Oil and the Iran Protests

scion Industries

It doesn’t take much these days to remind oil traders that Middle East geopolitical risk can raise oil prices. Unrest in Iranian cities is the latest case in point. News and video records of major protests in Iran pushed Brent prices to $67 a barrel before analysts started pointing out that the risk to oil supply from the protesters themselves was low. That analysis could be too sanguine. The protests in Iran underscore a rising risk across the Persian Gulf: disgruntled populations are willing to sabotage oil facilities to make themselves heard.

Iran has been the site of such attacks of late, especially in the oil rich Khuzestan province known for its Arab separatist movement. In a sign that Iran likely takes the potential for sabotage seriously, an Arab separatist leader who was known to advocate for attacks on oil facilities in Iran was gunned down in Europe recently.

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Late last year, Bahrain accused Iran of being behind a terrorist attack on a pipeline that brings oil from Saudi Arabia to Bahrain. Saudi Aramco has also boosted security at its offshore oil facilities on its maritime border with Iran. Those fields, including the Marjan oil field that is shared across the border with Iran, are slated for expansion by Aramco. Iran is also increasing production on its side of the field, called Foroozan. Khuzestan province is also home to fields that are important to Iran’s ability to increase its domestic oil production utilizing Chinese investment. Saudi Arabia has accused Iran of being involved in recent missile attacks from Yemen that targeted Riyadh airport and the royal palace.

The accuracy of the thesis that Iranian protests won’t spread to oil workers the way they did in late 1978 will depend in large measure on whether Iranian government repression of discontent can be successful in putting down insurgency, as it was in 2009. It is important to remember that the sequence of events that led to the fall of the Shah of Iran took months to unfold. Protests were unrelenting at the end of 1978 and oil workers were eventually motivated by the chaos to deny the military access to fuel to prevent them from killing even more Iranian citizens. As conflict escalated on the streets, oil workers walked off the job, eventually bringing Iranian oil exports to zero.

The Iranian government is well aware of this risk. In 2010, in the aftermath of internal instability in 2009, it increased the presence of the revolutionary guard in the oil sector to prevent a repeat of 1979. Iran’s supreme leader Ayatollah Ali Khamenei also never seemed to embrace the notion—put forward by reformists—that Iran’s economy would benefit from integration with the global economy. Rather, Khamenei has advocated vociferously that Iran needs to stay the course on an economy of “resistance” where indigenous economic capacities are part of the battlefield and individuals sacrifice personal consumer needs in favor of the commanding heights of the state. That view seems to lend credence to commentary that Iran’s hardliners themselves started the protests initially to weaken reformers by highlighting the failure of the nuclear deal to bring about tangible economic benefits. If reports of protest slogans are correct, the population could be tiring of the hardliner view that it is a higher calling to remain cut off from the global economy to fund the security of Shiite compatriots via wars in Syria, Lebanon, Yemen, and Iraq. Rather, like citizens in many places around the world, especially countries with oil, some Iranians are asking why they should make such sacrifices for a government that lacks accountability and is excessively corrupt.

Oil markets will be watching carefully to see if the Donald J. Trump administration uses Iran’s repression of its own people as a reason to refuse to issue the waiver to keep the United States from violating the terms of the nuclear deal or if the U.S. president—once again—refuses to recertify Iran’s compliance with the deal, kicking the issue back to a reluctant Congress. Markets will be looking for any signs that U.S. action will make it more difficult for Iran to sell its oil or to raise new oil and gas investments in the Iranian industry.

But as tempting as that grandstanding could be, the United States should probably take no hasty actions on this one until it can give the Iranian people a chance to be fully heard.

If reports are accurate, Khamenei’s long standing concept that his fellow citizens should continue to sacrifice in a resistance economy to keep the upper hand in regional conflicts could be losing ground. The United States should do nothing to hinder that momentum.

Acting out in ways that reconfirm the long standing hardliner story line that the United States will always be an enemy to Iran would be a mistake at this time. Rather, the United States should take a breath and with uncharacteristic patience, do nothing regarding sanctions until it can see if the chips fall in a more favorable place.

Source: https://www.cfr.org/blog/oil-and-iran-protests

Asian Development Model Proposed by Iran Private Sector

Heat of compression rotary drum dryers

I ran Chamber of Commerce, Industries, Mines and Agriculture has proposed an Asian model for economic development to weather the current storms facing the Iranian economy.

In remarks on Sunday, Gholamhossein Shafei described the economy as being “in no good shape” and said the country should create a strong entity whose power supersedes all government branches and which sets major policies to navigate the country’s economy.

“We need to follow in the footsteps of countries that faced the same crises and ultimately overcame them, and use their successful experience to solve our own problems,” Shafei said at the latest gathering of ICCIMA’s board of representatives.

Shafei stressed the need for a major decision-making body to enforce real reforms and take the helm of the country’s economy for the next five to 10 years.

In this context, the ICCIMA chief referred to Asian countries with notable economic achievements in recent decades, such as China, Malaysia and three of the four Asian tigers–Singapore, Taiwan and South Korea.

Shafei referred to the National Development and Reform Commission of China, the Council for Economic Planning and Development in Taiwan, the Economic Development Board in Singapore and Economic Planning Board in South Korea, which has devised three five-year plans for the country.

In the proposed model, he envisioned an entity comprising seasoned government experts, representatives from the Supreme Leader’s office, judiciary and parliamentary figures, distinguished academics in social and economic fields, private sector executives introduced by ICCIMA and labor union representatives.

