Why the oil price surge is unlikely to spur huge amounts of hiring

Despite recent attempts at economic diversification in the Middle East, oil revenues remain the key driver of growth. Therefore, the recent surge in oil-price should, in theory, represent something of a boon for the region. Unfortunately, it seems unlikely this time around.

In 2008, when oil prices hit the lofty heights of $120 a barrel, both domestic and international investment surged in the region, along with a migration of some of the best and brightest from the financial sector looking to flee the turmoil in Western markets.

Crude oil prices shot up to $108 a barrel on Monday on the back of supply concerns stemming from escalating violence in Libya and political unrest in Bahrain. New York's main contract, light sweet crude for March delivery, surged $7.20 to $93.40.

In this instance, however, it's unlikely many in the Middle East will be celebrating.

"The big difference between now and 2008 is that back then the oil price was being driven mainly by the global bubble, and China in particular," says Gabriel Sterne, an emerging-market economist at brokerage Exotix. "Because the shock is now coming from the region itself, this creates a very different backdrop in terms of attracting investors."

Indeed, some traders are already claiming that the current oil price is too expensive and representatives from the Organization of Petroleum Exporting Countries have been meeting in Riyadh to discuss ways of stabilising the energy markets.

Moereover, while the spiralling inflation in the GCC that accompanied the last oil boom was a niggling concern, it could stem the fragile economic recovery in the region this time around. And the banking sector, already struggling with underwater loans, is unlikely to welcome any further pressure on its customer's personal finances.

Rajeev Shah, a credit strategist at BNP Paribas in London, told Bloomberg that: "Inflation is the key concern on the back of the oil spike."

Headhunters are also greeting the price rise with caution.

"Ordinarily, a hike in the oil price woukd be regarded as a welcome thing in the region," says Peter Greaves, director, head of financial markets at headhunters McArthur Murray. "But overriding concerns about this crisis, not least the slump in regional equity markets, will stem recruitment in the short-term. There needs to be a sustained spike in the oil price before this transfers to bullish sentiment about financial markets."

However, there's also the question of just how high the oil price has to go to spur additional investment from sovereign wealth funds and state entities. Many investment bankers are bullish about M&A prospects in the region, and the suggestion is that many Gulf governments have factored in an oil price of $50 into their budgets.

"Rising oil prices have led to growing cash balances, which means that governments and sovereign wealth funds can now turn their attention to balanced growth and diversification," Augusto Sasso, the head of Moelis & Co in Dubai told The National.