June 1989, Page 23

Trade and Finance

By John T. Haldane

Non-OPEC Nations Agree to Limit Exports

Six oil-producing countries agreed in London late in February to limit oil exports during the second quarter of this year in order to lend support to efforts by the Organization of Petroleum Exporting Countries (OPEC) to stabilize oil markets. The six countries were: Angola, China, Egypt, Malaysia, Mexico, and Oman. Attending as observers were Alaska, the Canadian province of Alberta, Columbia, Norway, the Soviet Union, and the Yemen Arab Republic.

The Soviet Union's decision to make a 5 percent cut in crude oil exports, equal to about 100,000 barrels per day (b/d), gave the final touch of respectability to the non-OPEC movement. This Soviet pledge enables the non-OPEC group to support price stability with cuts in exports of about 300,000 b/d in the second quarter of this year.

The Oil & Gas Journal noted that the non-OPEC group has emerged on the international oil scene without the aid of a constitution, a secretariat, or an operating base. The group is held together by a common fear that OPEC has little chance of establishing a stable price regime without support from other oil exporters.

In the absence of a secretariat, much of the delicate work of maintaining contacts with OPEC has been undertaken by Oman, which has regular formal contacts with key Persian Gulf OPEC members through the Gulf Cooperation Council.

Having hit their first target of agreeing on second quarter export cuts, the non-OPEC group now is discussing the possibility of a ministerial meeting with their OPEC counterparts in the near future.

UAE Beginning Downstream Investment

The United Arab Emirates, like Saudi Arabia and Kuwait, has begun to make overseas downstream investments. In the five years since the nation established the International Petroleum Investment Company (IPIC), it has completed a major overseas investment: purchase of a 10 percent interest in the Spanish refining group Cesna. Reportedly, IPIC plans to double this stake in the near future. IPIC Managing Director Khalifah Mohammed Al-Shamsi stated recently that additional investments would be made within the next few months. He said the size of such investments could range from 10 to 30 percent, depending upon circumstances. Al-Shamsi said that priority areas for IPIC investment are the Far East (the major outlet for UAE's crude), and West European and North American markets.

Last year, UAE's direct, non-IPIC, stake in the French oil firm, Total, rose from rive to nine percent in the French domestic distribution market.

Dubai Air Show a Success

The recent Dubai '89 International Aerospace Exhibition attracted 200 exhibitors from 24 countries. More than 10,000 specially invited visitors attended, including official delegations from Egypt, Jordan, Morocco, Turkey, and all of the Gulf Arab states. Iran sent a 12-man delegation.

On display were military planes, such as the Dassault Mirage 2000, the British Aerospace Harrier GR5, the General Dynamics F16, and two McDonnell Douglas F18s which flew in from the USS Constellation. The Airbus Industries A320 and other civilian aircraft also were exhibited.

The Dubai show is the first of three defense exhibitions scheduled for the Middle East in the first half of 1989. It will be followed by the Baghdad International Exhibition for Military Production and the Turkish International Defense Equipment and Avionics Exhibition.

Dubai hopes that its show will become a regular on the international calendar of military and civilian aerospace exhibitions.

OPEC Fund Meets

The Governing Board of the OPEC Fund for International Development held its 46th session recently. The fund's director general, Dr. Y. Seyyid Abdulai, reported that 14 loans amounting to $50 million have been signed with 13 developing countries since the last board meeting in November 1988.

On a cumulative basis, out of 475 loans approved by the fund and totaling $2.3 billion, 464 valued at $2.2 billion have been signed to date. Total loan disbursements have reached $1.7 billion, representing 74 percent of the approved loan commitments. In addition, 242 grants, totaling $114 million have been made to finance such activities as technical assistance, vocational training, emergency aid, research, and other activities.

The OPEC fund continues to support health projects benefiting Palestinians in the occupied territories. Recent grants included $174,000 to the Al-Khalil Polytechnic, $250,000 to the Al-Makassed Islamic Charitable Society Hospital, and $15,000 to the Palestinian Agricultural Relief Committee.

South Yemen About to Export Oil

South Yemen is scheduled to join the ranks of oil exporters this year, with about 50,000 barrels per day (b/d) to flow from the huge West Shabwa concession. The 1991 target is 120,000 b/d. This is the area where Soviet drilling teams recently located a number of promising fields. Oil reserves are estimated to total about 3.75 billion barrels.

Oil from the new fields already is flowing, ahead of pipeline construction, by truck to the Aden refinery The advantage of having this former British Petroleum refinery is that South Yemen is able to export immediately both crude oil and refined products. The slow buildup faced by most other emerging exporters thus is being short-circuited.

The Soviet firm Technoexport began work on the 120-mile trunk line from the Shabwa field to the new export port of Bir'Ali late last year. This line will have an eventual throughput of 100,000-120,000 b/d.

Israelis to Explore Soviet Joint Ventures

Israeli businessmen are expected to join a group of West European industrialists on a trip to the Soviet Union this spring. The purpose of the visit is to investigate possible joint ventures with Soviet companies.

Link, a Soviet-Swiss company based in Zurich, invited 15 Israeli entrepreneurs to participate in the trip and has organized a symposium to be held in Israel for those interested in business opportunities in the Soviet Union.

Iran Pushing Kharg Island Reconstruction

A number of West European and Far Eastern firms have responded to the first international tender by the National Iranian Oil Company (NIOC) for the rebuilding of the main oil export terminal at Kharg Island. The first reconstruction program involves repairing storage tanks and the Sea Island jetty. The final overall cost is estimated to be $200 million. Kharg had a capacity of about 7 million barrels per day before the war.

Repair of war damage has progressed to such an extent that refining capacity has been raised 45 percent since last August, from 580,000 b/d to 841,000 b/d, according to NIOC.

Seven of the 14 berths now are believed operational and capable of handling vessels up to 280,000 tons. As a result, the Kharg tanker shuttle from Kharg to Sirri and Lavan has completely ceased and no storage vessels remain at either of the transshipment terminals.

Arab Airlines Merging to Fight Competition

In an effort to overcome rising aircraft and operational costs, Middle East carriers are turning to joint ventures between airlines and banks. Adil Dajani, secretary-general of the Arab Air Carriers Organization, which has 16 member airlines, recently stated: "Ten of our airlines have joined forces with banks to form an operating lease and finance company jointly owned by the banks and the airlines. " This company will finance the purchase of planes and lease them to the airlines. It also will engage in aviation-related projects, such as joint warehouse, kitchens, and training facilities.

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 Commerce and Treasury departments.