Washington Report on Middle East Affairs, December 1987, pages 8-9

Trade and Finance

By John T. Haldane

Algeria

Although Libya's Col. Moammar Gadhafi announced in October that a politician union between Libya and Algeria would become effective November 1, Algerian President Chadli Bendjedid has suggested that Libya associate itself with the existing 1983 friendship treaty between Algeria, Tunisia, and Mauritania. The Algerian suggestion follows reports of American opposition to Gadhafi's announcement and internal Algerian disagreement over the Libyan leader's proposal.

Iran

Continuing the expansion of Iran's economic ties to the Soviet Union, in August the two countries reached a general agreement for cooperation on large-scale economic projects, including oil pipelines, refineries, and a railroad from the Soviet Union to the Persian Gulf. In early October Moscow announced the resumption of Aeroflot flights, which were suspended in 1985 during a period of intensive Iraqi air raids on Tehran. Iranian Minister of Petroleum Aqazadeh said October 17 that Moscow had agreed to supply Iran with refined oil products in exchange for 100,000 barrels per day of Iranian crude oil. Tehran also announced that exploratory oil and gas drilling will start soon in the Caspian Sea using equipment leased from the Soviet Union.

Iraq

The United States and Iraq have signed a five-year trade agreement to promote commercial, economic, and technical cooperation between the two countries. Deputy Secretary of Commerce Clarence J. Brown described the August 26 agreement as "a catalyst for the expansion of US commercial relations with Iraq by reducing impediments to trade and investment, and facilitating business travel." Iraq is the third largest market for US exports to the Arab world, after Saudi Arabia and Egypt. Trade between the United States and Iraq totaled $1 billion in 1986 and reached $448.8 million by the end of August 1987.

Israel

Moscow and Tel Aviv are continuing talks concerning possible resumption of full diplomatic relations. The process, begun in July 1985 with a secret meeting between the Israeli and Soviet ambassadors to France, has sped up as Moscow has permitted increased Soviet Jewish emigration. However, Israeli foreign minister Shimon Peres recently rejected an offer from the Soviet Union to open interest sections in Tel Aviv and Moscow, saying that Israel will not settle for less than full diplomatic ties. The Soviet Union established diplomatic relations when Israel was created in May 1948, but broke relations in June 1967, after Israel refused to withdraw from lands it captured during the Arab-Israeli war.

Morocco

The European Economic Community has rejected Morocco's formal application for membership, on the grounds that membership to the community is restricted to European nations. Rabat now hoes that an association agreement can be worked out to provide relief for Moroccan exports hurt by the admission of Spain and Portugal, two of Morocco's traditional export rivals for European markets.

OPEC

The Organization of Petroleum Exporting Countries (OPEC) will face a number of thorny problems at its December meeting in Vienna. The cartel's president, Nigerian oil minister Rilwanu Lukman, already has hinted that the organization might raise its oil production ceiling from 16.6 million barrels per day (b/d) to as much as 20 million b/d. At the same time, OPEC will have to set new individual oil production quotas. A handful of OPEC producers, including Kuwait, Iran, Iraq, Qatar, and Abu Dhabi, are said to be producing beyond their present quota levels. Unless OPEC can pressure these producers to cut back, it will not be possible to maintain the cartel's benchmark price of $18 a barrel, nor to implement any plan to increase the price to $20 a barrel.

United Nations

An Arab League resolution demanding the ouster of the Israeli delegation from the current General Assembly was defeated for the sixth consecutive year. The Soviet Union, despite overtures to Israel in other areas, again voted for exclusion. The Soviet vote came as a surprise to those who had expected Moscow to soften its stand against Israel, in view of the Soviet Union's interest in pushing for a United Nations-sponsored Middle East peace conference.

The Soviet Union announced on October 15 that it will pay $197 million in arrears owed for UN peace-keeping forces, and will contribute $111 million in 1987 contributions to the organization's regular budget and current peace-keeping operations. Western diplomats at the UN believe Moscow's announcement reflects a desire to lessen the burden of Soviet economic and military aid in Third World trouble spots. For example, the Soviet Union is now pushing for a more effective UN role in the Persian Gulf and is contributing to the costs of the UN peace-keeping force in southern Lebanon.

The United States has received an appeal from UN Secretary General Javier Perez de Cuellar to pay at least part of this year's dues. The United States owes $414 million in UN dues, including $212 million for the 1987 regular budget. US Ambassador Vernon Walters is expected to bolster the UN plea by arguing that American interests will be severely damaged by a failure to support the organization at a time when US policy in the Persian Gulf depends on action by the UN Security Council.

Egypt

Egypt continues to maintain greater oil exploration and field development activity than most countries in the Middle East. Cairo has issued new permits to stimulate exploration by foreign companies, especially in the Western Desert where several new discoveries have caught the interest of American and West European oil firms. Phillips Petroleum, for example, states that the potential for discovering commercial oil fields in the Western Desert has been greatly enhanced by improved seismic data and the ability to map horizons below the Alamein Dolomite.

US-Near East Trade

The outlook for US exports to the Near East and North Africa is improving. During the first half of 1987, as shipments responded to higher oil prices and a cheaper dollar, US sales increased for the first time since 1982. By the end of August, US exports totaled $8.4 billion, compared to $7.8 billion for the same period last year. Saudi Arabia was the largest Arab customer in the area in 1986, with imports of $3.4 billion, followed by Egypt with imports worth $1.9 billion.

Saudi Arabia

Saudi Arabian armed forces have moved into position to protect the 25-kilometer causeway linking Saudi Arabia with Bahrain from possible Iranian terrorist attacks. The $3 billion system of five separate bridges is vital to any Saudi Arabian defense assistance to Bahrain. Bahrain has supported Iraq in the seven-year-old Iraq-Iran war, though it also has continued to maintain diplomatic relations with Iran.

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