Saiid El-Harrach, an expert from Capital Economist group, said that Gulf States will need to boost government expenditures due to an expected reduction in foreign investment in the region as a result of the Iranian crisis. "Investors will avoid this risky region in 2012 as the Iranians may have greater impact on the Gulf Region than had the revolutions in Tunisia and Egypt," he said.
El-Harrach stated that the amount of foreign investment in the region, which reached $40 billion in 2010, is very modest compared to the region's total GDP, which was $1.4 trillion last year. Nevertheless, these investments go to strategic sectors like gas and oil, meaning that these countries need to cover any decrease in investment that may occur in the near future.
El-Harrach added, "Firstly, military expenditure is likely to rise sharply in most Gulf countries, and secondly, governments in the region will need to bolster capital investments if political tensions with Iran lead to decreased foreign private investments."
Saudi Arabia's military expenditures reached an all-time record in 2011, at SR182 billion, or 8.4 percent of total GDP. Jadwa for Investment said in a report that the kingdom's military budget will skyrocket in 2012 to reach SR690 billion. However, it is expected that Saudi Arabia will not find this increase difficult as current oil prices are still up around $110 and the country registered a budgetary surplus of 14.1 percent of GDP last year.
Tehran has threatened to close the Hormuz Strait, through which one-fifth of the world's oil travels, if the US and the EU impose new sanctions on the Iranian oil industry. Analysts speculate that such an action may drive oil prices up dramatically to between $150 and $300 a barrel. (Source: english.nuqudy.com )