IMF: High oil price to offset impact of Iran sanctions

dubai — The direct impact of Iranian sanctions on the Middle East will be minimal as high oil prices could compensate for the slowdown in certain sectors, said a senior official of the International Monetary Fund (IMF).

“Given the limited level of trade and economic exchange between Iran and the region, we don’t see a significant impact on trade. In terms of a direct impact on financial growth, it is relatively minimal. The current high oil prices could compensate for this,” said Jihad Azour, director, Middle East and Central Asia, IMF.

Azour noted that global trade is a worry for regional governments as they are currently contemplating how to redirect trade from Asia, which is one of the largest trading partners for the region.

Though the region is not directly exposed to the US market, Azour said the indirect impact of the trade war can be significant. “A trade war could reduce the growth of key partners such as China and Europe, hence FDI could also decline for the region. A global economic slowdown could lead to less commodity consumption.”

In late October, the IMF had hiked the UAE’s growth forecast for 2018-2019 on the back of higher oil prices and continued reforms. It hiked the UAE’s growth projection for 2018 to 2.9 per cent and 3.7 per cent for 2019. It expects Dubai to grow 3.3 per cent in 2018 and 4 per cent in 2019. Abu Dhabi’s economy is projected to grow 2.7 per cent in 2018 and 3.4 per cent next year.

Iran’s outlook has been significantly downgraded following US sanctions due to a drop in oil production in the coming years, resulting in negative growth in 2018-19.

Oil importers’ growth is forecast to be 4.5 per cent in 2018 and 4 per cent in 2019. Growth of oil exporters in the Middle East is projected to be 1.8 per cent in 2018 and 2 per cent in 2019. In GCC countries, growth will recover this year and reach 2.4 per cent and 3 per cent in 2019. This comes from a 0.4 per cent contraction in 2017.

Salmaan Jaffery, chief business development officer, DIFC Authority, said the medium to long-term outlook for the region is strong.

Speaking at the launch of the IMF’s ‘Regional Outlook’ report in Dubai on Tuesday, he said the regional economy is recovering, backed by oil prices but it is uneven.

“Growth in oil exporters is expected to rebound this year and next year, given higher oil production and stronger non-oil activity. The Iranian economy is going to witness a slowdown in growth this year and the next. Inflation is expected to exceed 30 to 35 per cent and the exchange rate will come under pressure.”