August 1988, Page 14

Trade and Finance

By John T. Haldane

Saudi Arabia Restructuring Its Oil Industry

Saudi Arabian Oil Minister Hisharn M. Nazer has been named chairman of the Arabian American Oil Company (ARAMCO), in a move seen as a key factor in the restructuring of that country's oil industry.

A ministerial committee set up by King Fahd is drafting a new charter for ARAMCO, soon to be renamed the Saudi National Oil Company. While legal ties to the United States will be cut, the new entity is expected to retain its technical and managerial assistance contracts with Exxon, Mobil, Texaco, and Chevron.

According to the Middle East Economic Survey, the restructured company will be "the vehicle for the kingdom's drive to establish a substantial presence in the downstream industry overseas by means of joint ventures with the former ARAMCO parents, as well as with others."

Saudi Arabia made its first move into overseas oil-based product markets with the June 16 purchase of half of Texaco's network of three large refineries and 11,000 service stations on the Atlantic coast and the Gulf of Mexico. The total cost of the purchase was $800 million. The kingdom's Saudi Refining, Inc. will supply up to 600,000 barrels per day to the joint venture and will have an equal voice in nearly three-quarters of Texaco's US downstream business.

OPEC Ministers Agree to Extend Present Quotas

The Organization of Petroleum Exporting Countries (OPEC) agreed on June 14 to extend its existing production quotas for another six months. The pact, which sets the production limit at 15.06 million barrels per day, is not expected to resolve the problem of excess oil supplies on world markets. Oil specialists predict the price of a barrel of oil will remain in the $14 to $15 range, well below the official OPEC target price of $18.

An offer by seven non-OPEC oil producers to cut exports by 5 percent if OPEC members did the same died a quiet death after both Saudi Arabia and Kuwait objected to the plan.

Japan Cuts Back on Kuwaiti, Iranian Oil Imports

Japan, one of the major buyers of crude oil from the Persian Gulf states, is quietly changing its import patterns by placing more emphasis on those suppliers not dependent on transporting oil through the Strait of Hormuz. For the first time since the oil price hike of 1973, the percentage of oil imported by Japan via the Strait of Hormuz has fallen below 50 percent, according to statistics released by the Japan Petroleum Association. Major orders are now being placed with Iraq, Oman, and North Yemen, while traditional purchases from Iran and Kuwait are being drastically cut back. Crude oil and petrochemical imports from Saudi Arabia remained at last year's levels, but Japanese oil experts have predicted that they will also decline, although not as significantly as those from Iran and Kuwait.

Israel and Egypt Big Aid Winners Again

As in previous years, Egypt and Israel received a proportion of total US foreign military and economic assistance bearing little relationship to the real economic need of numerous Third World countries. Israel is to receive $1.8 billion in military assistance and $1.2 billion in economic assistance. Egypt will receive a total of $2.1 billion in combined assistance. Israel will also be allowed to spend up to $400 million of its military aid in Israel, instead of spending it on US products and services as all other aid recipients are required to do.

Other Middle Eastern aid receivers will be: Jordan, $67.8 million; Morocco, $124 million; Tunisia, $54 million; Sudan, $74.5million; and Oman, $15.2 million.

Arab Financial Aid for Intifadah

At the Algiers summit in June, Arab leaders pledged major cash contributions, to be administered by the Palestine Liberation Organization, to the Palestinian uprising or "intifadah," now in its ninth month in the West Bank and Gaza.The PLO is expected to receive about $10 million per month to help sustain the uprising in the occupied territories.

A summit spokesman stated that the funds will be used to subsidize Palestinians who have stopped working inside Israel, assist shopkeepers who have gone on strike, and help Palestinians who have given up their positions in the Israeli administration of the West Bank and Gaza Strip.

The new amounts will be in addition to the sizeable gifts several gulf states have been channeling through international organizations, such as the Red Cross and the United Nations Relief and Works Agency (UNRWA). Abu Dhabi, Kuwait, and Qatar, for example, have donated about $20 million to UNRWA over the past few months for food and medical supplies.

Israel's Lavi Fighter Alive and Well

Although Israel reluctantly agreed last year to scrap the costly US-funded Lavi jet fighter program, work continues on the project at the Israeli Aircraft Industries' Tel Aviv plant. Company engineers quoted in the Washington Times confirmed that an aviation engineering team is putting the finishing touches on a third Lavi prototype jet, packed with sensitive US technology, while other Lavi engineers are busy working on related programs in South Africa and China.

The latest military aid package for Israel passed by the House of Representatives contains a $450 million allocation for a broad category of "advanced aircraft." Aviation experts agree that this money, available whenever Israel asks for it, will actually be used to continue the Lavi project.

Realizing that the program, Israel's first jet aircraft production effort, would cost the United States at least $1 billion dollars per year for the next 10 years, the Reagan administration pressured Tel Aviv last year to kill the program. Then, in an effort to smoothe ruffled Israeli feathers, the total value of Israel's economic and military aid was increased by using part of US military aid funds to pay the hundreds of millions of dollars in liability charges owed by Israel as a result of the termination of Lavi contracts. Further, US contractors were required to buy up to $150 million worth of Israeli goods and services in return for selling their products to Israel. Finally, the amount of US military aid that could be spent in Israel, rather than in the United States as all other military aid recipients must do, was increased to $400 million.

Libya Strengthens Trade Ties With Turkey

Turkish Prime Minister Turgut Ozal's three-day visit to Libya late in May resulted in a significant strengthening of financial and trade ties between the two countries. Istanbul announced that a new credit fine of $250 million will be extended to encourage Libyan imports of Turkish goods. In addition, Libyan exports of crude oil will be used to pay off debts owed Turkish construction companies. About 25,000 Turkish workers are employed by 25 Turkish construction companies in Libya on building projects estimated to be worth over $400 million.

The prime minister was accompanied by over 100 bankers and businessmen interested in discussing new financial and trade deals. Libya is currently Turkey's third largest oil supplier after Iran and Iraq. Bilateral trade between Turkey and Libya is estimated at $600 million annually.

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.