He relegated the duty of drafting economic legislation and development plans to the proposed entity, instead of the government.

“The implementation of decisions made by such an entity,” he said, “would be incumbent upon all the ministries active in the sphere of economics.”

It is unclear if such a bold proposal would be granted a serious consideration in state circles, but the government and other decision-making bodies have routinely urged the private sector to come up with suggestions to solve the the country’s seemingly insurmountable obstacles.

Shafei, along with other business figures present in the meeting, sounded the alarm on rising inequality, poverty, unemployment and declining real wages.

Protests Revisited

Shafei’s comments come as the fallout from recent nationwide protests over price rises and economic mismanagement is still fresh in the minds of officials and the public.

Reflecting the mood, several ICCIMA officials took to the podium to voice concerns over legitimate public demands that need to be heard and addressed.

Shafei, however, noted that social and economic ills should not be a cause for despair and complacency.

“Acute economic troubles over time have caused the wounds to open and led to recent protests,” he said.

Quoting a speech by the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei in which he called for extra vigilance in the face of steep challenges, Shafei said the current circumstances require “extraordinary measures” to tackle them.

Since the signing of the landmark nuclear deal with world powers in 2016, Iran received relief from sanctions that had battered the economy. However, ordinary Iranians have not benefited from this relief due to lingering US sanctions, which continue to discourage major international banks from dealing with Iran, its chronic structural problems and the heavy role of the state in the economy.

Also on Sunday, President Hassan Rouhani once again reacted to recent public protests and said “the people must be heard” and that some of their actions are legitimate acts of protest.

“Even in London and New York such protests could [turn violent] and some vandalism occurs, but we should not paint everybody with the same brush,” Rouhani was quoted as saying by IRNA.


United Arab Emirates: PMI reaches multi-year high in December

BaumerHubner Industrial spare parts

The Emirates NDB Purchasing Managers’ Index (PMI) increased from 57.0 in November to 57.7 in December. As a result, the index moved further above the 50-point threshold that separates expansion from contraction in the non-oil producing private sector, and marked the highest reading in 34 months.

December’s figure was underpinned by an acceleration in new order growth, with new export orders returning to expansion after November’s contraction. Anecdotal evidence suggested that fellow GCC countries were an important source of new foreign business in the month. Output also increased sharply, albeit at a slightly slower rate than in the prior month. As a result of strong economic activity, firms continued to take on staff, although employment and wage growth remained mild overall. On the price front, input prices fell in December, while output prices declined.

According to Khatija Haque, Head of MENA Research at Emirates NBD: “It is likely that the introduction of VAT in January has spurred activity and purchasing in Q4 2017, which is in line with our expectations. Nevertheless, employment and wage growth has been relatively muted, not just in December but for 2017 as a whole”.

FocusEconomics Consensus Forecast participants expect GDP to expand 2.9% in 2018 and 3.1% in 2019. Panelists expect fixed investment to increase 3.8% in 2018 and 4.3% in 2019.

Economic Snapshot for the Middle East & North Africa

Industrial gear boxes and belts supplier in Middle East

Solid economic performance remains threatened by heightened political uncertainty
Economic fundamentals remain strong in the Middle East and North Africa on the back of higher oil prices, strong global growth and accommodative financial conditions. However, widespread security threats and political unrest pose a sustained risk to the region’s economic performance, and spillovers from OPEC’s oil-cut deal continue to weigh on oil-producing countries. The MENA region’s economies rose an aggregated 1.7% annually in Q3, down from the 2.1% increase in Q2. Despite the deceleration, an analysis of individual countries paints a brighter picture of the regional economy.

Economic growth accelerated in Egypt in the July–September period as the IMF-driven reforms implemented in late 2016 started to gain traction. As a result, the economy expanded at the fastest pace in nearly three years in that period. In Tunisia, economic activity strengthened in Q3, partially reflecting an improvement in tourist arrivals. Although growth moderated in Morocco in Q3, the economy continued its recovery from 2016’s lackluster performance in the agricultural sector. Mining activities are also shoring up overall growth in the country, along with rising foreign investment. Annual growth moderated in Israel in Q3 mostly due to a base effect from the previous year. That said, fundamentals remain strong due to a loose monetary policy and robust external demand.

Qatar defied the economic blockade imposed by Saudi Arabia and its allies in June, and GDP growth accelerated in Q3 on strong government support. Economic growth accelerated in Bahrain in Q3 led by strong infrastructure spending and a robust financial sector, offsetting poor crude output due to Bahrain’s compliance with the OEPC deal. Saudi Arabia contracted for the third consecutive quarter in Q3. That said, the economy declined at a slower pace due to resilient dynamics in the non-oil sector. While data is still outstanding for Iran, GDP growth likely decelerated in the July–September period due to a large base effect from the previous year, when the economy was expanding at a double-digit pace.

On 28 December, protests erupted in Mashhad, Iran’s second-largest city, and quickly spread across the country. Demonstrators expressed their grievances against the high price of basic goods and Iran’s economic, military and political involvement in the region, which is putting pressure on the national budget. The country’s high unemployment rate, in particular among women and youth people, and the fact that the benefits from the lifting of the economic sanctions have not yet had an impact on the population also fueled unrest. Protests, however, eased in early January following the harsh crackdown against demonstrators by government security forces. This episode represents the most severe challenge to the Iranian political system since the Green movement in 2009, when people protested alleged fraud in the presidential election, and highlights an underlying political tension that could flare up again in the future.

