Another factor to watch: Oman isn’t out of the woods yet. Fitch estimated that external debt payments of OIA-controlled state-owned enterprises will average $3.1 billion per year in 2024 and 2025. According to the agency, such debt servicing costs are “less burdensome” than in recent years, but nonetheless “remain significant."