Only 12 months ago pundits claimed most emerging markets would be immune from the credit crisis engulfing the United States and Europe. They were dead wrong.

The emerging markets have plunged more than 65% from their all-time highs while rich oil producing nations, including the Gulf States, have crashed.

On Thursday, the region’s first default occurred as Global Investment House, a top Kuwaiti investment bank, defaulted on most of its $3 billion dollar debt obligation.  >This follows the Kuwaiti government’s rescue of Gulf Bank, the country’s fourth largest bank in November after suffering massive losses tied to bad trades.

Since peaking last July, commodities prices have collapsed. Oil, the largest constituent of the four commodity indexes I track (CRB, GSCI, Rogers and AIG-Dow Jones), has tanked more than 70% since hitting an all-time high of $147 a barrel.

Provided oil prices remained strong, the Gulf States were largely immune from the gathering credit storm as oil revenues went through the roof, expanding trade surpluses and boosting the power of the region’s SWFs or Sovereign Wealth Funds. That picture is now dampened by rapidly compressing asset values throughout the region, including the real estate boom in Dubai.

Over the last four months a host of major financing projects in the region, mainly in Dubai, have literally evaporated along with collapsing oil prices. Trade surpluses have started to shrink and foreign investors are hitting the brakes on local development projects and heading home. It’s not a pretty picture.

Sovereign Wealth Funds have also been bashed over the last 12 months with billions in paper losses.

SWFs in the Gulf States rank among the largest foreign investors in U.S. and European financial services companies since the onset of the credit crisis in August 2007.

At first, bulging oil surpluses were viewed as a White Knight by troubled Western banks; now with oil prices tanking, the region’s SWFs have stopped shopping overseas and have started to repatriate capital as liquidity grows scarce at home. It’s the same story in Asia where SWFs have halted international investments as domestic capital markets swoon.

Nobody is immune from the greatest credit squeeze since the 1930s. Not Russia, not the Gulf States, not China and certainly not India.

I suspect that hostile or non-Western friendly oil producing nations will begin to warm up to U.S. foreign policy if oil prices remain at these low levels. Venezuela, Bolivia and Russia come to mind as those nations that until recently have embraced a tough tone, calling the shots on local drilling projects and tossing out the Americans and Europeans following government nationalization of energy infrastructure.  

Have a good weekend. See you on Monday.