Several countries in the region, including Qatar, Saudi Arabia and the United Arab Emirates, released their 2018 budgets in the last few weeks, which include a more expansionary approach compared to last year’s plans. While increased spending should boost economic activity this year, a looser fiscal stance in many countries in the region has the potential to derail some of the fiscal consolidation processes. Saudi Arabia and the United Arab Emirates have announced the implementation of a value-added tax (VAT) as of 1 January, which is expected to broaden the tax collection base and increase revenue. Four other Gulf Cooperation Council (GCC) countries—Bahrain, Kuwait, Oman and Qatar—have pledged to do the same. Bahrain will introduce the new tax by mid-2018 and Qatar unveiled plans to launch VAT in Q2 of this year. Kuwait and Oman stated they will implement the VAT in 2019.

See the Full FocusEconomics Middle East & North Africa Report

Political instability threatens 2018 economic growth prospects
Higher oil prices will boost economic growth among oil-producing economies this year, which will have a positive impact on regional growth in MENA for 2018. Moreover, countries in North Africa will benefit from improved agricultural output and a mild recovery in tourism. Geopolitical risks remain high, however, hampering the possibility of a sharp and sustained economic recovery. The MENA region is expected to expand 2.9% in 2018, which is unchanged from last month’s estimate. Our panel projects regional growth of 3.3% in 2019.

This month’s stable economic outlook for MENA in 2018 reflects unchanged growth prospects for Algeria, Bahrain, Iran, Israel, Kuwait and Oman. Panelists upgraded their view of the Egypt, Saudi Arabia and the United Arab Emirates economies, while Iraq, Jordan, Lebanon, Morocco, Qatar, Tunisia and Yemen all experienced a downgrade in their growth prospects.

Egypt is expected to be the fastest-growing economy in 2018, followed closely by Iran. At the other end of the spectrum, Saudi Arabia, which is facing the lion’s share of OPEC’s oil-cut reduction, and Lebanon, engulfed by sustained political instability, are expected to be the region’s worst performers.

SAUDI ARABIA | OPEC’s oil-cap deal dents economic activity in Q3
Reduced oil output in compliance with OPEC’s oil-cut deal, low oil prices and reduced government support led the Saudi economy to contract in 2017 for the first time since the height of the Global Financial Crisis in 2009. According to preliminary figures, GDP contracted 0.7% in 2017, contrasting the 1.7% rise in 2016. The oil and construction sectors represented the bulk of the deterioration. To boost economic growth and solidify the Saudi Vision 2030 plan, which seeks to diversify the economy away from oil, the government presented the 2018 budget on 19 December. It includes the newly introduced value-added tax and prioritizes capital expenditure. Although the plan foresees a sizeable reduction in the fiscal deficit, the fiscal gap will remain relatively large and will be partially financed by debt issuance and government reserves. Moreover, Saudi authorities expect that the budget will balance in 2023, four years later than in the original plan.

The economy is expected to return to growth this year due to higher oil prices, renewed fiscal stimulus and strong global demand. However, higher inflation due to the introduction of VAT, capped oil production and mounting geopolitical risks threaten the recovery. FocusEconomics Consensus Forecast panelists expect growth of 1.6% in 2018, which is up 0.1 percentage points from last month’s projection. In 2019, growth is seen picking up pace to 2.3%.

UAE | Non-oil economy ended 2017 on a strong footing
The economy remains in strong shape heading into the new year. The non-oil PMI reached a near three-year high in December thanks to healthy expansions in output and new orders. Coupled with figures from previous months, this bodes well for economic growth in Q4, as consumers and firms brought forward planned consumption before the introduction of a 5% VAT on 1 January. The new tax is an important step towards broadening the tax base and strengthening a fiscal position which is already among the most solid in the region. On the downside, employment and wage growth remain subdued despite robust domestic activity, which could weigh on private consumption heading into 2018. In early December, Dubai presented its 2018 budget, which contained a significant ramp-up in infrastructure spending as part of the preparations for the 2020 World Expo. The more expansionary fiscal stance was similar to that of the UAE’s federal budget approved in November.

Growth should pick up significantly this year, as the oil sector slowly recovers and the non-oil sector benefits from preparations for the Dubai 2020 World Expo, which should boost fixed investment. FocusEconomics panelists expect GDP to rise 3.0% in 2018, which is up 0.1 percentage points from last month’s forecast, and 3.3% in 2019.

EGYPT | Economy continues slow, but steady, recovery
The economy continues to gather strength heading into the new calendar year, although it remains fragile, as evidenced by December’s PMI which sank back into pessimistic territory. Other indicators are more positive: In the July–September period growth strengthened, and the unemployment rate declined to a multi-year low. In addition, international reserves were significantly bolstered in 2017 thanks to renewed investor confidence, while the trade deficit narrowed sharply. On 20 December, the IMF’s Executive Board completed the second review under the Extended Fund Facility, unlocking USD 2 billion of additional funding. This will be complemented by USD 1.2 billion recently committed by the World Bank to help support the economy and boost job creation. While praising reform progress, the IMF urged authorities to continue paring back energy subsidies and take steps to increase tax revenues. The fiscal and external positions should be strengthened by the giant Zohr gas field that came onstream in December, moving Egypt closer to energy self-sufficiency.

