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February 8, 2018

Saudi Arabian economy ‘to return to growth’ in 2018

The kingdom’s real GDP growth dropped 1 percent in the first half of 2017

The Saudi Arabian economy will remain contracted in 2017 before returning to “modest” growth of 1.3 percent in 2018, a report has claimed.

Oil production cuts as part of the OPEC agreement will see oil sector growth remain in negative territory in the second half of this year, while the private non-oil sector continues to face headwinds, amid government spending cuts to a number of infrastructure projects, according to an analysis from BMI Research.

Real GDP growth in the kingdom stood at -1 percent year on year in the first half of 2017, after having alreadty contracted by 0.5 percent in the first quarter of the year.

This contraction was largely driven by the oil sector, which accounts for over 40 percent of GDP and contracted by 2 percent in the first six months of 2017, BMI said.

Meanwhile, the non-oil sector has also struggled to regain traction, expanding by a sluggish 0.6 percent year-on-year over the same period – up from 0.2 percent throughout 2016.

Based on conservative expectations for growth, BMI said it predicts the economy to recede by 0.5 percent in 2017 before picking up to 1.3 percent in 2018.

Source:http://www.arabianbusiness.com/politics-economics/380392-saudi-arabian-economy-to-return-to-growth-in-2018

February 6, 2018

Turkey’s Industrial Production Growth Slows In October

Turkey’s industrial production grew at a slower pace in October, the Turkish Statistical Institute reported Friday.

Industrial production climbed 7.3 percent year-on-year in October, slower than September’s 10.4 percent increase. Nonetheless, the rate exceeded the expected increase of 5.3 percent.

Within total industry, mining and quarrying grew only 0.5 percent. At the same time, manufacturing advanced 7.7 percent and electricity and gas output gained 7.3 percent.

Energy output logged an annual growth of 6.1 percent in October.

On a monthly basis, industrial output growth held steady at 0.7 percent in October. Production had remained flat in August. Economists had forecast a 0.3 percent increase for October.

Source:http://markets.businessinsider.com/news/interestrates/Turkey-s-Industrial-Production-Growth-Slows-In-October-1010574845

February 5, 2018

UAE, Saudi ‘Well Positioned for Industrial Revolution 4’

The UAE and Saudi Arabia are well positioned for the Fourth Industrial Revolution, according to American global management consulting firm A T Kearney.

The UAE has the opportunity to take advantage of emerging technologies and changes in production, as it ranks in the top quartile of countries performing well in the areas of technology and innovation, human capital and trade, said the report.

Saudi Arabia has also ranked highly and has huge opportunity along with the plans underway to meet Saudi Vision 2030, according to the new Readiness for the Future of Production Report produced by World Economic Forum, in collaboration with global management consultants, A T Kearney.

The report, which measures how well-positioned 100 countries and economies, across all geographies and stages of development, are to benefit from the changing nature of production. It reveals that only 25 countries are strongly positioned to benefit, as production systems stand on the brink of exponential change.

The UAE, which aims to increase its manufacturing share of gross domestic product (GDP) to 25 per cent by 2025, along with Saudi Arabia, are flagged as ‘high-potential’ countries and are positioned to leapfrog in the emerging production paradigm. These countries have a relatively small current production base, but have the resources and potentially the right combination of other capabilities to capitalise on opportunities.

Johan Aurik, managing partner and chairman of A T Kearney, said: “In a changing production landscape, each country will need to differentiate itself, capitalise on competitive advantages and make wise trade-offs in forming its own unique strategy for the future of production.”

“Given the speed and scale of changes occurring in the environment, the new diagnostic and benchmarking tool can help raise awareness and sharpen a country’s response,” he said.

As the Fourth Industrial Revolution gathers momentum, the report highlights how decision-makers from the public and private sectors are confronted with a new set of uncertainties regarding the future of production.

Rapidly emerging technologies—such as the Internet of Things (IoT), artificial intelligence, wearables, robotics and additive manufacturing—are spurring the development of new production techniques, business models, and value chains that will fundamentally transform global production.

Mauricio Zuazua, partner, A T Kearney, said: “This is just one aspect of a vastly shifting landscape. It is imperative that government and business leaders take a fresh look at how their countries and corporations will contribute to the world’s fast-changing value networks to capitalize on future production opportunities, mitigate risks and challenges, and be resilient and agile in responding to unknown future shocks.”

This report is a key contribution to the World Economic Forum’s initiative on Shaping the Future of Production. The initiative brings together global leaders and decision-makers in seeking to address how the transformation of production systems, from R&D to the consumer, can drive innovation, sustainability and employment, to benefit all people, it stated.

