Thread: Archive Latest News - Think Tank - 15/04/08 - 26/08/08

Moody's reports: Middle East inflation surge sharpens fiscal and political risks

High and accelerating inflation could potentially hit some Middle East sovereign ratings as it sharpens political and economic risks, Moody's Investors Service says in a new Special Comment.

The ratings of poorer, non-oil-exporting countries are more likely to be affected in the shorter term by high inflation because of their enhanced social and fiscal vulnerabilities. However, even the ratings of affluent, oil-exporting sovereigns could be affected over the longer term if high price growth persists.

"The Middle East is currently experiencing a strong resurgence of inflation. While accelerating price growth is a global phenomenon, the Middle East region has been particularly affected because of a preponderance of fixed or heavily managed exchange rates, an oil-fuelled liquidity expansion, widespread infrastructure bottlenecks and a reliance in most countries on food imports," explains Tristan Cooper, a Moody's Vice-President / Senior Analyst and author of the report.

According to the IMF, the Middle East experienced the highest average inflation rate of all global regions in 2007, at 10.4%, and this is expected to accelerate in 2008.

Although inflation is seldom a direct driver of Moody's sovereign credit ratings, it can affect them indirectly through three main channels fiscal, political and economic and Moody's is beginning to observe such trends among Middle Eastern sovereigns.

"Given enhanced sensitivities to the risk of social unrest, some governments in the Middle East are finding it difficult to maintain fiscal discipline. Inflation's tendency to aggravate political risk is clearly less acute among oil-exporting countries, which currently have the capacity to expand fiscal expenditure and offset the erosion of citizens' purchasing power. However, poorer countries have less room for manoeuvre, and therefore the political and fiscal consequences of inflation are of greater short-term concern," Mr Cooper observes. The analyst adds that, although accelerating inflation has yet to impact real economic growth in the region, which remains strong, there is a risk that it could undermine activity if sustained.

Moody's report entitled "Middle East: Resurgent inflation sharpens fiscal and political risks" explains that the rating agency has constructed a simple and non-linear rank ordering of the countries it rates in the Middle East with a view to demonstrating the relative sensitivity of their ratings to the effects of inflation, based on three primary considerations social vulnerability, fiscal flexibility and inflationary pressure.

"As would be expected, the ratings of non-oil exporting countries that are poorer, fiscally constrained and already experiencing high rates of inflation are more likely to be affected in the shorter term than those of the more affluent Gulf oil-exporters. High rates of inflation are of particular concern in Egypt (whose Baa3 local currency rating is on negative outlook) and Jordan given their social and fiscal vulnerabilities. Lebanon's very low B3 rating already encapsulates a high degree of political and economic risk," Mr Cooper explains.

Moody's report explains in more detail how inflation can affect sovereign ratings indirectly as well as discussing the implications and drivers of the current surge in inflation in the Middle East.

Moody's reports: Middle East inflation surge sharpens fiscal and political risks - Middle East News

Update.......

Iraq oil deals could lift Production

Iraq is exporting more oil than it has for years and is on the verge of signing deals with oil majors that could quickly take output higher, oil officials said.

Baghdad expects this month to conclude negotiations for six oil-field service contracts with international companies that could further increase output this year.

The deals could provide the extra 200,000 barrels a day in exports that Iraq wants from the southern Basra terminal by the end of 2008. Basra accounts for most of Iraqi exports, shipping more than 1.5 million barrels a day.

"Provided they are signed promptly, these deals could give quick progress," said an ****utive at a Western oil company negotiating for one of the contracts. "They are the first step towards real improvement in a sector that has been under stress for 30 years."

Baghdad expects exports in June to reach 2.2 million barrels a day, the highest for monthly shipments since the U.S.-led invasion of March 2003. Baghdad sees exports rising further, to 2.3 million barrels a day, by the end of 2008.

The oil sector has increased output as security has improved, but oil companies remain nervous.

Iraq will contract international oil firms to help manage operations at its largest-producing fields like Rumaila in the south, supplying equipment to refurbish dilapidated infrastructure.

The two-year deals call for a total output increase of 600,000 barrels a day. Once the contracts are signed, Iraq plans to offer the same fields in a bidding round for longer-term development.

The industry needs billions of dollars for its renewal and expansion. The service deals are part of stop-gap measures to attract part of that investment in the absence of a much-needed oil law.

Political disputes have stalled the passage of an oil law through Parliament for over a year. The legislation aims to set the terms and extent of foreign investment in developing the world's third-largest oil reserves after Saudi Arabia and Canada.

"Considerable progress can be made without the law," said Muhammad-Ali Zainy, senior energy analyst at the London-based Center for Global Energy Studies. "These contracts are a big step forward and will help bring new methods and technology to these important fields."

Improved security has yielded gains of nearly 500,000 barrels a day in northern exports since last summer. Sabotage had kept that line mostly idle since the invasion.

