Investors can't catch a break - and neither can analysts. After proclaiming a recovery for the global economy and financial markets for much of the first quarter, market participants have been brought down to earth by the obstinate Eurozone crisis that refuses to go away.
"Spanish ten-year yields have gone up again in the last couple of days reaching 6%, embodying a lack of confidence from financial markets, in our view," notes Barclays Capital.
"Last week, we noted that Spanish Q1 GDP growth is likely to be less negative that we initially thought (baseline scenario: -0.7% q/q). The government revealed this week that it foresees Q1 12 GDP growth being roughly as bad as the -0.3% q/q in Q4 11."
Euro zone macroeconomic statistics are important for Middle East economies that depend on heavily on trade with the economic bloc.
Spain is just the tip of the iceberg: there are real fears that much of the eurozone will remain in a recession for much of the year.
In France, President Nicolas Sarkozy has a fight on his hands after he trailed socialist challenger Francois Hollande in the first round of French presidential elections.
Together with German Chancellor Angela Merkel, Sarkozy had been steering the wobbly euro ship, but his departure may inject fresh uncertainty into an already precarious situation.
As we all know, markets hate uncertainty and that could trigger an economic crisis in France - some bond investors have already started to re-price French debt.
Meanwhile, The Netherlands, which has been seen as one of the more stable countries in the eurozone, saw Prime Minister Mark Rutte handing in his government's resignation in a crisis over budget cuts.
As if that's not enough, fresh data from the continent show a faltering private sector in April, denting hopes the region will emerge from recession soon.
In addition, the re-emergence of China and US growth concerns are also undermining commodity prices - which is being followed closely Middle East economies.
SAUDI SUPPLY
On the supply side, Saudi Arabia has ramped production from 9.9 million barrels per day in March to 10 million bpd in April, as it fears that high oil prices may well be the final straw that breaks the euro' back.
Perhaps the full risks of high oil prices to the global economic recovery are finally becoming apparent, notes the Centre for Global Energy Studies (CGES) in its April report.
The IMF has highlighted an oil price spike that could spark 'a major slump reminiscent of the 1930s' as one of the key risks faced by the global economy.
"Such a slump, the Fund warned, would 'hurt many emerging and developing economies' and it is on these economies, particularly China and India, that Saudi Arabia depends for its future oil sales," noted CGES. "A prolonged economic depression in the OECD countries would undermine China's export‐led growth, hitting its oil demand and the market for Saudi Arabia's crude."
There is a danger though, that the excessive production could lead to a collapse in prices.
"The most likely trigger for a significant decline in the oil price would be if prospects for world growth deteriorated sharply and specifically if world GDP growth fell to 2.5% or below," says Deutsche Bank in a note.
"In the past this has been where OPEC has struggled to cut production as fast as world growth has slowed."
In addition, precautionary inventory building across Asia, and specifically in China and Thailand, has meant that signs of demand destruction have been slow to appear in this oil price cycle as consumers are taking precautionary action amidst the increasing number of supply disruptions, says the German bank.
"An easing in the geopolitical risk premium might prove another catalyst for lower oil prices which may be assisted by a second round of talks with Iran to take place next month."
DEBT MARKETS
A financial catastrophe in Europe could also throw global debt markets in a tailspin, and make it more expensive for bond issuers, especially those in the Middle East, to access the market.
That could upset some of the carefully orchestrated regional debt restructurings and make it difficult for new issuers to find favourable deals.
Indeed, Stephen King, the chief economist at HSBC, says that governments are "rigging the financing system" by fuelling sovereign debt, which is costing the economy, and starving the private sector of much-needed funds.
"Higher credit spreads, soporific credit growth, longer credit queues and arbitrary credit decisions are all potential symptoms of repression," noted Mr. King in a note titled From Depression To Repression.
"While it's convenient for governments to claim that, with low bond yields, their fiscal plans are on track, the absence of appropriate consolidation imposes costs on the broader economy."
While the markets have been crying 'wolf' about Greece, Spain, Portugal and Ireland for some time, the potential change in the political dynamics of the region, could well trigger that much-warned collapse.
Many of the Gulf states that are working hard to diversify, keep social unrest at bay and invest in development projects, could likely suffer if the euro crisis unravels.
It is likely that some, though not all, Gulf states are well-cushioned from a global financial shock. But oil-importing and diversified economies in the Middle East, would face the full impact of the crisis at the most inopportune moment: just when they are going through a delicate transition.
Also read: End of Euro?
Jordan' Troubled Neighbourhood
Oil Contrarians
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