Growth should remain solid going forward. New investment and industrial licensing laws are likely to boost investment, while the external sector will benefit from the weaker pound. However, the elevated debt burden could become a pressing concern if reform momentum slows, and security worries continue to cloud the outlook. FocusEconomics analysts expect GDP to expand 4.4% in FY 2018, up 0.1 percentage points from last month’s forecast, and 4.8% in FY 2019.

ISRAEL | Growth slows in 2017 on weaker investment dynamics
Preliminary data released on 31 December showed full-year GDP growth slowing in 2017 from a year earlier, despite posting a sharp acceleration in Q3—the most recent period for which quarterly data is available. According to the estimate, domestic demand experienced a broad-based slowdown in 2017, despite record-low interest rates throughout the year and strong leading data as it drew to a close: Unemployment was low through November, while survey data for consumer and business confidence hovered near record highs in November and December. Growth in exports of goods and services was broadly stable in 2017, showing resilience despite the appreciation of the shekel. Meanwhile, on 8 January, the Ministry of Finance published a USD 139 billion budget draft for 2019, a USD 5.8 billion increase from the already approved 2018 budget, with a deficit target of 2.9%.

Accommodative fiscal policy and ultra-loose monetary policy will underpin economic growth this year. A tight labor market and resilient asset values are expected to drive household spending, while the government’s medium-term infrastructure plans are expected to boost fixed investment. An improving global economy should sustain robust growth in exports. Flare-ups in Israeli-Palestinian tensions could, however, threaten the recovery of the tourism sector. FocusEconomics panelists expect GDP growth to reach 3.4% in 2018, which is unchanged from last month’s forecast. For 2019, our panel expects GDP growth of 3.2%.

INFLATION | Regional inflation decelerates in November as price pressures moderate in Egypt
According to a regional aggregate produced by FocusEconomics, inflation decelerated in November to 4.1%, down from October’s six-month high of 4.3%. The moderation mostly reflected softer inflationary pressures in Egypt amid an improved economic landscape and a favorable base effect. That said, inflation in Egypt remained above 25% for the eleventh consecutive month. Inflation also declined in Algeria, Jordan and the United Arab Emirates, while it increased in most of the remaining economies. In November, Saudi Arabia recorded the first annual increase in consumer prices since the end of 2016.

Inflationary pressures will resurface this year on the back of higher commodity prices and a weaker U.S. dollar. Moreover, the implementation of a VAT in Saudi Arabia and the United Arab Emirates on 1 January will add upward pressure on regional inflation this year. FocusEconomics panelists forecast regional inflation to average 5.1%, which is up 0.1 percentage points from last month’s estimate. In 2019, inflation is expected to moderate to 4.7%.


Decoding the oil deal

Abb Spare parts

More questions than answers from Bassil-Berri meeting

Parliament Speaker Nabih Berri is having trouble making up his mind. Or so it seems. On July 1, Berri and Foreign Minister Gebran Bassil struck an unexpected deal. The agreement was touted as a bulldozer clearing the final barrier that, for over three years, has blocked the conclusion of Lebanon’s first offshore oil and gas licensing round. The parties, however, have chosen a very odd strategy for building national consensus around their deal. By all accounts, they haven’t shared the details widely, and the terms of the deal coming from the speaker’s side vary depending on what you read. At the time of writing, this looks more like a media stunt than a news development.

Coming to terms

The search for oil and gas under Lebanese territory began before the territory was technically Lebanese. Some five years prior to Lebanon’s 1943 declaration of independence, the Iraq Petroleum Company drilled an onshore well. The company did not make any discoveries, but the search continued (both via drilling and surveying) until the early 1970s. In 1993, the government again began looking for hydrocarbons, commissioning a two-dimensional (2-D) seismic survey off the coast of Tripoli, in the north. Since then, oil stayed on politicians’ brains, but movement has typically been slow, with one exception: Najib Miqati’s 2011-2013 cabinet. With a newly minted offshore hydrocarbon law on the books, then-Energy Minister Bassil clearly made the creation of a Lebanese oil and gas sector a top priority, and the cabinet largely backed him.

Since 2013, it has been quite clear that one of the biggest barriers to getting the decrees passed lies in a disagreement involving Berri

In December 2012, after securing the cabinet’s approval, Bassil announced the appointment of six board members for the Lebanese Petroleum Administration (LPA), a regulator for the sector, which the 2010 offshore law called for. [By way of contrast, an electricity sector regulator called for in a 2002 law remains ink on paper to this day.] In February 2013 – only 80 days after its board was appointed – the LPA opened a pre-qualification round to select which international oil and gas companies would be allowed to bid in the first licensing round. The pre-qualification process went as planned, and in April 2013, 46 companies were given the green light to participate in the round, scheduled to open the following month. There was only one problem. Miqati had resigned at the end of March before much-needed work on oil and gas was finished. Most pressing were two decrees needed for the licensing round (one delineates Lebanon’s offshore blocks and the other includes a model contract to be signed between the state and companies keen to drill as well as details on how the bidding will happen and how offers will be evaluated). Shortly after Prime Minister Tammam Salam formed a government in February 2014, he tasked a ministerial committee with studying the decrees. They have yet to be approved.

Since 2013, it has been quite clear that one of the biggest barriers to getting the decrees passed lies in a disagreement involving Berri. The speaker wanted to open all ten blocks for bidding. The LPA, meanwhile, recommended opening only five, a position Bassil supported. In either scenario, fewer contracts would be signed than blocks put on offer. Announcing the Berri-Bassil deal, neither Bassil nor Berri’s confidant, Finance Minister Ali Hassan Khalil, mentioned anything about which blocks to open for bids. Speaking to Executive two weeks after the deal was done, Cesar Abi Khalil, a former Bassil advisor (currently counseling Energy Minister Arthur Nazarian), at first reads an amended version of the statement issued after the Berri-Bassil meeting.