Source:http://www.manufacturingtrade.com/news-detail:9117ad87-516c-5b06-a8ff-5a6f219c0c9c.html

February 5, 2018February 5, 2018

More than 6 million foreign tourists visit Iran in 2017

Once off limits to many because of international sanctions, Iran is making a big comeback as a tourist destination.
More than 6 million people visited Iran in the year ending March 2017, up 50% on the previous year and three times the number in 2009, according to official data.

The surge in visitors follows the 2015 nuclear deal between Tehran and world powers that resulted in many sanctions being lifted early the following year.

European airlines such as British Airways and Lufthansa (DLAKY) resumed direct flights to the country, and Iranian authorities relaxed visa requirements. And as more people arrive, demand for accommodation is skyrocketing.

That’s creating opportunities for local entrepreneurs and foreign businesses.

Unlike some Western firms, who are reluctant to invest in Iran because they fear President Trump could yet torpedo the nuclear deal, international hotel chains are moving fast to meet the need for more rooms.

France’s Accor (ACCYY) was the first chain to open in Iran in 2015. It now operates two hotels there.

Spain’s Melia (SMIZF) will open its first hotel next year. Rotana of the United Arab Emirates also has one hotel in the pipeline for early next year and plans three more by 2020.

EasyHotel, a U.K.-based budget chain, is reported to have signed a deal in July to deliver 500 rooms. It did not respond to a request for comment.

And the market clearly has room for many more players. Iran wants to attract more than 20 million visitors by 2025, according to the state tourism agency.

Many of the new visitors are young backpackers from Europe and Asia, drawn by Iran’s history and culture. The most popular destinations include the ancient cities of Esfahan and Shiraz. It’s also home to Persepolis, a UNESCO World Heritage site.

Many of those travelers are looking for budget accommodation, said Jalal Rashedi, who runs five hostels across the country. He offers bed and breakfast for as little as $15 a night, including internet access.

Trump keeps scaring investors away from Iran

“During the past few years we have had a rise in the number of tourists who are young, and they’re individual travelers,” he told CNN. “They’re young, curious, adventurous people who want to discover the truth about Iran, and they mostly stay at hostels.”

A World Economic Forum report earlier this year named Iran as the world’s cheapest travel destination.

But travelers still face obstacles.

Americans, Brits and Canadians need to apply for a visa in advance, while citizens of many other Western countries can get one on arrival.

And because some sanctions remain in place, the country has few links to international banking networks and Western credit cards won’t work there.

That means it can be difficult to make payments in advance to secure reservations. To get around that, Rashedi launched a website to allow travelers to make reservations at his hostels, and those operated by others, without payments.

Source:http://money.cnn.com/2017/09/05/news/economy/iran-tourism-boom/index.html

February 2, 2018

Iraq to offer 3 refineries for investment in Kuwait conference

Baghdad (IraqiNews.com) Iraq plans to offer three of its oil refineries to investors during an upcoming conference of Iraq donors, the government said Thursday.

Anadolu Agency quoted a statement from the state’s investment authority saying that the refineries include Faw, in the southern Basra province, with a production capacity of 300.000 barrels a day, besides another in Anbar (150.000 barrels per day) and Nasseriya, Dhi Qar province (150.000 barrels per day).

Iraq imports and estimated USD5 billion in petroleum products for local demand, most of which is used for electricity generation.

Iraq’s need for petroleum products intensified after Islamic State militants took over the Baiji refinery in Salahuddin province, which secured nearly a third of the country’s needs with a capacity of 170.000 barrels per day.

Kuwait will be hosting Iraq donors conference from 12th to 14th February. Nearly 70 participants are expected at the event which will hopefully collect USD100 billion dollars for the reconstruction of the country and repair of damage caused by the war against Islamic State militants.

The investment authority said last Tuesday that Iraq was planning to offer a total of 157 projects to investors during the conference.

Iraq’s crude oil exports for December stood at nearly 109.9 billion barrels, with revenues of nearly USD6.5 billion.

Source: https://www.iraqinews.com/business-iraqi-dinar/iraq-offer-3-refineries-investment-kuwait-conference/

January 31, 2018January 31, 2018

Oil and the Iran Protests

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.

Asian Development Model Proposed by Iran Private Sector

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.

Source:https://financialtribune.com/articles/economy-business-and-markets/79998/asian-development-model-proposed-by-iran-private-sector

January 16, 2018

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

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.

January 16, 2018

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%.

Source:https://www.focus-economics.com/regions/middle-east-and-north-africa

January 16, 2018

Decoding the oil deal

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.

Source:http://www.executive-magazine.com/economics-policy/decoding-the-oil-deal