Page 12 - MEOG Week 02

MEOG
neWs In BrIeF
MEOG
PolICy
Iran uncertainty will hit Gulf economic recovery
As US airbases in Iraq reeled from an Iranian missile attack on Wednesday, experts fear the news could derail the Gulf ’s latent economic recovery.
brent crude jumped 1.4 per cent to $69.21 per barrel in the middle of the Asian trade as two bases in Iraq were hit by ballistic missiles.
The Iraq attack happened just hours after the funeral service for Iranian commander Qasem Soleimani, who was killed by a US drone strike on Friday.
Gulf bourses tanked when they reopened on 5 January, the first trading day in the region after the Soleimani assassination.
Colin Foreman, deputy editor at Globaldata, data and analytics company, warned of negative consequences for the region’s economic outlook amid US-Iran tensions.
“While war may not happen, it is likely that investors will remain spooked long into 2020 and this will be a drag on private sector activity at a time when the region’s non-
oil economy is forecast to drive economic growth,” Foreman said.
“Over the past five years, regional governments have been working hard to restructure and reform their economies so that they are less dependent on oil and gas and more attractive for private sector investment,” he said.
Foreman predicted that oil gross domestic product (GdP) could fare better in the coming months. “Rising tensions typically mean an increase in oil prices, which will benefit oil-exporting countries. The problem is the potential oil price windfall comes with other negative economic consequences,” he said.
According to Ole Hansen, head of commodity strategy at Saxo bank, the latest US-Iran developments signal “a worrying escalation in the Middle East with the markets now awaiting the response”. The market reaction to Soleimani’s death was swift with brent crude oil reaching $69.15, the highest level since the September Aramco attacks in Saudi Arabia.
“Gold’s safe-haven credentials meanwhile have given a renewed boost and it has
built further on the late december rally to now stand less than one per cent from the September peak at $1557/oz,” said Hansen.
“The combination of central bank stimulus and rising food and energy prices only add
to our view that inflation or the risk of rising inflation will become a theme in 2020,” he added.
mIddle east oIl and Gas
Iraq warns of ‘collapse’
if Trump blocks oil cash
account
Iraqi officials fear economic “collapse” if Washington imposes threatened sanctions, including blocking access to a US-based account where baghdad keeps oil revenues that feed 90 per cent of the national budget.
US President donald Trump was outraged by the Iraqi parliament voting on Jan 5 to oust foreign forces, including some 5,200 American troops, who have helped local soldiers beat back jihadists since 2014. If troops were asked to leave, he threatened, “we will charge them sanctions like they’ve never seen before.”
The US then delivered an extraordinary verbal message directly to Prime Minister Adel Abdel Mahdi’s office, two Iraqi officials told AFP. “The PMO got a call threatening that if US troops are kicked out, ‘we’ - the US -
will block your account at the Federal Reserve bank in New York,” one official said.
Parliament’s vote to oust the troops was triggered by outrage over a US drone strike on baghdad two days earlier that killed
top Iranian general Qasem Soleimani and his Iraqi right-hand-man, Abu Mahdi al- Muhandis.
The Central bank of Iraq’s account at the Fed was established in 2003 following the US- led invasion that toppled ex-dictator Saddam Hussein.
Under United Nations Security Council Resolution 1483, which lifted the crippling global sanctions and oil embargo imposed
on Iraq after Saddam’s invasion of Kuwait, all revenues from Iraqi oil sales would go to the account.
Iraq is OPEC’s second-biggest crude producer and more than 90 percent of the state budget, which reached US$112 billion in 2019, derives from oil revenues.
To this day, revenues are paid in dollars into the Fed account daily, with the balance now sitting at about US$35 billion, Iraqi officials told AFP.
Every month or so, Iraq flies in US$1- US$2 billion in cash from that account for official and commercial transactions. “We’re an oil-producing country. Those accounts are in dollars. Cutting off access means totally turning off the tap,” the first Iraqi official said.
The second official said it would mean the government could not carry out daily functions or pay salaries and the Iraqi currency would plummet in value. “It would mean collapse for Iraq,” the official said.
A third senior Iraqi official confirmed the US was considering “restricting” cash access to “about a third of what they would usually send.”
The Federal Reserve declined to comment on Trump’s threat. A US State department Official confirmed to AFP that the possibility of restricting access to the Fed account was “raised” with Iraq following the vote.
Can
UAE and Indonesia sign energy agreements
His Highness Sheikh Mohamed bin Zayed
Al Nahyan, Crown Prince of Abu dhabi and deputy Supreme Commander of the UAE Armed Forces, and Joko Widodo, President of the Republic of Indonesia, witnessed today the exchange of signed agreements between the Abu dhabi National Oil Company (AdNOC) and Indonesia’s Pertamina and Chandra Asri.
Pertamina and AdNOC signed a Memorandum of Understanding (MoU) to
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Week 02 15•January•2020