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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

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
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
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
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
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
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
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
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
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