What should Gulf economies do to absorb Trump's policies?

Since President Trump's victory, the world’s been on edge, awaiting the unpredictability that accompanies some of his decisions.

His actions have pushed many nations and global institutions to prepare for significant - and potentially dangerous - changes across economic and geopolitical landscapes. And there are changes that he alluded to during his electoral campaign.

Different approaches to Trump

China quickly expressed its desire to resolve outstanding trade issues amicably, while opinions were divided within the EU. Some advocated aligning with Trump's approach, while others called for confrontation. Russia cautiously welcomed his stance on resolving its conflict with Ukraine, while Canada, Panama, and Denmark viewed his intentions as a threat to national sovereignty.

As for financial and commercial institutions, which are at the heart of Trump's new policies, they have swiftly begun assessing the implications of his policies.

For instance, JPMorgan Chase immediately established taskforces to monitor and respond to the potential impacts of these directives. Unlike traditional committees, often seen as routine or bureaucratic, the new taskforces will provide real-time analysis and decision-making to mitigate any repercussions and adapt swiftly to changes.

The US policy shifts are likely to lead to profound changes in the global relations, particularly in the economic sector. On day one, Trump withdrew the US from the Paris Climate Agreement and the World Health Organization, alongside announcing stringent protectionist trade policies.

Given his stance, he may also consider pulling the U.S. out of the World Trade Organization, as his policies often conflict with the WTO’s pro-free trade principles.

For the GCC and other oil and gas-producing nations, one of the major developments was Trump's immediate reversal of the previous administration's decision to limit new investments in oil and gas extraction for environmental reasons.

On taking office, Trump threw his support behind increased production.

This approach is set to have an impact on the markets and, consequently, on oil prices over the next two years. It does not necessarily mean a significant drop in prices, as the outcome will depend on supply and demand dynamics, as well as Washington's ability to ramp up production at the speed required by the President.

The increase in production will primarily come from offshore fields or shale oil and gas, something which requires addressing technical and technological challenges, as well as managing production costs. Therefore, it's important to be prepared, including the possibility of a sharp decline in oil prices.

In this context, the Gulf’s GDP growth is less reliant on the oil sector as GCC member states made notable progress. However, other factors must also be addressed to mitigate any impacts.

Oil still accounts for 60%-80% of Gulf economies' budgets, creating an imbalance that must be addressed through balanced financial policies.

Set targets on oil revenue reliance

These should aim to achieve a healthier relationship between growth and the oil sector, ensuring that oil revenue dependence does not exceed 30%-40% of total revenue.

This is an important consideration when preparing for the potential impact of Trump’s energy policy. Such an approach will help strengthen Gulf economies and diversify their foundations in preparation for the post-oil era.

A second concern for Gulf economies, in light of the upcoming developments is President Trump's stance on trade protectionism. This is a major issue for Gulf exports, such as aluminum and petrochemical products as well as for sectors such as air transport, foreign investments, and the broader geopolitical shifts that may follow his decisions.

As banking and financial institutions, including American ones, have formed taskforces to address these developments, such teams become even more important for countries, given the direct connection to their vital interests and future development.