“There has been an agreement on [an offshore oil and gas] licensing strategy,” Abi Khalil says. “The licensing strategy should ensure Lebanon’s rights to resources in our subsea, first [vis-à-vis] Israel, second Cyprus and Syria. It should ensure that the Lebanese government will maximize its profit from petroleum activities, and it will ensure the right environment for the licensing round to succeed.” Neither foreign nor finance ministers mentioned “licensing strategy” in their July 1 announcement. Even with that added detail, however, the deal still sounds vague. (Which party would agree to ceding Lebanon’s rights, minimizing the state’s take from potential resources and having an unsuccessful licensing round?) Indeed, Executive’s first question to Abi Khalil was: “So what does that all mean?”

“I think this is clear. This is the extent of the statement,” Abi Khalil replies, before elaborating diplomatically that Berri agreed to abandon an idea he had been promoting for about three years. The actual deal, Abi Khalil says, calls for opening fewer than ten blocks to bidding in the first licensing round.

Reading the tea leaves

Executive was unable to reach Speaker Berri or anyone who could answer questions on his behalf. On July 9, The Daily Star reported Berri had convinced Bassil to accept opening all ten blocks, the opposite of what Abi Khalil says the deal entails. On July 22, economist Marwan Iskandar wrote in An Nahar that the Speaker told him personally that the deal meant going with the LPA’s strategy of opening fewer than ten blocks, seemingly confirming what Abi Khalil says. Yet that same day, Al Arabiya English ran a piece again claiming the Speaker’s vision of offering all ten blocks had won the day.

Future Movement MP Mohammad Kabbani, who heads the parliamentary committee which deals with oil and gas, explains that his party has not been explicitly briefed on the deal since it was struck, but says his party is on board. “We have agreed to submitting ten blocks for licensing and signing only a few contracts. If this is the real agreement,” he says. According to Abi Khalil, that is not the deal, which seems to throw into question whether or not Future will accept it. Abi Khalil has not responded to follow up questions on why confusion and misinformation seems to be how the parties are communicating their deal.

Why now?

Putting aside the details of the deal for a second, Kabbani and Lebanese Forces MP Joseph Maalouf offered some insight as to why the deal came when it did. For three years now, Berri has been claiming that Israel is stealing Lebanon’s gas. He has never offered proof and the concept always seemed suspect on technical grounds. Lebanon’s neighbor has discovered gas in its offshore acreage. None of those discoveries stretch into Lebanese waters. Therefore, if Israel were truly stealing, the private company doing the actual drilling would have to employ expensive technology to drill past the Israeli fields on a blind, subsea search for Lebanese fields to the north. Not only is this costly and risky (i.e., no guarantee a Lebanese field would be found), if the private company were caught doing so, its reputation would be in the toilet at the very least. The only other way for Israel to steal Lebanon’s gas would be if the two countries shared a reserve and Israel began exploiting it first without agreeing how to split profits with Lebanon. Shared reserves are not uncommon (Iran and Qatar share the world’s largest gas field). None have yet been discovered between Israel and Lebanon. However, new data suggest the two countries may have a shared reservoir. This new data, coupled with fears that an Israel-Turkey reconciliation announced in late June means Israeli gas may soon reach a hungry European market via a pipeline to Turkey, prompted the oil deal, Maalouf and Kabbani say.

Walid Nasr, head of strategic planning at the LPA, refuses to comment on the political deal, but sheds light on the new data. Echoing Kabbani and Maalouf, he explains that in 2002, an American company called TGS conducted seismic surveys of Lebanon’s offshore. The company refused to give the Lebanese government the data back then, Nasr says, because the two did not have a written contract, only an oral agreement between the company and the then-minister of energy. Bassil sued in 2011, and TGS handed the data over recently, Nasr explains. TGS refuses to comment in an email exchange with Executive, but a paper on the company’s website confirms it shot over 2,000 kilometers of 2-D seismic in Lebanon’s offshore in 2002. Interestingly, the map published along with the paper seems to show that Lebanon’s seismic surveys stretch south into Israel’s offshore. Nasr says the interpreted data suggests Lebanon and Israel may have a shared hydrocarbon reservoir (2-D seismic cannot distinguish between oil and gas). Seismic surveys, however, are not perfect tools. They give indications of where oil and/or gas might be. Only drilling confirms what lies below, meaning what today looks like shared resources could prove to be nothing.

Unfinished business

Immediately after the deal, press reports claiming the decrees would be passed imminently were rife. Yet a number of decisions still need to be made. While Abi Khalil insists Berri pivoted from wanting to open all ten blocks for bidding, he admits the exact number was not decided on. Indeed, he repeatedly says “we have no religion” in the matter when asked if the LPA’s strategy of offering five will be the final strategy. Ditto the number of contracts to be signed. Fewer than the number of blocks offered, but how many? “We have no religion in this matter,” Abi Khalil repeats. Finally, given that the pre-qualification round happened three years ago, might another be necessary if some pre-qualified companies have lost interest in bidding or if new companies are eager to invest? Khalil says a second pre-qualification round could be a good idea, but insists his side has “no religion in the matter.” Where and how these remaining points open to negotiation will be discussed is unclear. Prime Minister Tammam Salam has not called for a meeting of the oil and gas ministerial committee to discuss recent developments. Nor has he put the oil and gas decrees on the cabinet’s agenda. In fact, he’s done little more than offer veiled criticism of how the deal was announced. During the July 1 press conference, when a reporter asked Bassil for details, he said that was not important at this stage as the two sides would now begin briefing others to build consensus. If such a roadshow is happening, it is one of the best kept secrets in Lebanon.


