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The Middle East and The Global Economic Crisis. October 19, 2009 Carnegie Endowment for International Peace International Economics Program Jean-Francois Seznec, PhD Center for Contemporary Arab Studies Georgetown University. Main Points. Focus on Arab Persian Gulf

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The middle east and the global economic crisis l.jpg

The Middle East and The Global Economic Crisis

October 19, 2009

Carnegie Endowment for International Peace

International Economics Program

Jean-Francois Seznec, PhD

Center for Contemporary Arab Studies

Georgetown University


Main points l.jpg

Main Points

  • Focus on Arab Persian Gulf

    • Somewhat protected by oil price @$70/b

    • Financial system less impacted than in the West

    • Central banks pumped over $150 billion in the economies

    • Industrial development continuing unabated

    • Bahrain, Kuwait more hampered by political problems than by economic ones

  • Iran strongly impacted by oil price $20/b lower than their break even: could be going bankrupt

  • Iraq also suffering from lower income, but may be a major producer within 5 years


Impact of oil prices saudi arabia l.jpg

Impact of Oil Prices: Saudi Arabia

  • Saudis require $50/b to break even

    • Production costs between $1.5 & $6/b

    • Substantial funds needed to provide subsidies to people

    • Anything above $50/b goes into cash reserve ~ $ 50 billion/y = over $40 billion increase in reserves

  • In 2008-2009, spent $100 billion for projects and subsidies to protect people from decline in activity

    • State sponsored industrial projects go on

      • Industrial cities: King Abdullah’s + Jizan + 4 others

      • Dow Chemical $20 billion plant

      • Ras AzZour: DAP + Aluminum project

    • Bank lending frozen from November 08 to now is beginning anew

    • Stock Index declined from 14,000 in early 2008 to 4,130 in early 2009, but is now back at 6,300


Impact of oil prices uae abudhabi l.jpg

Impact of Oil Prices: UAE-AbuDhabi

  • UAE-AbuDhabi requires less than $20/b

    • Can build very strong reserves ~ $45 billion/y

    • AbuDhabi Increases its leadership of the Emirates

    • Is pouring money in the economy

  • Major projects go on

    • Industrial development

      • Aluminum

      • Borouge

      • Nuclear plants

    • Cultural

      • Museums

      • New Island


Impact of oil prices uae dubai l.jpg

Impact of Oil Prices: UAE-Dubai

  • Could become overstretched due to its $120billion of debt outstanding

  • AbuDhabi can bail Dubai out but slowly

    • Would have to sell assets at a loss in the present market

    • Thus, bails Dubai out $10 billion at a time

  • May witness transfer of some of Iran’s money and transshipment to other places like Hong Kong

  • Great impact on poorer laborers and young professionals

  • But Dubai still continues to survive

    • Jebel Ali will continue, albeit more slowly

    • Funds transfers from Iran and Pakistan could actually increase

    • Most white elephants have been killed

      • Kilometer high tower

      • Huge entertainment park and Dubai as point of mass tourism destination


  • Impact of oil prices bahrain l.jpg

    Impact of Oil Prices: Bahrain

    • Decline in oil prices cuts Bahrain income by $3billion/y

    • Bahrain hampered by lack of capital, lack of gas

      • Delay in Aluminum expansion

      • Has contracted Occidental to find more oil and more Gas

      • Had to delay expansion of Aluminum plant

  • Mainly hampered by splits within society Impact of Oil

    • Vision of the future is split between CP & PM

    • Division within society

      • There is a political center of Shi’a and Sunni but is overwhelmed by the extremes on both sides

      • Strong division within the majority Shi’a groups, al Haq vs al Wafq

      • Issue of Nationality: Many non Bahraini Sunnis are given citizenship

    • Parliament is dysfunctional

  • If it could solve its political problems Bahrain could do well


  • Impact of oil prices qatar l.jpg

    Impact of Oil Prices: Qatar

    • Qatar reputed to be bullet proof because is in process of doubling LNG production from 35 million ts/y to >70 million ts/y

    • However, future could be less rosy as gas prices are very weak, while costs remain constant

      • Price to Far East usually based on oil prices: Could be as low as $5/mmbtu, down from $20 in 2008

      • Costs could be as high as $3/Mmbtu

    • Qatar ends up making more money on its 800Mb/d of oil than on its gas, but is greatly indebted because of the gas


    Note on iran l.jpg

    Note on Iran

    • Can be argued that Iran is going bankrupt

      • Original budget for 2010 was computed at $90/b

      • IMF says Iran’s elite export $15 billion/y to Dubai

      • Subsidies on Gasoline and Natural Gas cost over $5billion per year

      • Cannot borrow on world markets, hence has to print money, which is triggering great inflation

    • If regime could or would end isolation Iran could take off with investments from the Gulf in its Gas fields


    Note on iraq l.jpg

    Note on Iraq

    • Iraq is on the verge [as often in the past] to become a major supplier of oil

    • Bids by the IOCs could bring an increase in production of 4 to 8 million b/d

    • Needs to resolve Kurdish oil dispute

    • Need to have a national oil law


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