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Middle East & African Monitor – 05 July 2017

  • Arab States Acknowledge Receipt Of Qatar’s Response To Their List Of Demands.
  • Is Shale Production Running Out Of Steam?
  • Moodys Amends Ratings Outlook On Qatar To Negative.
  • Mozambique Bondholders Claim Government Is Not Bound By Loan Guarantees.
  • Egyptian Pound Continues To Strengthen.
  • Hyundai Signs MOU With Saudi Aramco.
  • Russian Defence Firm To Open Assembly Plant In Egypt.
  • Laptop Ban On Emirates Airlines Lifted.

REGIONAL COMMENTARY

Arab States Acknowledge Receipt Of Qatar’s Response To Their List Of Demands.
Bahrain, Egypt, Saudi Arabia and the UAE issued a joint-statement this morning, acknowledging that they had received the hand-written response from Doha over their list of 13 demands, adding that they will now peruse the letter and reply “in a timely manner.” All eyes will thus now focus on a meeting of the four states foreign ministers who are due to meet in Cairo later today to discuss the diplomatic crises and decide on their next potential move. Meanwhile the UAE Foreign Minister, Sheikh Abdullah bin Zayed, was quoted as saying yesterday, following his meeting with the German Foreign Minister that; “We hope the steps we have taken with the help of our partners, including Germany, to convey the voice of reason and wisdom to the leadership in Qatar that enough is enough. Enough with the support of terrorism and enough with the support of those that are against peace.”

Is Shale Production Running Out Of Steam?
Despite the improvement in technology and efficiency, break-even costs for many shale producers in the US is still above US$50 a barrel. As we have suggested in our previous commentaries a large part of the reason for this is the rise in demand and cost of oilfield related services. A report by S&P Global Platts predicts service support prices will rise by 20% this year, while a recent Reuters article on the subject highlights the example of Pioneer Resources, which operates a sizeable chunk within the lower drilling cost Permian Basin, and that has reportedly been one of the more active companies when it comes to hedging in order to protect its cash flows. Despite this the firm reported losses of US$556 mio last year and a further US$42 mio during the first quarter of 2017 despite the bounce in crude during that period. Meanwhile the CEO of Continental Resources was quoted by CNBC at the end of last month suggesting that oil prices below US$50 per barrel was “not sustainable” for frackers.

Moodys Amends Ratings Outlook On Qatar To Negative.
Moodys ratings agency has affirmed its current credit ratings on Qatar but amended its outlook to negative. In a statement published early this morning Moodys said that "The likelihood of a prolonged period of uncertainty extending into 2018 has increased and a quick resolution of the dispute is unlikely over the next few months," adding that this therefore "carries the risk that Qatar's sovereign credit fundamentals could be negatively affected." Meanwhile USD/QAR in the offshore FX market remains extremely illiquid with only tiny amounts going through, we expect this situation to continue until we have fresh clarity over the crises, and it’s likely the handful of non-domestic interbank players will be even more averse to showing aggressive bid/offers ahead of the Cairo gathering of UAE, KSA, Bahrain and Egyptian foreign ministers later today as mentioned above. Offshore USD/QAR spot opened at 3.7000/7400 this morning against a 3.6800/3.7100 close yesterday.

Mozambique Bondholders Claim Government Is Not Bound By Loan Guarantees.
Following the recent release of a forensic audit report into the US$2 bio worth of loans made to three state-linked entities in Mozambique, and related to the ‘Tuna’ scandal, a group of creditors called the ‘Global Group of Mozambique Bondholders’ have issued a statement which according to Reuters included the following claims; "It is evident that there is no basis, in either Mozambican or English law, for the Mozambique government to honour the purported guarantees of the Proindicus and MAM loans. Disavowal of those purported guarantees and the liquidation of Proindicus, MAM, and Ematum is the appropriate restructuring that needs to take place to clean up the system," the creditors stated adding, that this would also help insulate the government’s balance sheet from further liabilities and help restore access to external financing for the country.

Egyptian Pound Continues To Strengthen.
As we indicated in our previous commentary this week USD/EGP has finally begun to push lower, a move that’s been on the cards for awhile but had probably been delayed due to Central Bank’s assimilation of hard currency inflows in order to improve its FX reserve holdings and reduce the backlog of commercial orders. Spot USD/EGP is now trading around 17.8500 onshore this morning and we maintain our near to medium term target of 16.0000.

Hyundai Signs MOU With Saudi Aramco.
South Korea’s Hyundai Heavy Industries has signed an MOU with Saudi Aramco and the Saudi Industrial Investments Company to build a US$400 mio plant in the Kingdom for the manufacture of large marine engines.This news follows on from last month’s announcement by the Korean conglomerate to build the region’s largest shipyard in Ras Al Khair in cooperation with Saudi Aramco, the National Shipping Company of Saudi Arabia, the UAE’s Lamprell and others.

Russian Defence Firm To Open Assembly Plant In Egypt.
According to Russia’s TASS news service the Uralvagonzavod Corporation has unveiled plans to establish an assembly plant for its T-90S battle tanks in Egypt. The T-90S is an export variant of the T-90 third-generation main battle tank. It features a modern fire control system, combined steel and composite armor and high maneuverability. It is also reportedly capable of fighting in any climate.

Laptop Ban On Emirates Airlines Lifted.
Emirates Airlines announced this morning that the US ban on the carrying of laptops by passengers in its aircraft cabins has been lifted “effective immediately.” Emirates thus joins Etihad in successfully adjusting its security measures to meet the new US requirements. Meanwhile Turkish Airlines has said it also expects to be granted a similar exemption from the US authorities soon.

5-7-2017

AND FINALLY…
Did you know that Deraa in Syria is where “Lawrence of Arabia” was captured during the First World War whilst reconnoitering the area in disguise ?

Glenn Wepener, Executive Director & Geopolitical Analyst Middle East & Africa
National Bank of Abu Dhabi
MarketInsights&Strategy@nbad.com
Tel: +971 2 6110 127

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