'We now have to make sure we get paid' - the impact of falling oil prices on Middle East law firms

In the Middle East we rely heavily on projects initiated by government owned entities, in particular in Saudi Arabia, Qatar and the UAE

In the private sector, three corporate IPOs were suspended in August, says Hourani, declining to name them. It is understood that many other projects have also been either delayed or suspended. For example, earlier this year, state-owned Qatar Petroleum and oil major Shell ditched plans to build a $6.5bn (£4.2bn) petrochemical plant in the emirate.

“In the Middle East we rely heavily on projects initiated by government owned entities, in particular in Saudi Arabia, Qatar and the UAE. The fact that the price of oil has remained low and is expected to remain at the same level means there are fewer projects,” explains Hourani.

Earlier this year, the International Energy Agency, the world’s leading energy forecaster, said that slowing global economic growth together with robust output from the Organisation of the Petroleum Exporting Countries (OPEC) producers, which include Iran, Iraq, Kuwait, Saudi Arabia, Qatar and the UAE, will mean the oil market glut will persist through 2016.

In some cases, the government has extended the deadlines to bid for certain projects as they take a fresh look at their budgets for the work, says Qays Zu’bi senior partner of independent law firm Zu’bi & Partners headquartered in Bahrain. “Projects are not being shelved in Bahrain but their values are being re-calculated including further revisions on the bids to conform to economic realities,” he comments.

The tiny island kingdom of Bahrain, which has smaller oil and financial reserves than its neighbours, has begun cutting state subsidies on essential items to raise money.

The drop in oil price has contributed significantly to competition for new legal instructions where the market has become even more challenging

Sharing the burden 

The outcome of all this is more competition amongst law firms for instructions and a shift in the nature of the work.

“The drop in oil price has contributed significantly to competition for new legal instructions where the market has become even more challenging,” says projects partner Mike Wakefield, projects partner at Galadari Law in Dubai. “It is much more competitive compared with two years ago.”

Meanwhile, clients are piling on the pressure to push down legal costs and in some cases; local firms are struggling to collect fees owed to them. 

“With regards to local law firms, there is definitely pressure on fees and in some instances payments are delayed. We now have to make sure we get paid, unlike before,”says Zu’bi, adding: “It is our belief that should the economy slow down further, law firms working in the region be they local or international will have to take a fresh look at their business models and size.”

Ahmed Barakat [pictured], managing partner of Asar Legal, headquartered in Kuwait, says clients are becoming “more and more sensitive”, adding: “They are more conscious about money and how to spend it. This also applies to the government which is trying to share the burden with the private sector and push the economy forward.”

Hourani comments that there should also be more privatisation work, particularly in Saudi Arabia. “The Saudi government wants to rely less on oil and come up with new resources to support it. I expect there to be more privatisation work in Saudi. Law firms are trying to bid for work like this and the magic circle firms will, I’m sure, look to get part of the work.”

In addition, Dubai passed a new law in September to encourage new projects to be developed under the public private partnership (PPP) model, saying that they must be economically, technologically and socially feasible, according to the report. The new law was scheduled to come into effect on 17 November.