Missed opportunities in Lebanon’s industrial sector

BEL spare parts Saudi

Economic complexity indicators show export potentials

Lebanon’s productive sectors have been undermined since the end of the civil war in 1990. Like other marginalized sectors, the industrial sector has weakened, becoming a smaller proportion of the economy due in no small part to a history of missed development opportunities. To put this in perspective, the share of the industrial sector out of total GDP has decreased steadily from 24 percent in 1997 to 14 percent in 2016.

Not unrelated to this, Lebanon continues to register the worst trade deficit in the region, primarily due to its dependency on imports and weak export channels. The trade deficit, $15.65 billion by December 2016, has recorded a 3.56 percent yearly increase (according to BLOMINVEST Bank figures). Exports have also fluctuated in recent years from $4.49 billion in 2008, up to $5.11 billion in 2012, and then down to $2.44 billion in 2015. Development in the industrial sector has been restricted by limited development in industrial policy, limited electricity coverage, and the high cost of production, as well as the effects stemming from the conflict in Syria. The latter has had a clear effect, reducing investments in the country and making exports more expensive by curtailing Lebanon’s sole land export route to the region.

Potential for sophistication

Despite this seemingly pessimistic picture, looking at microdata through product space mapping suggests that the situation has not been so dismal. Between 2000 and 2008, the Lebanese industrial sector managed to recover, with exports increasing of industrial products from $742 million in 2000 to $2.58 billion in 2008. This steady increase has been accompanied with an increased level of export sophistication, made clear by observing Lebanon’s improved position on the product space. The total number of exported products increased from 898 in 2000 to 978 in 2008. Equally importantly, comparing the distribution of these products, the number of core products increased by 21 percent (from 307 in 2000 to 370 in 2008), while the number of periphery products increased by only 3 percent (from 591 products in 2000 to 608 in 2008), reflecting an increase in the sophistication of Lebanese exports.

Most stark, however, is that 40 out of the 52 newly produced products in 2008 were a result of “long jumps.” Among these are ceramics, glass pigments, opacifiers, colors, and enamels (HS: 3207), shavers and hair clippers (HS: 8510), and base metal fittings for furniture, doors, and cars (HS: 8302). A long jump suggests that new items were produced despite the lack of prerequisite knowledge or capabilities, given data gathered from the existing export basket. Literature suggests that such phenomena are observed in countries that have undergone structural economic changes. In this respect, Lebanon presents an anomaly to the theory. Despite the absence of a government-led strategy to support industrial growth, the sector managed to improve its industrial standing by producing highly sophisticated products between 2000 and 2008.

Lebanon’s favorable demand shocks

To better understand export diversification in Lebanon, while taking into account highly sophisticated domains of production and an absence of a policy-driven structural change, the literature has attributed changes in sophistication levels in different countries to two key causes: A productivity shock or a demand shock. As Lebanese firms continue to suffer burdensome costs of production and a lack of adequate skills, the increase in Lebanese export sophistication has been largely driven by demand shocks, i.e. the discovery of new markets. The fact that local market capacity is small and saturated impels producers who are aspiring to expand and diversify their production to be outward looking. Lebanese firms, therefore, benefit from their experience, entrepreneurial skills, and connections with foreign markets to overcome demand uncertainties. From 2000 to 2008, for example, several free trade agreements were signed between Lebanon and foreign countries or trade associations such as GAFTA (Greater Arab Free Trade Area). This agreement has instigated a spike in the volume of exports, as exporters were responsive to increased demand opportunities in Arab States.

Sustaining a positive sophistication surge?

Despite the optimistic period from 2000 to 2008 that signaled a positive wave of industrialization in Lebanon, the lack of government support and the absence of a productivity shock to supplement the demand shock made it difficult for industrialists to sustain a comparative advantage. Additionally, Lebanon’s position on the product space worsened with a drop in total products exported from 978 in 2008 to 896 in 2015. From 2008 to 2015, Lebanon discontinued the production of 82 products previously conquered in 2008. These are interpreted as missed opportunities that warrant special attention, as they might hint to the presence of market failures.

The surge in sophistication from 2000 to 2008 is comparable to the status of the sector pre-war period. In the 1960s and 1970s, the industry faced a similar boom, but had also failed to further develop, namely due to a lack of adequate supportive policies. For example, in 1975, the Lebanese industrial sector had conquered five out of the ten densest products. Accordingly, the level of capabilities in the economy, measured by the Economic Complexity Index (ECI), was highest in 1968. Lebanon’s rank peaked in 1975, when it was ranked 21st in the world. After that, the country’s economic complexity followed an overall declining trend, where it reached a low level of 44th in the world in 1998. By 2008, the country’s rank again improved to 31st worldwide.

