March 1989, Page 21

Trade and Finance

By John T. Haldane

Aramco Emerges as Number One In 1987

Petroleum Weekly reports that Aramco, Saudi Arabia's national oil company, has surpassed the Exxon Corporation and the Royal Dutch/Shell Group to become the world's largest oil company. In a survey of 50 international oil companies, Saudi Aramco (Aramco and Petromin) was ranked first on a combined basis of oil and gas production, reserves, refining capacity, and petroleum product sales in 1987. Only 14 US companies now rank in the top 50.

National US-Arab Chamber Scores Legislative Victory

Both houses of Congress recently passed an amendment directing the secretary of commerce to establish a pilot program with the private sector to promote the adoption of US manufacturing and processing standards by other countries. The adoption of the amendment was the result of strong efforts of the National US-Arab Chamber of Commerce, in cooperation with Rep. Mervin Dymally (D-CA).

The amendment is the outcome of more than two years of effort initiated by Saudi Arabia on behalf of the member-states of the Gulf Cooperation Council (GCC)—Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates. The Saudi Arabian Standards Organization (SASO) requested technical assistance from the Department of Commerce on a project to establish standards for some 42,000 products. European and Asian countries have agreed to send teams of their own experts, but adoption of their standards would make it more difficult to market and produce American goods in the GCC countries.

Jean AbiNader, president of the US-Arab Chamber of Commerce, noted that Dymally's cooperation was critical to the successful effort. "Without his guidance and leadership, we would still be searching for sponsors for the legislation ... We hope that this signals the beginning of a constructive relationship with Congress in developing stronger and broader trailing ties with the Arab states as well as the GCC."

Saudi Arabia and China Formalize Commercial Relations

Riyadh and Beijing have signed an agreement providing for the opening of commercial offices in each other's capitals. The formal establishment of trade ties reflects the closer relationship of the two countries since the Saudi purchase of Chinese intermediate-range ballistic missiles in 1987. Riyadh is known to be especially interested in gaining access to the Chinese market for its petrochemical products.

China has been eager to establish diplomatic relations with Saudi Arabia for several years, but Riyadh has preferred first to develop closer economic relations. Saudi Arabia currently recognizes Taiwan, but is expected to grant the Peoples' Republic of China full diplomatic status sometime this year.

American Firms Doubling Space for 1989

Last November's Baghdad International Trade Fair was a big success as far as the 44 American participants were concerned. They have told Department of Commerce officials that their firms had met all or a large part of their commercial objectives. William Vigneault, director of the US pavilion, said that 80 percent of the companies plan to have booths at this year's fair. Vigneault estimated that the 1989 pavilion will have twice the space as the 1988 exhibition.

Iraqi Minister of Trade Mohammed Mehdi Saleh awarded a gold medal to the US pavilion in recognition of the large display area and the number of participants. He told pavilion officials that his government was very pleased with the American turnout.

While Iraqi demand for US goods and services will continue to depend upon export financing over the next few years, American exporters are optimistic that increasing oil production will generate the foreign currency needed by Baghdad to undertake a comprehensive reconstruction program.

Iraqi oil income is projected at about $15 billion or more in 1989, with a rise to about $20 billion per year by the early 1990s. Initially, the Iraqi government can be expected to give priority to its oil and petrochemical sectors, but its long-range goals include large projects in the power, transportation, housing, irrigation, and light industry areas.

BP Buys Back 11.7 Percent Kuwaiti Stake

British Petroleum has spent $4.3 billion to buy back 11.7 percent of its own shares from the Kuwait Investment Office (KIO) in the biggest deal of its kind ever seen on the London capital market. The purchase will cut the KIO stock in BP to only 9.9 percent, in line with a UK government divestment.

Palestinians Begin Direct Produce Exports to EEC

The first shipment of Palestinian agricultural products exported directly from the Israeli-occupied territories left the Israeli port of Ashdod for Rotterdam recently. The shipment of grapefruit marked the culmination of two years of often intense negotiations among the European Economic Community, Israel, and the Palestinian citrus growers in the Gaza Strip. Previously, Israel insisted that Palestinian agricultural products be shipped through the Israeli
"Agrexco" state trading monopoly. However, strong pressure by Euro-MPs and the EEC Commission, including threats to block trade and financial accords badly desired by Israel, forced Israel to back down and permit direct Palestinian sales to European buyers.

Tehran and Moscow Expand Trade Ties

Trade between Iran and the Soviet Union is expected to increase dramatically following the January visit to Moscow by representatives of Iranian leader Ayatollah Khomeini and the December visit to Tehran by Soviet First Deputy Foreign Minister Alexander Bessmertnyk.

A wide-ranging economic agreement has been signed to resume Iranian shipment of natural gas to the Soviet Union and to provide Soviet participation in the construction of hydroelectric plants, steel plants, dams, and railroads. Trade between the two countries has fallen considerably since 1983, when two-way trade totaled over $1 billion. By 1987, the exchange of goods and services amounted to only $2 53 million. At the 11th meeting of the Iranian-Soviet joint economic commission in December, agreement was reached to boost bilateral trade to a level of at least $500 million annually.

Worldwide Oil Reserves Rise

The worldwide reserves of crude oil and lease condensate increased 2.3 percent in 1988, to 907.44 billion barrels, following the previous year's sharp leap of 27 percent. Natural gas reserves also increased by 4.2 percent to almost 4 quadrillion cubic feet. While OPEC countries still dominate reserve totals, the non-cartel oil producers had a greater proportional reserve increase, according to the authoritative Oil and Gas Journal.

Rising non-OPEC productive capacity will increase the pressure on OPEC to seek some form of cooperation with non-OPEC producing countries such as North Yemen, South Yemen, Mexico, and Angola. Unless some form of production limitations are agreed to by such countries, the trading price for oil could again dip down to levels as low as $10-12 a barrel.

John T. Haldane is a Middle East specialist who has served as a Foreign Service officer in Baghdad, Cairo, and Beirut, and as an international economist in the departments of Commerce and Treasury.