Baghdad hopes to see Kirkuk oil exports up by another 100,000 barrels a day by the end of the year.

The oil minister, Hussain al-Shahristani, said this week that he was optimistic that Iraqi forces would keep security tight at oil facilities, helping to bolster the confidence of foreign investors discouraged by sectarian violence.

Rising output and exports are allowing Iraq to cash in on record oil prices, and they have raised the prospect of an accelerated recovery for its shattered economy.

Iraq has a 10-year plan to lift output from 2.5 million barrels a day this year to 6 million barrels per day, Shahristani said this week. It aims to hit 4.5 million barrels a day in five years.

But for those larger long-term gains, Iraq needs the oil law in place so that international oil companies can play a bigger role in developing untapped fields.

"We remain very cautious in terms of further capacity expansion," said Alex Munton, analyst at the global consulting company Wood Mackenzie. "Iraq has almost reached the point, simply by repairing the damage of the last few years and adding security around main pipelines, of maximum capacity with the infrastructure in place. But there is little likelihood of being able to add to that without much larger-scale investment and the assistance of international oil companies."

Even with the law, international oil majors have said it would be years before security improved enough for them to be able to send ground staff to Iraq.

They intend to manage the new technical service contracts from outside the country, and will rely on Iraq's state oil companies to ****ute their plans.

Iraq oil deals could lift production - International Herald Tribune

Thanks Seaview!

Shell, Iraq Push on With JV Gas Talks

The Iraqi oil ministry and Royal Dutch Shell will launch a second round of talks in Damascus next week on establishing a joint venture in southern Iraq to exploit associated gas, a ministry source in Baghdad told International Oil Daily Thursday. The talks follow a first round of negotiations in late May aimed at concluding a heads of agreement this summer.

http://www.energyintel.com/DocumentD...lication_id=31

Crocker: No permanent US bases planned for Iraq

Washington - The United States has no plans to set up permanent military bases in Iraq, US Ambassador Ryan Crocker said Thursday as the two countries were working out a comprehensive deal on the future US role in the region. "We are not seeking permanent military bases in Iraq. That is just flatly untrue," Crocker told reporters in Washington, also denying reports that the US was looking to maintain control of Iraq's airspace.

"There isn't going to be an agreement that infringes on Iraq's sovereignty. The Iraqis are not going to accept it. And, frankly, we wouldn't want it," he said.

The United States and Iraq have been working for months on a bilateral arrangement that could set out the guidelines for a US presence in Iraq for many years to come.

The talks have drawn fire from the Democratic-controlled Congress. Democrats insists any agreement must be approved by the US legislature and could bind the hands of the next president, who will take office in January.

Crocker said he hoped a status-of-forces agreement, which would also map out elements of the countries' political and economic relationship, could be worked out by the end of July. The deal would replace the current United Nations mandate for US forces in Iraq.

The top US commander in Iraq, General David Petraeus, told Congress last month that more pullouts of the roughly 140,000 US troops could begin this fall, but the majority are expected to remain in the country at least until a new US president takes office next year.

Crocker: No permanent US bases planned for Iraq : US World

Iraqi Premier to visit Tehran, says Talabani

Iraqi Prime Minister Nuri al-Maliki will visit Tehran at the weekend to discuss further expansion of bilateral ties, Iraqi President Jalal Talabani told state t.e.l.e.v.i.s.i.o.n Friday. The Iraqi premier is scheduled to arrive in Tehran on Sunday morning and hold talks with President Mahmoud Ahmadinejad as well as Supreme Leader Ayatollah Ali Khamenei.

"I hope he will go there with full hands and return with fuller hands," Talabani told the Iranian TV in Baghdad.

Talabani praised Iran's assistance to Iraq since the fall of Saddam Hussein and said he was sure about Iran's goodwill to help Iraq.

Al-Maliki sent a delegation to Tehran last month for talks with Iranian officials on concerns that Iran was arming and funding militias in Iraq. An Iraqi spokesman said after the visit that there was no evidence for the charges.

The Iraqi premier is also expected to reiterate the Iraqi government's wish to resume Iran-US talks over Iraq's security which both sides have halted.

Tehran has indicated that there would be no further talks with the current US administration.

There are however hopes within the Iranian government that the possible presidency of Democratic candidate Barack Obama would change the status of Iran-US relations after almost three decades of political estrangement.

Iraqi Premier to visit Tehran, says Talabani : Middle East World

Update.......

UAE is First Arab Nation to Restore Full Ties with Iraq

The United Arab Emirates announced Thursday it will name an ambassador to Baghdad in the coming days, the first Arab country to restore full diplomatic ties to Iraq since the collapse of Saddam Hussein's regime.

The announcement, made in Baghdad by the UAE's foreign minister, Sheik Abdullah bin Zayed Al Nahyan, follows strong U.S. pressure for Arab countries to play a bigger political role here to counter Iranian influence and promote reconciliation between Iraq's rival Sunni and Shiite communities.

