| Summary: | This paper relates changes in Arab financial structures to financing patterns in oil and gas. Until the mid-1990s, inherited financial structures displayed a reliance on external official finance. Since then, governments, who are the main borrowers, have shifted to domestic and private sources of finance, reflecting two broad changes. The first, is a global context where bilateral loans have largely dried up and private finance is more important, though not more reliable. In the medium term, capital flows to developing countries are expected to remain low and volatile, indicating difficulties in credit supplies. Secondly, the region has witnessed a resizing of the role of Arab states, and programmes to deepen and reform financial sectors.<br/> Arab oil and gas sectors have changed in a similar direction. In-house finance and export credits remain important for their investment needs, linking the sector to government balances and external debt. Recently, improved and expanded financial structures have facilitated the use of more diverse financing strategies. Domestically, the sector can now tap local savings through voluntary debt instruments and stock markets. This underpinning, though quantitatively small, may be a stabilising force: local investors react less severely to rising uncertainties.<br/> Externally, the implicit guarantee offered by hydrocarbon receivables, which had been a key to accessing foreign finance, is now helping the sectors to mobilise new instruments. On the other hand, the use of private sources of fresh finance has re-introduced sensitivity to political and country risk, and added weight to the importance of regulatory and institutional frameworks.<br/> Arab oil and gas are therefore more dependent than ever on ‘balanced’ development, i.e. on improvements in all sectors. If financing availability to oil and gas improved in response to financial deepening, it is likely to respond positively to overall development. The current upsurge in oil revenues is an ideal opportunity to finance this development, and to upgrade all resources, including human capital.
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