Across the Gulf, petrochemical companies' earnings are set to suffer following the deep decline in oil prices. However, heavy state spending means most firms in other sectors in the region are likely to do just fine.

Petrochemical product prices are closely linked to oil prices, while regional producers buy subsidised feedstock, so higher crude prices provide them with better margins; cheaper oil removes that advantage.

The damage to petrochemical firms will be most keenly felt in Saudi Arabia, because such firms account for about a third of the Saudi stock market's capitalisation. In the past three months, analysts have slashed their average earnings growth forecast for the Saudi petrochemical sector this year to 13 per cent from 25 per cent.

They do not see much of a slowdown for other Saudi sectors, however. Their forecast for earnings growth across the entire stock market has dropped only slightly, to 12 per cent from 17 per cent; most of that fall is due to petrochemicals.

The main Saudi stock index sank 4.8 per cent on Sunday, bringing its losses from its September peak to 23 per cent. Dubai's index is down 21 per cent from this year's high. By contrast, the MSCI emerging markets index is down just nine per cent.

Investors fear that if the price of Brent crude stays around $70 a barrel next year - down from around $115 in June - governments in the six-nation GCC will cut back their spending in line with shrinking oil revenues, which are their main source of income.

State procurement budgets could be cut, subsidies removed and big construction projects slowed or cancelled. If that happens, corporate profits throughout the region would suffer.

But many fund managers and economists say those fears are overblown. Even if oil stays at $70, two of the big GCC economies - Kuwait and Qatar - will still be running state budget surpluses and be under no major pressure to cut spending.

The two largest GCC economies, Saudi Arabia and the UAE, will probably run budget deficits. But the huge fiscal reserves that they have built up over the last several years mean they will easily be able to keep spending high.

"We assume that GCC governments will initially react to the lower oil price as a transitory terms-of-trade shock," investment bank EFG Hermes said, looking at a $70-per-barrel scenario for 2015-2016.

"Hence, they will generally assume a countercyclical policy stance, utilising their existing financial buffers to offset the negative impact of the lower government revenues and export receipts on the economy over the short term."

According to Thomson Reuters data, analysts have only marginally changed their average forecasts for 2015 corporate earnings in the UAE and Qatar over the last three months. Saudi Arabia has seen a significant downgrade, but that is almost entirely due to the petrochemical sector.

Corporate earnings in the GCC's two smallest states may be hit hard by oil at $70. Bahrain was already running a budget deficit when oil was above $100; Oman is now almost certain to slip into the red, and its fiscal reserves are relatively small.

Spending cutbacks therefore look likely in both countries. Last week, an advisory body to Oman's government suggested sweeping spending cuts and tax rises to cope with cheaper oil.

On Sunday, shares in Muscat-listed cement producers plunged after the government said it would reduce subsidies and introduce higher gas prices from January 1. Last week, Omani telecommunications shares sank because of the prospect of tax hikes in the sector.

The outlook for the total value of 2015 Saudi corporate earnings has been cut by four per cent, mostly because of petrochemicals but also because of a shock restatement of earnings at telecommunications operator Etihad Etisalat (Mobily) in early November.

Excluding petrochemicals and Mobily, Saudi Arabia's combined 2015 earnings forecast has fallen just one per cent since September.

"Concerns over forthcoming government spending have negatively affected share prices of non-petrochemical sectors," said Turki Fadaak, research and advisory manager at AlBilad Capital in Riyadh.

However, "their revenues are not directly affected by declining oil prices. Accordingly, the drop in share prices constitutes attractive buying opportunities in these sectors."

Fadaak believes the Saudi government will maintain spending next year. The International Monetary Fund has estimated Saudi Arabia needs an oil price of about $92 a barrel to break even in its state budget. At $70, it will be in the red, but its fiscal reserves can easily cover that.

Its original state budget for 2014 envisaged spending of SR855 billion ($228 billion); the government's reserves at the central bank in September - excluding its other assets - totalled SR801 billion ($203 billion).

UAE, QATAR

The corporate earnings in other big GCC markets, where petrochemicals have smaller weightings, are likely to suffer less.

Over the last three months, analysts polled by Reuters have actually increased their average forecast for the combined 2015 earnings of Dubai's 13 leading listed companies by three per cent.

They have also increased their outlook for Abu Dhabi's major listed firms by five per cent. The two UAE markets are dominated by banks, property firms and telecommunications companies.

"Fundamentally, it doesn't make much of a difference - I wouldn't really worry about the recent correction in the oil prices," Aarthi Chandrasekaran, a Dubai-based analyst with Kuwait's NBK Capital, said of UAE bank earnings.

Harshjit Oza from Egypt's Naeem Holding said that even though government spending patterns might change, cheap oil was unlikely to have much effect on firms such as Emaar Properties, Dubai's biggest listed company.

"Emaar earns more than 50 per cent of income from retail and hospitality business, which is still going quite good," he said, adding that European and Indian buyers could offset any reduction in demand for property from Gulf-based buyers.

For Qatar's major companies, analysts have reduced their 2015 earnings outlook by 2 per cent since September, largely because of Industries Qatar, whose operations include petrochemicals, and Gulf International Services, a drilling rig provider.-Reuters