Saudi Aramco Oil Facility

Some may have seen recent news reports of Saudi Arabia targeting $100 oil. TradeFlow21 has tweeted (Jan 18th: “Saudi Arabia is not targeting $100 oil.“) a very helpful article on just the subject. Complementing the article, TF21 adds that triple-digit oil prices are not exactly in the Saudi’s or any oil exporting country’s best interest. Reason being is that often times when oil prices are high, they are accompanied by higher prices almost across the board. In volatile times like now, at home in the U.S. and in countries around the world, wages paid to employees that have not kept up with inflation are partially to blame for discontent. Thus, $100-plus oil is not helpful to Saudi Arabia if it in turn must pay higher prices for materials (and services) for the tens and hundreds of billions of dollars of real investments it’s making.

The expected announcement of Iraq’s new government marks the culmination of a remarkable process. The former bully-boy of the Arab neighborhood has become its only functional democracy. What may be the world’s richest resource economy, once the closed shop of a murderous clique, is today wide open for business.

Driven by what many geologists consider the world’s largest oil reserves, Iraq will probably be the world’s biggest crude oil producer within a decade. The country currently ranks second to Saudi Arabia in official reserves, with 143 billion barrels. With much of Iraq’s exploration still to come after a three-decade hiatus, and with Saudi Arabia’s reserves substantially inflated and already in decline, Iraq could take the mantle as No. 1 in fairly short order.

Iraq last year signed 12 oil contracts that promise to take output from under two million barrels per day currently—less than Algeria—to over 12 million by 2016. This timeline is probably optimistic, but the contracts will likely see Iraq surpass Saudi Arabia’s 10 million to 11 million barrels per day within a decade. And these figures include no contributions from Iraqi Kurdistan, from natural gas reserves, or from new oil fields, with which the lightly-explored country is replete.

The Saudi comparison suggests that as Iraq’s oil production rises, its economy could grow approximately six-fold over the coming decade—gross domestic product is currently $66 billion—and add a mind-boggling $300 billion in annual GDP. This means one of the largest economic reconstruction and development booms in history.

The entire Iraqi economy is being rebuilt. The government’s electricity program has a $50 billion price tag. Baghdad has awarded the reconstruction of Sadr City to six Turkish companies at a cost of $11 billion. Nationwide, thousands of police stations, schools and clinics will be built. Airports, bridges, dams, railways and roads are being planned. The $20 billion Al Faw port project will create the leading port in the Persian Gulf. A modern army, air force and navy will be trained and armed. The investment programs of last year’s 12 oil deals alone add up to well more than $200 billion.

The holy cities of Najaf and Karbala currently receive more annual visitors than Mecca but have almost no hotel space or modern residential facilities. Iraq’s real-estate sector generally is warming up, with Abu Dhabi companies alone committing over $65 billion in the last year. New refineries, cement plants and steel mills are being financed across the country.

Iraq’s greatest resource is its famously resourceful, tough, educated and enterprising people. Whereas the capitals of the Gulf oil monarchies did not have paved streets a generation or two ago, Baghdad and Basra are ancient capitals of commerce, ideas and global finance.

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The share of jetliner deliveries from Boeing Co. and Airbus covered by export guarantees has risen to almost 35% from a historic average around 20%, reaching a a record level of roughly $20 billion in guarantees in 2009 and likely the same amount in 2010, according to the Journal’s sources.

The companies that received the government guarantees say the subsidized financing has kept production steady during the recession; critics say the financing has artificially inflated jetliner production during the crisis and distorted competition.

This past October, 24 major airlines from the home countries—among them AMR Corp.’s American Airlines, British Airways PLC, Delta Air Lines Inc. and Germany’s Deutsche Lufthansa AG—joined up to lobby their governments to restrict export guarantees.

And in November, the Aviation Alliance (11 carriers ranging from Ireland’s Ryanair low-cost Holdings PLC to first-class Emirates Airline and Etihad Airways of the United Arab Emirates), a rival group that benefit significantly from the guarantees, launched a campaign to defend the government financing.

The new agreement would make this government help more expensive and less attractive, introducing market forces in the form of quarterly  adjustments based mostly on prevailing interest rates. Neither airline group is thoroughly satisfied with the draft.

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Al Rio, contributing editor

2) Primacy of DP World: Dubai World’s marine and port subsidiary, DP World, maintains deep-water terminals in over 30 countries from the Americas to Asia. It is simply too valuable a commodity (commercially and politically) for the government to abandon to creditors in courts. DP World’s port presence across the globe is central to the UAE’s identity and prestige.

3) Capitalism 2.0: The Dubai crisis was an inevitable and necessary step in the maturation process of an emerging free-market economy. Sheik Mohammed bin Rashid Al Maktoum’s undisciplined approach to development, coupled with investors who naively assumed their bets were covered by state revenues derived from oil, created conditions that plunged the Emirate $80B in debt. Despite the poor timing of Dubai  World’s announcement of a standstill just prior to the Muslim holiday of Eid al-Adha, Dubai and its flagship company should emerge from the crisis with a new sense of purpose and propriety. Abu Dhabi will likely take the lead in helping Dubai restructure its financial institutions and reshape its strategic thinking as part of a wider effort to regain a measure of market integrity and public trust.

4) Human Capital: Dubai’s “oil reserves” are its people. They are educated (77.9% literacy rate), able, and multi-lingual with commands of Arabic, Persian, English, Hindi, and Urdu. The  serious, sophisticated investor recognizes this as a key attribute in any successful venture. Human capital is the critical “X factor” on a balance sheet.

clipped from finance.yahoo.com GE inks $500M in power generation deals in Bahrain The deal reflects the Fairfield, Connecticut-based conglomerate’s increased focus on the Middle East, where demand for electrical power is expanding rapidly as its population and infrastructure boom. Under the terms of the deal, GE will provide equipment and long-term service to the Al Dur Independent Water and Power Project, which is slated to eventually produce 1,250 megawatts of power. That equals 30 percent of the country’s existing power output. “The project is an example of the growing trend toward the integration of water and power production at a single site, especially in the Middle East where population and industrial growth rates exceed many other regions of the world,” Joseph Anis, GE Energy’s regional head, said in a statement.

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