"Investors are unusually spoilt for choice when it comes to picking the biggest threat to markets in 2016," says Madison Marriage in the Financial Times. But they may not be paying enough attention to the Middle East, where both the political and economic outlooks have deteriorated sharply.
Saudi Arabia's "simmering cold war with Iran" has reached "boiling point" after the Sunni Gulf kingdom executed a Shi'a cleric early this year. The two states, already on the opposing sides in proxy wars across the region, have cut diplomatic ties. "It is like a tinderbox," says Alexandra Haggard of Stamford Associates. "It feels like it would not take much for something [severe] to happen."
While a war between the two regional powers seems unlikely, the tension will surely preclude co-operation between the two Opec members on shoring up the oil price implying more near-term pain in the Gulf.
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Early this week, the region's stockmarkets plunged to multi-year lows as sanctions on Iran were lifted, paving the way for yet more oil to come onto the oversupplied market. Tehran plans to increase daily exports from one million to 3.4 million by September. The Saudi Tadawul All-Share index hit a five-year low, as did the Gulf Cooperation Council index, which tracks 200 of the six main Gulf economies' companies. It is on a price/earnings ratio of 9.5, the cheapest in seven years.
"Falling oil prices are testing Middle Eastern economies and their governments to breaking point," says Andy Critchlow on BreakingViews. Saudi Arabia has seen its budget deficit jump to 15% of GDP, and has already burnt through $100bn of its $650bn of foreign-exchange reserves. Petrol prices have jumped 60% to 15p a litre as fuel subsidies have been trimmed.
Lower fuel subsidies and the overall economic slowdown may in turn sap demand for oil, delaying a recovery in prices, says Alan Livsey in the Financial Times. In the decade to 2014, Middle Eastern oil consumption grew faster than in any other region, including the Asia-Pacific. The region "is not just about oil supply".
An "Arab Winter may be at hand", says Critchlow. This could have a direct impact on global markets: if oil keeps tumbling, the Gulf states may liquidate part of their sovereign wealth funds, worth a collective $2.3trn. The "economic and political storm" in the region could become yet another headache for global investors.
