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The Middle East and The Global Economic Crisis

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

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The Middle East and The Global Economic Crisis

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

  2. Main Points • Focus on Arab Persian Gulf • Somewhat protected by oil price @$70/b • Financial system less impacted than in the West • Central banks pumped over $150 billion in the economies • Industrial development continuing unabated • Bahrain, Kuwait more hampered by political problems than by economic ones • Iran strongly impacted by oil price $20/b lower than their break even: could be going bankrupt • Iraq also suffering from lower income, but may be a major producer within 5 years

  3. Impact of Oil Prices: Saudi Arabia • Saudis require $50/b to break even • Production costs between $1.5 & $6/b • Substantial funds needed to provide subsidies to people • Anything above $50/b goes into cash reserve ~ $ 50 billion/y = over $40 billion increase in reserves • In 2008-2009, spent $100 billion for projects and subsidies to protect people from decline in activity • State sponsored industrial projects go on • Industrial cities: King Abdullah’s + Jizan + 4 others • Dow Chemical $20 billion plant • Ras AzZour: DAP + Aluminum project • Bank lending frozen from November 08 to now is beginning anew • Stock Index declined from 14,000 in early 2008 to 4,130 in early 2009, but is now back at 6,300

  4. Impact of Oil Prices: UAE-AbuDhabi • UAE-AbuDhabi requires less than $20/b • Can build very strong reserves ~ $45 billion/y • AbuDhabi Increases its leadership of the Emirates • Is pouring money in the economy • Major projects go on • Industrial development • Aluminum • Borouge • Nuclear plants • Cultural • Museums • New Island

  5. Impact of Oil Prices: UAE-Dubai • Could become overstretched due to its $120billion of debt outstanding • AbuDhabi can bail Dubai out but slowly • Would have to sell assets at a loss in the present market • Thus, bails Dubai out $10 billion at a time • May witness transfer of some of Iran’s money and transshipment to other places like Hong Kong • Great impact on poorer laborers and young professionals • But Dubai still continues to survive • Jebel Ali will continue, albeit more slowly • Funds transfers from Iran and Pakistan could actually increase • Most white elephants have been killed • Kilometer high tower • Huge entertainment park and Dubai as point of mass tourism destination

  6. Impact of Oil Prices: Bahrain • Decline in oil prices cuts Bahrain income by $3billion/y • Bahrain hampered by lack of capital, lack of gas • Delay in Aluminum expansion • Has contracted Occidental to find more oil and more Gas • Had to delay expansion of Aluminum plant • Mainly hampered by splits within society Impact of Oil • Vision of the future is split between CP & PM • Division within society • There is a political center of Shi’a and Sunni but is overwhelmed by the extremes on both sides • Strong division within the majority Shi’a groups, al Haq vs al Wafq • Issue of Nationality: Many non Bahraini Sunnis are given citizenship • Parliament is dysfunctional • If it could solve its political problems Bahrain could do well

  7. Impact of Oil Prices: Qatar • Qatar reputed to be bullet proof because is in process of doubling LNG production from 35 million ts/y to >70 million ts/y • However, future could be less rosy as gas prices are very weak, while costs remain constant • Price to Far East usually based on oil prices: Could be as low as $5/mmbtu, down from $20 in 2008 • Costs could be as high as $3/Mmbtu • Qatar ends up making more money on its 800Mb/d of oil than on its gas, but is greatly indebted because of the gas

  8. Note on Iran • Can be argued that Iran is going bankrupt • Original budget for 2010 was computed at $90/b • IMF says Iran’s elite export $15 billion/y to Dubai • Subsidies on Gasoline and Natural Gas cost over $5billion per year • Cannot borrow on world markets, hence has to print money, which is triggering great inflation • If regime could or would end isolation Iran could take off with investments from the Gulf in its Gas fields

  9. Note on Iraq • Iraq is on the verge [as often in the past] to become a major supplier of oil • Bids by the IOCs could bring an increase in production of 4 to 8 million b/d • Needs to resolve Kurdish oil dispute • Need to have a national oil law

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