Like anyone invested in global financial markets, Arab sovereign funds, investment banks and rich individuals are taking a severe beating.

Also getting queasy are those who have poured money into real estate ventures in boom towns like Dubai or Doha, or the frothy housing markets of Amman, Damascus and Beirut that have been fuelled by remittances and investments from the Gulf.

But they have few other outlets for their wealth in a region where corruption, political instability and sluggish economic reform have handicapped growth and development for decades.

"People who have money in the Middle East are deeply plugged into the global financial system. They have nowhere else to go," argued Rami Khouri, a Beirut-based Middle East commentator.

"We are getting a double whammy - the direct impact of the global financial crisis and the cumulative backlash of our own mediocre public policies in the last 40 years."

Middle East stock markets, at first shielded by the region's vast oil money inflows, saw panic selling this week amid fears that a five-year Gulf property boom was over and developers would have to merge as financing conditions worsened.

Kuwait slashed its benchmark discount rate by 125 basis point to 4.50 per cent from 5.75 on Wednesday to shore up its economy, putting pressure on other Gulf banks to follow suit.

A plunge in world oil prices to around $89.27 a barrel from a record $147 in July has provided another sharp reminder of the vulnerability of many Arab economies to global shocks - even those where free-market policies have made only slow inroads.

"The Arab region is not yet fully globalised. It represents no more than 2.5 percent of the world economy, from which it is still disconnected, except for oil," said Louis Hobeika, an economics professor at Lebanon's Notre Dame University.

That disconnect might provide some protection from global upheaval, he added. "However, during a period of recovery, we lose a lot because we don't grow with the rest of the world."

Anti-Western Islamists and old-style nationalist advocates of Arab socialism may also claim that the crisis vindicates their criticism of the evils of globalisation and the West.

But such critics do not define policies in most Arab states, where political elites have adopted mantras of economic reform, even if implementation and transparency have often lagged.

In Egypt, the world crisis should make free-market reforms like privatisation all the more urgent, said Angus Blair, head of research at investment bank Beltone Financial in Cairo.

For example, he said, the government had lost out by deciding in July to cancel the sale of state-owned Banque du Caire, Egypt's third largest bank, saying bids were too low.

"In hindsight, the lack of sale of Banque du Caire looks misplaced because they could have received a price they will not now be able to receive for many years," Blair said.

"In terms of reform for Egypt and the region, if authorities have any sense, and I think they do in Egypt, they will use this as an opportunity to reform further. Because that is exactly what we need," he declared. "There is no alternative."

Egypt, like many populous Arab countries outside the super-rich Gulf, is struggling with poverty and unemployment - partly a legacy of the state-dominated policies of the past.

"You do have people trying to slow down economic reform, but they aren't going to win the day," Khouri said.

"The reality in all these regimes is that if they don't create jobs and raise people's incomes they will have massive problems of political stress and unrest. Very few Arab countries have been able to do that in a sustainable way."

Khouri said some had managed growth rates of 6 or 7 percent but these were often based on windfall oil revenue or investment in real estate, housing or tourism, not new productive activity.

Arab governments might need to rethink their economic strategy, but reformers will have to convince sceptical publics that new policies will do more than serve entrenched interests.

And in the short term they are unlikely to listen to any economic sermons from the United States, whose own government's actions in the crisis have run counter to free-market dogma.

"The United States now has zero diplomatic credibility, very little military credibility after Iraq and Afghanistan, and now nearly zero economic credibility," Khouri said.

"It's a ghost of its old self - although this is obviously a temporary situation because it is still very powerful."-Reuters