Middle East & African Monitor - 18 November 2016

  • Oil producers hold informal meeting in Qatar
  • Republicans move to block sale of commercial aircraft to Iran
  • Fresh attacks on Nigeria’s oil pipeline network
  • Further subsidy reforms in Kuwait are “critical” – IMF
  • USD/SAR de-peg would be a “last resort” – Alwaleed
  • Egypt keeps interest rates steady – ponders Eurobond sale
  • US Govt authorises sale of jet fighters to Kuwait & Qatar
  • Abu Dhabi prepares to hike utility charges


Oil producers hold informal meeting in Qatar
A number of OPEC and non-OPEC members are attending a “consultative” meeting in Doha today as the world’s major oil producers continue to attempt to finalise some sort of production cut/freeze agreement ahead of OPEC’s penultimate gathering for the year on the 30th of November. However the recent brief bounce in oil prices has run out of steam again on the back of a resurgent US dollar, a rise in US crude stocks and on reports that the energy ministers of both Iran and Iraq would not be attending the Doha discussions. Meanwhile according to the Ahram newspaper, Kuwait has agreed to extend an agreement with Egypt and will now supply the North African state with 2 mio barrels of oil per month over the next 3 years from the 1st of January 2017. There would also be a 9-month grace period on the payment schedule. If confirmed this would partially alleviate the cost to Egypt of buying its requirements on the open market which it had been forced to do since supplies from Saudi Arabia were suspended last month.

Republicans move to block sale of commercial aircraft to Iran
In a move which may reflect the future direction of US foreign policy, the House of Representatives yesterday passed a bill aimed at blocking the sale of commercial aircraft to Iran. The vote tally was 243 for and 174 against, with Democrats making up 100% of the losing “no” portion. The bill still needs to be approved by the Senate where Democrats will again try to block its passage, although President Obama would be expected to use his veto powers should it pass through there too. If the bill was indeed to become law, it would prevent the Treasury from issuing licenses that US banks would need to finance any sale of commercial aircraft to Iran, it could also be considered a violation of the P5+1 agreement which binds the US and others to implement sanctions relief on Iran.

Fresh attacks on Nigeria’s oil pipeline network
One of the largest militant groups operating in the oil-rich Niger Delta region, the ‘Niger Delta Avengers,’ claimed yesterday to have blown up 3 pipelines transporting around 300,000 barrels a day to an export terminal in Bayelsa state which is run by Shell. "At about 23:45 November 15, 2016, our Elite Strike Team 03 struck Nembe 1, 2 and 3 trunk line operated by Agip, Oando and Shell. We are only reiterating our strong resolve that time is running out against the Nigerian government, that there is doom ahead. The Nigerian government needs our cooperation more than we need the government as it concerns the extraction of the crude oil and hydrocarbon resources in our God-given land," a statement released by the NDA read , although there has not yet been any official government confirmation of the attacks.

Further subsidy reforms in Kuwait are “critical” – IMF
The IMF has said that while Kuwait’s financial sector remains sound and non-oil activity has continued to expand, the country’s fiscal and external accounts have deteriorated and the government will need to continue to implement further subsidy reforms in order to reduce its budget deficit. “Dwindling oil revenues have pushed the government’s fiscal balance, excluding investment income and after mandatory transfers to the Future Generations Fund, into a large deficit of over 17% of GDP in 2015/16, generating significant financing needs,” a part of the IMF statement read, adding that “The main risk to the outlook is a further sustained drop in oil prices, which would lead to larger deficits and financing needs. Although the government’s strong credit rating would enable it to tap international markets, investors’ appetite for GCC bonds could decline in case of large regional financing needs. Kuwait would, therefore, be faced with the trade-off of issuing more domestic debt, at the risk of squeezing domestic liquidity and crowding out private sector credit, or allowing readily available buffers to run lower. Other risks include reform setbacks or slow Development Plan implementation, which could entail a larger fiscal deficit and slower growth. The government has taken important steps this year to raise gasoline and utility prices. The mission encourages the authorities to move ahead with their plans to further rationalise energy subsidies (estimated to have amounted to about 6% of GDP in 2015/16). Gradual implementation would help reduce the inflationary impact and give time to businesses to adjust.” You can read the entire IMF mission statement here.

USD/SAR de-peg would be a “last resort” – Alwaleed
In an interview published by Bloomberg yesterday, Saudi Arabia’s Prince Alwaleed Bin Talal said that while the Kingdom may consider a change in its current FX regime in the future, a de-peg was unlikely for the time being as there were other important economic reforms being undertaken first. “As a last resort maybe some time two, three years down the line it’s a possibility, meanwhile, it should stay where it is right now, there are so many things happening." During Saudi Arabia’s recent international bond roadshow various officials stressed their government’s commitment to retaining the local currency’s peg to the US dollar, and this stance was repeated earlier in the week by the country’s CB chief, Ahmed al Kholifey.

Egypt keeps interest rates steady – ponders Eurobond sale
As expected Egypt’s Central Bank kept its benchmark interest rates at 14.75-15.75% following yesterday’s MPC meeting. Meanwhile we could see a decision by the authorities next week, over when a proposed Eurobond issuance will take place. Various Egyptian officials have been quoted during the past few weeks as saying that the debt sale will go ahead before the end of this year despite imperfect market conditions.

US Govt authorises sale of jet fighters to Kuwait & Qatar
The State department has reportedly given Boeing, Northrop Grumman, Raytheon and General Electric the green-light for the potential sale of FA-18E and F-15QA fighter jets to both Kuwait and Qatar. If completed the combined orders are worth a total of US$21.1 bio.

Abu Dhabi prepares to hike utility charges
Abu Dhabi’s Water and Electricity Authority is set to increase their supply tariffs by as much as 34% from January in order to “enforce sustainability and the controlled consumption of water and electricity.” According to the National newspaper, the new electricity rates mean, UAE nationals will pay 6.7 fils for each kilowatt-hour against the current rate of 5 fils, while the electricity cost for expatriates will increase from 21 to 26.8 fils per kWh. The new water charges for Emiratis will be AED 2.09 per cubic metre used, and AED 2.60 per cubic metre if they exceed the ideal consumption rate of 7,000 cubic metres in villas and 700 in apartments. Expatriates will pay AED 7.84 for standard use and AED 10.41 for overuse. The limit will be 5,000 cubic metres in villas and 700 in apartments.


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NBAD Middle East & African Monitor - 18 November 2016

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