Sector-specific industrial strategy

With a history of missed development opportunities, Lebanon needs a supportive industrial policy that is capable of optimizing on industrialization opportunities. This strategy is key to the development of the country in order to produce highly sophisticated jobs and avoid brain drain. Using the product space as a compass, policy makers should tailor specific initiatives that usher in the production of sophisticated products where Lebanon has a clear comparative advantage. One avenue to formulate and implement such policies is through a sustainable mechanism of public-private dialogue (PPD) that increases accountability and transparency of those efforts and processes aimed at enhancing Lebanese industry.

To this end, the Lebanese Center for Policy Studies (LCPS) is convening roundtables to facilitate public-private dialogue between the Ministry of Industry and the Association of Lebanese Industrialists (ALI). LCPS uses evidence-based research to encourage industrialists and policy makers to move beyond narrow transactional concerns to broader issues and opportunities for policy change, export-oriented growth, and institutional reform. This has and continues to allow dialogue participants to better understand which and what mix of specific legal frameworks, regulatory rules, labor training services, market access rules, and infrastructure can significantly promote economic diversification within highly sophistication domains of production.


Technip lands $4.2bn Bahrain refinery contract

BaumerHubner Industrial spare parts

Contract will extend production capacity at the site on Sitra island from a current 267,000 to 360,000 barrels per day.

A consortium led by France-US petroleum services group TechnipFMC has secured a $4.2 billion (3.5 billion euro) contract to extend capacity at Bahrain’s Sitra refinery, the company said Monday.

The contract, awarded by Bahrain Petroleum Company (Bapco), will extend production capacity at the site on Sitra island in the Gulf of Bahrain from a current 267,000 to 360,000 barrels per day, TechnipFMC said.

The refinery exports some 95 percent of its current production, mainly to India and the Far East.

The consortium includes South Korea’s refinery and electrical plants designer Samsung Engineering as well as Spanish petroleum engineering firm Tecnicas Reunidas, TechnipFMC said, adding construction should be completed by 2022.

Nello Uccelletti, head of Onshore Offshore activity at TechnipFMC, hailed the “prestigious” contract as being a “testimonial of the long-term partnership with Bapco and strengthen(ing) our leadership in the refining sector.”

Bahrain was the first Arab Gulf state to produce oil, in 1932, but its reserves have all but dried up and the Sunni Muslim kingdom depends primarily on the Abu Safa field it shares with Saudi Arabia for its own supplies which are pumped via a 230,000 bpd capacity subsea pipeline.


OPEC said to agree oil output cuts extension to end-2018

OPEC said to agree oil output cuts extension to end-2018

Sources say talks are now getting underway with Russia and other partners to bring them on board.

OPEC agreed to extend its oil-production cuts to the end of 2018, subject to a review at its next scheduled meeting in June, according to delegates gathered in Vienna.

With OPEC’s initial meeting concluded, talks are now getting under way with Russia and other partners to bring them on board. Ministers also proposed including Nigeria and Libya in the agreement for the first time by imposing caps above their current production, delegates said, asking not to be named discussing closed-door negotiations.

The outcome of the day’s talks so far reflects a rare consensus between members of the Organization of Petroleum Exporting Countries, with all agreeing that the market is moving in the right direction, but is not yet balanced. While Moscow has voiced its support for an extension, it is said to want assurances on how and when the agreement will be phased out.

“OPEC ministers have very clearly said that they’re extremely committed towards getting that inventory overhang down,” Amrita Sen, chief oil analyst at consultants Energy Aspects Ltd in London, said in an interview with Bloomberg Television. “The questions that are going to get asked now are about Russia’s involvement, which I also think is going to be very much for the full year.”

For Russia, reassurance about how the curbs will eventually be wound down seems to be as important as the duration of the extension, according to people involved in negotiations earlier this week. It needs greater clarity than most OPEC members because its economic policy making is more complex, including a floating exchange rate that fluctuates with the oil price.

It’s premature to talk about an exit strategy because OPEC and its allies are relying on oil demand in the third quarter of 2018 to finally eliminate the inventory surplus, Saudi Oil Minister Khalid Al-Falih said Thursday before the meeting. But the kingdom is open to discussions about how the group could wind down the cuts “very gradually” once its goals are achieved, he said.

Benchmark Brent crude traded up 0.6 percent at $63.49 a barrel at 3:36pm in London, paring earlier gains of 1.7 percent.

Nigeria, an OPEC member currently exempt from production cuts, is willing to comply with a request to cap its oil output at 1.8 million barrels a day, while Libya has yet to decide, delegates said. Kuwaiti Energy Minister Issam Almarzooq said before the meeting that Libya was asked to limit output to about 1 million barrels a day.

Those quotas would be above the countries’ current production, with Nigeria pumping 1.73 million barrels a day in October and Libya 980,000 a day, according to data compiled by Bloomberg.


Bahrain wins $200m boost to manufacturing sector

Bahrain wins $200m boost to manufacturing sector

More than $200 million worth of investment into Bahrain’s manufacturing and logistics sector was attracted in the first half of this year, according to the Bahrain Economic Development Board (EDB).

It said the investments are expected to create approximately 1,000 jobs over the next three years in the Gulf kingdom.

The growth follows a substantial increase in the number of international businesses looking to use Bahrain as a hub to access and seize the regional opportunities offered in the GCC market and beyond, the EDB said in a statement.

Mondelez International, one of the world’s largest snacks companies, is building a biscuit production plant that will produce the famous brands Oreo, Ritz and TUC.

The plant, which will generate 200 jobs in its initial phase, represents the second investment by Mondelez in Bahrain in less than 10 years.

Both investments by Mondelez are located at Bahrain International Investment Park (BIIP).

