Early last month, the UAE and Qatar failed, yet again, to win an upgrade to "emerging market" status from index provider MSCI.
It seems remarkable that two countries vying to be regional financial hubs in one of the world's wealthiest regions are listed alongside Mauritius and Bangladesh. Can the region's oil companies create a compelling investment proposition?
Moving up from "frontier status" would have allowed more funds to invest in the UAE and Qatari markets. Failing to make the jump to emerging markets was partly due to technical issues and problems of transparency and regulation. Yet two major concerns were liquidity and a limited number of stocks meeting MSCI's requirements - only Emaar and Dubai Financial Market qualifying comfortably, with Dana Gas squeaking in.
Successful equity markets are crucial for raising entrepreneurial finance and allocating capital efficiently. They encourage long-term residents to keep their savings in the country, and provide complementary funding for big investments, reducing reliance on bank lending, risky when sentiments turn.
Listed companies have to improve corporate governance, and are subject to the stringent disciplines of the market. Share options offer another way to reward the best employees and align their incentives with a corporation's.
GCC markets are dominated by financial institutions, more than any region outside sub-Saharan Africa. The centre of the world's petroleum industry has hardly any investable oil companies. The two listed in the UAE - Dana Gas and Taqa - do not have any oil and gas production within the GCC.
There are simply no must-have stocks for international investors in the UAE markets. By contrast, five of the top 10 companies on the UK's FTSE index are in natural resources (the oil titans Royal Dutch Shell, BP and BG and mining giants BHP Billiton and Rio Tinto).
To suggest listing or part-privatising Middle East state oil companies might seem illogical. But there are plenty of counter-examples in other countries, even major oil producers, where flotations have created heavyweight stocks and improved performance.
Russia's two state champions, Rosneft and Gazprom, have minority floats (Rosneft's in London); the three big Chinese oil companies have listed subsidiaries in Hong Kong and New York.
Kazakhstan's national oil company floated 34 per cent of its onshore unit in London while keeping more strategic offshore fields in its own hands.
Norway's Statoil and Brazil's deepwater expert Petrobras, often considered the best of the national oil companies, have about a third of their shares in private hands. Even in the Gulf, Saudi Arabia has part-privatised its petrochemical companies, such as Sabic.
Of course, there are many objections to listings of the region's oil companies - worries about political control, governments' broader objectives, leakage of value to foreign investors or corporate insiders, and job losses. With a few exceptions, Gulf governments have no urgent need of cash, typically a driver of privatisation decisions.
But if the state retains a large majority, many of these objections can be overcome. A controlling stake allows the government to continue to achieve its strategic goals, although this requires balancing with minority investors' interests.
Instead of selling shares in the parent company, a subsidiary, with a selection of smaller or more difficult fields, can be floated instead, as in the Kazakh case. Less strategic and valuable assets will benefit more from increased efficiency than the "crown jewels". "Downstream" activities such as fuel retail, refining or petrochemicals are also good candidates - less politically sensitive than oil production, and requiring high efficiency to be profitable.
Opening regional oil companies to minority private investment can improve them, boost local stock markets and foster economic diversification. It is time to start thinking about it.
Robin M Mills is the head of consulting at Manaar Energy, and author of The Myth of the Oil Crisis and Capturing Carbon
