Global financial crisis hit hard on oil rich gulf countries mainly due to the 75% drop in the international crude prices and large scale investment in US financial sector from these countries.

Kuwait’s foreign minister, Shaikh Mohammed Sabah Al Salem Al Sabah on Saturday said that the global financial meltdown has cost countries in the Middle East $2.5 trillion in four months and led to 60% of development projects in the region being put off or scrapped. This is equivalent to Rs 1,22,50,000 crore (1.22 crore crore Rupees) !

International crude prices have dropped almost 75 percent from its peak in July 2008 due to weak global demand as major world countries sank in to recession. This severely affected gulf economies as they purely depends on revenue from oil.

If this situation continues most Arab countries will run into deficit next year. Apart from the drop in the oil price most of the regional stock indices have dropped more than 50 percent in last one year due to the global crisis.

Also there are huge investments from the region in the US financial sector including the major banks like Citibank and failed banks like Lehman brothers. As these banks ran into trouble and their shares plummeted to multi-year low investors from this region lost billions of dollars.

The New York- based Council on Foreign Relations estimates a fund held by Abu Dhabi, the largest sheikdom in the UAE, lost $125 billion (Rs 6,12,500 crore).

The Kuwait Investment Authority in January 08 paid $3 billion for a stake in Citigroup Inc. and invested $2 billion in Merrill Lynch & Co. Abu Dhabi’s Investment Authority bought a 4.9 percent stake in Citigroup for $7.5 billion in November 2007. All these failed investments lead to multi-billion dollar loss as Citi and other bank shares crashed due to mounting losses.

On Friday Citibank shares plunged to 16 year low as Citi reported a $8 billion loss in the last quarter.

All major cities in the region including Dubai is witnessing a major slowdown in construction and related sectors as investors are backing off. In Dubai rental prices have come down significantly in the last 2 months.

Nakheel PJSC, the Dubai developer who is building the world’s tallest 1 kilometer tower, announced last week that it is temporarily halting the work for the tower which costs around Rs 1,86,200 crore.

One famous Arab newspaper last week reported that on an average 1500 work permits and visas were being canceled in Dubai every day as lay offs surges in the wake of global crisis.