EDB also said GCC textile and fashion distribution company Armada Group has recently begun construction of its regional distribution centre in the Bahrain Logistics Zone (BLZ), investing over $50 million and creating 400 direct jobs over the next three years for locals.

Other important investments this year include ECU Worldwide, SMSA Express, Elsewedy Electric, Mennekes, Sonmez Metal, Tsinx Environment Technology, Almajdouie Holding, Lals Group, as well as expansion investments by several companies including Kuehne + Nagel, Sandvik, and Agility Logistics.

Bahrain’s manufacturing, transportation and logistics sector is currently one of the largest contributors to the country’s GDP, and accounted for 20.3 percent of 2016 GDP.

Khalid Al Rumaihi, chief executive of the EDB, said: “The economic transformation taking place in the GCC is creating exciting opportunities for manufacturing companies – and we are delighted that many are choosing Bahrain as a location from which to access them.

“Further investments, such as the ongoing modernisation and expansion of Bahrain International Airport, the building of a second causeway to Saudi Arabia and additional regulatory reforms are expected to make it even easier for businesses looking to access the region from Bahrain and we look forward to welcoming more firms in the coming years.”

Source :http://www.arabianbusiness.com/industries/banking-finance/381629-bahrain-wins-200m-boost-to-manufacturing-sector

New Competition for Libyan Entrepreneurs

Libyan Entrepreneurs

I. Competition format:

1. Deadline: 12:00 PM US ET on December 28, 2017 Online applications submitted.
2. January 2018: Applications reviewed by GIST Tech-I Alumni Mentors.
3. January/February 2018: Three applications from each Alumni Mentor will be voted on by the online global public.
4. April 16-19, 2018: Finalists attend the Global Entrepreneurship Congress.
5. April 16, 2018: Finalists pitch in front of judges for seed capital prizes.
6. April 2018: Finalists travel all-expenses paid to Turkey for one-day of in-person training.

II. Competition Overview:

The GIST Technology Idea (Tech-I) Competition is an annual competition for science and technology (S&T) entrepreneurs from 136 emerging economies around the world. The competition is part of the Global Innovation through Science and Technology (GIST) initiative, led by the U.S. Department of State. The GIST Tech-I Competition is implemented by the American Association for the Advancement of Science (AAAS). This year, the competition will challenge former GIST Tech-I finalists (GIST Tech-I Alumni) to lead and mentor the next generation of tech entrepreneurs in their countries and regions. A select group of GIST Tech-I Alumni, called Alumni Mentors, will solicit and help select science and technology entrepreneurs with either an idea or startup in their region to join them at the 2018 Global Entrepreneurship Congress (GEC) in Istanbul, Turkey to pitch their idea or startup.

GIST Tech-I Alumni Mentors will solicit applications from new science and technology entrepreneurs globally to participate in the GIST Tech-I Competition over a month-long application period. At the end of that month, Alumni Mentors will review the submitted applications and nominate to AAAS three top applicants as semi-finalists to enter a voting phase.

Semi-finalists will participate in online public voting on GISTNetwork.org to determine which will go on as finalists. The ten semi-finalists that receive the top voting totals, and the GIST Tech-I Alumni Mentors who solicited those applications will go to the GIST Tech-I Finals where they will receive training, attend GEC, and have the opportunity to pitch their idea or startup to win capital seed funds.

III. Eligibility Requirements for Applicant

Applicants must meet ALL of the following eligibility requirements:

1. The applicant must be 18-40 years old on the application deadline, December 28, 2017.
2. The applicant must be a Libyan citizen.
3. The applicant must not hold dual-citizenship or permanent resident status in a non-GIST economy.
4. The applicant must not submit more than one application per GIST Tech-I competition year.
5. The applicant must not be a previous GIST Tech-I finalist who traveled to and competed in the GIST Tech-I Finals at GES.

In addition to meeting the applicant requirements above, applications must to be for Ideas or Startups that met ALL of the following requirements:

1. The application must be the original work of the Idea or Startup applicant.
2. The Idea or Startup must be developing an innovative science or technology solution with market potential in a GIST-eligible economy.
3. The Idea or Startup must be for-profit. Applications from non-profit ventures or NGOs are not eligible and will not be reviewed.
4. The Startup must be less than three years old.
5. The Idea or Startup must be, at least in part based, in a GIST-eligible economy.
6. The Idea or Startup must be developing or selling products and services that use its own innovations in science and technology. Applications from organizations that buy and resell technologies will not be reviewed.
7. The Idea or Startup must not submit more than one application per GIST Tech-I competition year.

Do you still have questions about eligibility? Check out this page or contact tech-i@gistnetwork.org

VI.. How to apply?

Prospective applicants will go to GISTNetwork.org to apply

• The applicant will complete a standard application form and will select an Alumni Mentor to work with should they be selected to continue in the competition.
• The GIST Tech-I Application consists of:
o A 100-word short summary of your project, to be used on the public voting website, if your project advances to semifinals. Your short summary must be in English.
o Brief eligibility questions.
o Responses to several questions that address the Judging Criteria listed in section VII here. Each response is limited to 100 to 150-words. All responses must be in English.
o A 90-second pitch video in English or with English subtitles provided. Formats accepted include.MOV, .MPEG4, .MP4, .AVI, .WMV, .MPEGPS, .FLV, .3GPP, and .WebM.
See examples from previous participants on YouTube. All application materials must be submitted through the online portal before the deadline.