Many of the Mideast's Sunni-led governments have been wary of establishing a full diplomatic presence in Baghdad because of security fears and mistrust of the Shiite-led government's ties to Iran, which has a fully accredited ambassador here.

”We will hold talks to name the ambassador in the coming few days," Al Nahyan said. "We also hope that as soon as possible — and I am talking here about a few weeks — we will see an active Emirates embassy in Baghdad."

He said "the time has come" for Arab countries "to forge strong ties with Iraq."

U.S. and Iraqi officials praised the UAE's decision and hoped other Arab governments would follow suit.

Also Thursday, the U.S. military announced that an American soldier was killed the day before in action south of Baghdad. The soldier's name was withheld until the family could be notified.

A U.S.-backed Iraqi force raided a Sunni village early Thursday near Kirkuk, detaining three men believed members of Ansar al-Sunnah, a militant Sunni group, police reported.


PUKmedia :: English - UAE is First Arab Nation to Restore Full Ties with Iraq

Originally Posted by Seaview

Iraq Opens 22 State-run Companies To Investment - Official

Iraq's Industry and Minerals Ministry said Thursday it is opening 22 state-run companies to outside investment.

Deputy Minister Adel Karim said the companies are in five industrial fields: engineering, reconstruction, textiles, chemical and petrochemical and food and medicine.

Karim told reporters Iraq is looking for investors to rehabilitate and manage industrial plants according to production-sharing agreements for a negotiated period and terms.

He said investors have until July 10 to submit proposals.

Despite soaring oil revenues, Iraq still ails in public investment because of corruption and security concerns in some areas.

Iraq Opens 22 State-run Companies To Investment - Official - Middle East News

Update.......

Iraq's government has opened 22 state-run companies for domestic and international investment, hoping investors will see opportunities here now that violence is on the decline, a senior official said Thursday.

Adel Karim, deputy minister for investment and development, told reporters the companies are in the fields of engineering, reconstruction, textiles, chemicals, petrochemicals, food and medicine.

"The chances for profits in Iraq are very very big since we have a large market and a huge budget that will exceed $60 billion," Karim said.

Iraq is hoping to find investors willing to help rehabilitate, modernize and manage industrial plants under production-sharing agreements which can be negotiated.

"We prefer these agreements to be for 15 years: three for rehabilitation and 12 for manufacturing," he said. "We can negotiate whatever they want."

Interested parties have until July 10th to submit their proposals, he said.

Iraq has a population of about 27 million people and some of the world's largest proven oil reserves -- more than 115 billion barrels. Last month, oil exports reached pre-war levels for the first time since the U.S.-led invasion of 2003.

The country is expected to reap a bonanza thanks to high crude oil prices. Oil export reveues for May are expected to surpass April's figures of $5.9 billion.

Still, marketing Iraq as an investment opportunity could be a hard sell due to the country's reputation for roadside bombs, ambushes and kidnappings. The government has also been plagued by rampant corruption which could frighten off investors.

"Frankly speaking, the investment environment in Iraq is not an attractive one due to the bad security situation, infrastructure and the banking system," Karim said. "But profits will encourage the investor to come to Iraq."

Early this year, Iraq awarded production-sharing deals to renovate three largest state-owned cement firms in the first such joint venture deals with private and foreign investors.

Backed by Romanian Uzein Export-Import, Lebanese, German and Iraqi firms won a 15-year contract to upgrade cement factories in southern, northern and western Iraq.

Iraq opens 22 firms to investment

Crude oil refinery to be set up in the south

The Iraqi Ministry of Industry and Minerals on Thursday said it has completed 58 percent of the construction work in a 10,000-barrel oil refinery under a $140,000 contract with the South Refineries Company.

"Al-Faris Public Company, which is affiliated to the Ministry of Industry and Minerals, is currently proceeding with the work on a crude oil refinery with a capacity of 10,000 barrels per day (bpd)…," according to a ministerial statement received by Aswat al-Iraq-Voices of Iraq- (VOI).

"The company has completed 58 percent of the work," the statement added.

"The General Company for Designs and Consultation is following up on the provision of supplementary equipment for the project," the statement quoted an official source from the engineering industries department in the ministry as saying.

Aswat Aliraq

Foreign companies, investors in Diwaniya next week

Diwaniya will receive several investors and foreign companies next week to implement strategic projects in the southern province, the governor said.

“Diwaniya prepares to receive Arab and foreign investors and companies next week to implement big service projects in the province in 2008,” Hamed al-Khudari told Aswat al-Iraq – Voices of Iraq (VOI).

“Among these companies; Egypt’s Mercedes and an Egyptian architecture company to implement construction projects,” he explained, noting that the security improvement in the province helped to attract these companies.

Diwaniya is 180 km south of Baghdad.

Aswat Aliraq