On the Cheap

Ian Munroe — Sun, 21 Dec 2008 07:14:28 +0000

It’s almost absurd how unstable petroleum markets have become. Everything from striking Venezuelan workers to an unusually cool winter can sweep oil and gas prices one way or the other. But beneath the speculating, and short-term volatility lie some pretty clear signs demarcating where the in-dustry is headed.
In today’s money, a barrel of crude cost less than $20 until 1973. At the time of going to press, world oil prices were hovering around fifty-five dollars. That’s after a record-setting 26 percent drop in October and a fall of more than $90 since July. Month by month it’s a tug-of-war, but down the road you can bet up-ward price pressures will win out.
Just ask the world’s expert policy advisory on the subject. The International Energy Authority (IEA) predicts that oil prices will return to new heights, perhaps beyond the $200 mark, within the next two decades. It expects global demand for primary energy (which we get mostly from fossil fuels) to rise by 45 percent by 2030. While developed Western countries will be using less oil by then, hungrier developing countries will pick up the slack, and then some. China alone will generate nearly half the world’s expanding appetite for oil, the IEA predicts.
For the time being though, it looks like Middle East producers will have to cope with measly prices well below one hundred dollars. Bear in mind that forecasting how much a barrel of black gold will fetch in the short term is a black art. In the words of Oliver Cornock, regional editor at the Oxford Business Group consultancy, “anybody who starts telling you that they can predict which way oil prices are going as gospel truth is a lunatic.” All we can do is look for recent clues that demonstrate how the market is changing.
For instance, the American dollar has been recovering, which some economists believe discourages hedging on oil prices. Japan and the European Union are officially in recession (with two consecutive quarters of economic decline) and the US may be as well, unofficially (recessions there are calculated slightly differently). That has forced down projected petroleum demand. In the IEA’s case, it now says next year the world will need 670,000 barrels per day less than it had forecast previously.
“The two things hitting oil prices in the last three months have been a speculative wipeout on one hand, and a downgrading of consumption demand on the other, without a commensurate supply cut,” says Kevin LeCocq, chief investment officer at Barclays Wealth. The effects of this lull in price hikes are starting to be felt across the planet’s most oil-rich region, generating debate about how the industry, local governments and the Organization of Petroleum Exporting Countries (OPEC) that many of them belong to, will cope.
Public purses. For the regimes presiding over the Gulf’s incredible petroleum deposits, selling the stuff for less is obviously bad news. “Oil revenue and hydrocarbon export represents like 80 percent of the total revenue of these governments,” says Ibrahim Saif, an economist and scholar at the Carnegie Middle East Center, a public policy think tank in Beirut. “They are on the losing end, those who are exporting oil. They’re losing a very important and very substantial source of revenue.”

Arming Arabia

Ian Munroe — Tue, 15 Jul 2008 06:44:05 +0000

It’s an ambitious shopping list: 1,162 general-purpose bombs, 900 air-to-ground missiles, 200 satellite-controlled bomb guidance units, a Patriot missile defense system and 63 Mirage fighter jets. These are a few of the assorted military gadgets the United Arab Emirates has been trying to snap up over the last year, as the country accelerates its drive to build a state-of-the-art fighting force.

Bombs and guns may clash with the image most people hold of this affluent Gulf state. But in the shadows behind the luxury cars, lavish hotels and skylines pocked with thumbnail skyscrapers the government is collecting high-tech weapons, to make anyone who wants to mess with the UAE think twice.

It’s a side of the Gulf’s exceptional and growing prosperity that gets little attention: what local governments are doing to maintain the peace and stability needed for business to unfold. Today, for the UAE and the other GCC members that means forging a difficult path between two combative allies, the United States and Iran.

While the UAE’s drive to modernize its armed forces dates back more than a decade, lately it has been gaining momentum. According to the Institute for Near East and Gulf Military Analysis, a Dubai-based think tank, Abu Dhabi spent $10 billion on the country’s national defense budget last year. The UAE was the second-largest military spender in the Gulf region, behind Saudi Arabia’s $33 billion, and ahead of Iran’s $7.2 billion.

“These are systems that form the backbone of any country’s military capabilities: anti-missile technologies, intelligence gathering and radar systems, and precision munitions technology,” says Travis Sharp, an analyst at the Center for Arms Control and Non-Proliferation in Washington. “The UAE has been really pushing hard to improve its military capabilities in the last few years,” he adds. “They’re in the midst of a pretty significant build-up.”

The UAE isn’t alone in its military aspirations. Forecast International, an American consulting firm, says defense spending across the GCC has swollen from $31 billion in 2003 to $50 billion in 2007. Gulf states are expected to spend even more in 2008.

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On the Cheap

Arming Arabia