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Middle East & African Monitor – 31 March 2017

  • WTI back above US$50 as demand for petrol rises
  • War of words between US & Iran heats up
  • Saudi Aramco plans SAR 7 Bio SUKUK
  • Mauritius CA deficit shrinks
  • Ghana appoints new CB governor
  • Egypt adjusts customs exchange rate to 16.50
  • US set to approve fighter jet sale to Bahrain
  • Doosan wins US$400 mio contract in Saudi Arabia
  • Middle East airlines find workaround for US laptop ban

REGIONAL COMMENTARY

WTI back above US$50 as demand for petrol rises
Demand for refined products is rising and this was highlighted by the significant drop in US reserves of petrol over the past few weeks. This factor combined with production outages in Libya and Venezuela, as well as talk that the OPEC/Non-OPEC output cut agreement could be extended for a further six months in June if rebalancing has not yet gained a full head of steam, has helped to boost crude prices. On a technical basis we believe WTI has found good support near the US$47 level, although a move above US$60 may continue to be capped in the near term by ongoing shale producer hedging. Further out we maintain our view that there is a significant supply risk scenario building due to the lack of investment in conventional field development and exploration, this issue has also been raised by the respected oil trader and President of Mercuria Energy, Daniel Jaeggi, who warned that the continued focus on short-term shale is obscuring the bigger structural picture; “We are sowing the seeds for potential instability in the future and more volatility. In three to four years, you won’t be able to satisfy demand with short-cycle barrels,” he stated yesterday.

War of words between US & Iran heats up
Iran’s Defence Minister, Hossein Dehqan, has accused the US military of acting like a home intruder and should therefore in his opinion leave the region. “What are Americans doing here? They had better get out and not cause trouble for the countries in the region. Is it acceptable for an armed robber to enter your house and expect to get the red carpet treatment? This is an example of modern ignorance in the 21st century,” Dehqan was quoted as saying via Iran’s state-run media yesterday. His comments appear to be in response to those made earlier this month by the head of US Central Command, General Jospeh Votel, who told a Senate Armed Services Committee that “We are dealing with a range of malign activities perpetrated by Iran and its proxies operating in the region. It is my view that Iran poses the greatest long-term threat to stability for this part of the world.” This latest war of words highlights rising tensions between Washington and Tehran, with the US also accusing the Iranian Navy of continuing to harass” its ships passing through the strategic Strait of Hormuz. The most recent incident of this type took place last week when the US Aircraft Carrier, USS George W Bush, was reportedly buzzed by up to 20 fast attack craft belonging to Iran’s Revolutionary Guards. The US Navy recorded 35 instances of what it called “unsafe and/or unprofessional” events with Iranian forces last year compared to 23 in 2015, while this year they have already experienced 7. During the US Presidential Campaign, Donald Trump had said; "When they circle our beautiful destroyers with their little boats and they make gestures at our people that they shouldn't be allowed to make, they will be shot out of the water, OK? Believe me."

Saudi Aramco plans SAR 7 Bio SUKUK
Saudi Aramco is preparing to conduct a SAR 6.5-7.5 bio Islamic bond issuance next week. According to Reuters the issue will be priced at 25bp over the 6-month SAIBOR and will have a 7-year tenor.

Mauritius CA deficit shrinks
Mauritius’ current account deficit declined to 4.30% of GDP last year compared to 5.00% in 2015. The Central Bank said the main driver behind this improvement was a better performing tourism sector.

Ghana appoints new CB governor
Ghana’s President has appointed Dr Ernest Addison as the country’s new Central Bank Governor following this week’s resignation of Dr Nashiru Issahaku after less than a year in the post. Issahaku’s departure is not a major surprise as he was appointed by the previous administration and had allegedly come under some pressure to step down since the general elections last October. Addison has respectable credentials having served as a senior economic research analyst for the BOG and the African Development Bank.

Egypt adjusts customs exchange rate to 16.50
Egypt announced this morning that its customs linked USD/EGP rate will be lowered to 16.50 for the entire month of April compared to its last fixing of 17.00. The adjustable customs FX rate was introduced at the beginning of this year in order to help businesses better deal with pricing their imported products, and has up to now been reviewed against the interbank market rate every two weeks. The Finance Minister, Amr El Garhy, said that the latest USD/EGP adjustment to almost 10% below the interbank rate was aimed at “decreasing both the cost of production and rate of inflation."

US set to approve fighter jet sale to Bahrain
The Trump administration has confirmed to Congress its intention to approve the sale of up to nineteen F-16 fighter jets to Bahrain. The original US$4.8 bio deal has been delayed by President Obama, but barring any unexpected hurdles is now expected to be approved within the next 40 days. Bahrain is also home to the US Navy’s 5th Fleet.

Doosan wins US$400 mio contract in Saudi Arabia
South Korea’s Doosan Heavy Industries has been awarded a US$422 mio desalination contract in Saudi Arabia. The firm will be responsible for constructing the Kingdom’s largest reverse osmosis desalination facility.

Middle East airlines find workaround for US laptop ban
A recent decision by the US to ban the carrying of laptops and other similar devices in the cabin, on-board those flights flying to the country via a number of Middle Eastern airports including Abu Dhabi, Dubai and Doha, has seen the three main GCC carriers act quickly in finding a solution in order to protect their market share. Qatar Airways is offering a free laptop loan service to all of its First and Business class passengers flying to US destinations, Emirates Airlines will allow travellers to use their laptops right up until boarding time when they will then be collected and stored safely, while Etihad Airways has said it plans to provide its First and Business class passengers with a free WiFi and iPad loan service. The UK has also instituted a similar ban, but unlike the US order the three key GCC air hubs are not affected.

31-03-2017

AND FINALLY…
Did you know that when the film “Raiders of the Lost Ark” was shot in Tunisia, crew members had to remove hundreds of television antennas from homes in the town of Kairouan, for just one scene in order to make a rooftop shot look like 1936 ?

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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