Standard & Poor’s Financial Services said in a research that Dubai’s hospitality sector is most at risk in the Gulf region due to travel restrictions linked to the outbreak of the new coronavirus.
The world ranking agency said that travel restrictions may harm the Gulf states, highlighting that Dubai, which welcomed about one million Chinese visitors last year, may become the most affected by the spread of the virus.
According to analysts, Dubai, which will host the Expo in October, will be most affected if the virus is not controlled in the coming months.
International institutions are unlikely to see the real estate market in Dubai grow soon, despite hosting the exhibition, which organizers expect to witness about 11 million visitors.
The UAE was hoping to obtain about 33% of the total value of contracts for the development of hotel establishments in the Middle East, as projects were to be awarded a value of no less than $9 billion over the next four years in the Arab region.
However, the tourism sector in the UAE has been subjected to a severe blow with the growing fears of the threat of the emerging coronavirus crisis.
As more than 1.6 million Chinese tourists visited the Gulf countries in 2018, most of them went to Dubai, which was hoping to exceed one million Chinese tourists in 2020.
But it has become rare to see Chinese tourists, even in Dubai, as airlines stop flights and many Chinese cities are closed.
In the last few hours, the UAE announced the registration of a ninth case of coronavirus, the only Arab country where the disease appeared.
The “new corona” virus appeared last December in a market in the Chinese city of Wuhan (center), to infiltrate around 30 countries.
The emerging crisis of the Coronavirus, which has already ravaged oil prices, threatens to increase the hardships of the already faltering UAE economy, stagnating and struggling to reduce its almost total dependence on energy for decades.
The UAE considers China as a major trading partner and an important importer of its oil.
Energy demand in China has diminished, while many cities have been isolated to contain the outbreak of the Coronavirus (Covid-19), whose number of deaths exceeded 1100, according to the latest result of Wednesday.
Oil prices fell to their lowest level in a year, reflecting the effects of the global economy’s dependence on the Chinese market.
Analysts believe that the crisis, which the World Health Organization said was a “very serious threat” to the world, would harm the oil sector and lead to lower prices.
“There is no doubt that the virus has a major impact on China’s demand for oil,” said Bill Varen-Press of Petroleum Policy Intelligence.
He added, “if the quarantine operations continue in the second quarter, it will appear more dangerous and will have a deeper impact on the actual economy.”
Non-oil trade between Beijing and the Gulf Cooperation Council countries grew from just several billion two decades ago to about $200 billion last year.
This shock comes after the International Monetary Fund recently warned that the Gulf states, including the UAE, which are heavily dependent on their oil revenues, must undertake deeper reforms or risk seeing their wealth fade within 15 years.
Oil accounts for more than 70% of public revenues in these countries. Since January 30, a month after the disease was discovered, oil prices have fallen nearly 20%, which has exacerbated the situation in the Gulf.
Since 2014, the collapse in oil prices has caused the Gulf economies to lose hundreds of billions of dollars.
The researcher, Elaine Wald, considered that the energy-producing countries, including the Emirates, which have already reduced their production to revive prices, are now facing a “double crisis” represented by the drop in prices in addition to the economic shock.
“Reducing prices at a time when production is declining threatens economic shocks that, if sustained for a long period of time, could lead to political and regional instability that was avoided during the recent sharp drop,” a father said in a comment in Bloomberg.
Capital Economics, a financial advisory firm, has warned of the long-term effect of the virus, which could lead to a major economic downturn.
“Fears of an outbreak of the new Coronavirus have affected oil prices and reduced expectations in the near term for Gulf countries,” a report issued by the foundation said.
According to the report, “the decline in oil prices and the possible additional reduction in oil production will constitute a significant obstacle to growth at the beginning of 2020.”
The technical committee of OPEC and its partners (OPEC +) recommended during an extraordinary meeting in Vienna, to reduce production by an additional 600,000 barrels per day to stop the decline in prices with the spread of the epidemic, in addition to the 1.7 million barrels already reduced.
While Russia appears reluctant to agree to this, the Russian Energy Minister stressed that his country will announce its position “in the coming days.”
For her part, Eileen Wald indicated that in previous times when oil prices fell in 2015 and 2016, this was the result of producers pumping as much oil as possible – which is completely different from the current situation.
Wald believes that if the fears of the emerging Coronavirus are confirmed, “producing countries like Saudi Arabia, Russia and the UAE will face low prices along with lower production,” which will affect revenues and the ability to provide services.
“If the situation continues for a long time, economic instability may have political consequences,” a Wald warned.