•Diversification. The economic diversification of GCC countries is partly responsible for this change, as petrodollars have been channeled into tourist projects, real estate development, financial services, petrochemical industries and energy-intensive activities such as aluminum smelting. Many of these sectors are seriously affected by the credit crunch.

•Financial sector. The financial sector in the GCC was until recently characterized by excess liquidity, but conditions suddenly changed in August and September, reflecting both local and global factors. The UAE has been the hardest hit, probably due mostly to its heavy exposure to international markets and the real estate sector in particular.

•Problems in the real estate sector. Financing large real estate projects is becoming increasingly difficult as banks and investors worry about the sustainability of property prices, particularly as 2009 will witness a record number of completions at a time when demand conditions are highly uncertain.

Saudi financial resilience. Saudi Arabia presents a contrast. It has a history of banking crises despite relatively sound regulation by the Saudi Arabian Monetary Agency (SAMA) and the Capital Markets Authority. When the oil price fell below 10 dollars a barrel in 1998 and many bank assets became non-performing with credit defaults, the government was forced to nationalize the largest bank, National Commercial. Although the bank subsequently recovered under new management, it remains in the public sector; in current market conditions prospects for its privatization, which has been much debated in recent years, seem distant.

However, so far Saudi banks seem relatively unaffected by the global crisis:

•Bank share prices have fallen by 3.78% in the last year, less than the fall of the Tadawul All Share Index, which has declined by 5.23%.

•The share price of SABB, the former Saudi British Bank, has risen by 3.78%, indicating that sentiment regarding financial institutions is not universally gloomy.

SAMA announced on October 15 that it would guarantee the liquidity and deposits of all Saudi banks. Any local banks facing liquidity problems would have their reserve requirements reduced. At the same time, Rahman al-Tuweijeri, the secretary general of the Supreme Economic Council, stressed the need for GCC states to coordinate their actions, a point emphasized by King Abdallah himself.

GCC finance ministers and central bank governors have already consulted extensively, and further meetings are expected in the coming weeks. The meetings scheduled to discuss the GCC monetary union, planned for 2010, are taking place under the new agenda of confronting the present crisis.

As the credit crunch drives the economies of oil consuming nations into a recession, demand for oil is expected to decline. At the same time, the non-oil sectors of the GCC economies will suffer from the global slowdown and demand heavy government intervention. Although large financial reserves make the GCC as a whole one of the regions best equipped to deal with the crisis, the overall strain will be substantial.