GulfNews Business

Vested interests fuel end of oil talk

Analysis|: The world is witnessing a surfeit of contradictory analyses concerning the significant changes going on, especially economic related, and whereby influential forces and even media entities are trying to steer the discussion towards their interests. Even when it comes at the expense of their credibility when they present fabrications that contradict impeccable sources. Take for example all the talk about the end of the oil era and lack of interest among world powers in its prime production regions, especially the Arab Gulf, which pack more than half of the world’s known reserves. The current events prove the opposite of all such malice-ridden conclusions, and if we look at the interest shown by the great global and regional powers, we find them competing over the sources of oil. Race for control While Iraqis have been left to their miserable fate since the US intervention in 2003, foreign oil companies’ end goal has already been achieved - controlling the country’s rich oil resources where production has increased from 2.5 million barrels per day to 4.5 million and should soon target 6 million barrels. In Syria, all the main cities lie abandoned, and the conflict revolves around who controls the oil fields in and around Deir Ezzor and Al Hasakah, where American, Russian, Turkish and Iranian troops are located alongside the regime’s forces. This is a situation similar to that in Libya, as the capital Tripoli and Bin Ghazi are no longer of great importance. The conflict revolves around the oil crescent in the city of Sirte, where military operations have stopped, pending an agreement on the distribution of this wealth. In Yemen, the conflict is raging mainly over the oil-rich Marib. This situation is not confined to the Middle East alone. Latin American countries such as Venezuela suffer from endless turmoil, conflict and instability because it simply floats on the largest oil reserves in the world. No end to demand If oil is a commodity with an expiry date, then what is the need for all this attention? Why all this multilateral conflict over its sources? The answer is explained by the a most prestigious organization. The Paris-based International Energy Agency says global oil demand increased by a combined 16 per cent to 100 million barrels per day in 2019. This was before the outbreak of COVID-19, which led to a temporary decline, but still an improvement on the 86 million barrels per day in 2010. The agency also expected demand to rise to 105.4 mbd in 2030 and to 106.4 mbd in 2040 at a time when production will actually decrease in many oil countries. Thus, we are facing fabrication and distraction from the reality in the oil sector, and built on panic campaigns about the US withdrawal from the Middle East because of reduced interest in oil politics. Hello! Who said the interests of the West and of the US are limited to oil? There are deeper geostrategic interests, and just as the Western powers were present in the Arab Gulf region before the discovery of oil, they will remain for the post-oil period, as evidenced by the establishment of new military bases. It is simply because the region is of great importance and the world has intersecting interests and not limited to a specific field. Therefore, the attempts made by some regional powers to blackmail us with withdrawal will yield no good results. Neither the US nor any other Western powers will withdraw from the region. The withdrawal threats being promoted by vested interests are mainly aimed at extortion or creating panic to achieve quick gains, forgetting the fact that the GCC’s confidence in their military capabilities have never been stronger and fully capable of protecting their interests. Oil’s share is indeed declining in the global energy balance, but this is normal in light of the development of alternate clean energy sources. This does not mean issuing a death certificate for oil. When oil was discovered 170 years ago, it was said that the era of coal has ended. However, coal mines are still operating. But at the same time, the GCC states are doing the right thing to reduce their dependence on oil and diversify the economic base. - Mohammed Al Asoomi is a specialist in energy and Gulf economic affairs.

GulfNews Business

Moody’s downgrades Kuwait’s credit rating to A1; changes outlook to stable

Banking|: Dubai: Moody’s Investors Service has downgraded Kuwait’s long-term foreign and local currency issuer rating to A1 from Aa2, and changed the outlook to stable. “The decision to downgrade the ratings reflects both the increase in government liquidity risks and a weaker assessment of Kuwait’s institutions and governance strength,” Moody’s said in a statement. See more More residential options added at Dubai south residential district Photos: New products, services rolled out by Apple Get set to climb UAE’s tallest restaurant location from October 1 Chinese firms bet on plant-based meat as COVID-19 fuels healthy eating trend With airline fleets grounded, plane recyclers bet on parts boom In the continued absence of legal authorization to issue debt or draw on the sovereign wealth fund assets held in the Future Generations Fund (FGF), available liquid resources are nearing depletion, introducing liquidity risk despite Kuwait’s extraordinary fiscal strength. And while the fractious relationship between parliament and the executive is a long-standing constraint on Moody’s assessment of institutional strength, the deadlock over the government’s medium-term funding strategy and the absence of any meaningful fiscal consolidation measures point to more significant deficiencies in Kuwait’s legislative and executive institutions and policy effectiveness than previously assessed. “While liquidity risks are particularly relevant in the next few months, over the medium term next one or two years, upside and downside risks are broadly balanced reflected in the stable outlook,” the rating agency said. Sovereign assets Kuwait has a vast stock of sovereign financial assets currently ringfenced from the general budget by law, securing predictable access to which would eliminate government liquidity risk. Conversely, Moody’s sees a continued risk that the executive and legislature perpetuate stop-gap measures in response to the funding impasse, without providing lasting visibility on the funding of Kuwait’s budget. Moody’s Kuwait’s foreign currency bond ceiling has been lowered to Aa3, from Aa2 and the foreign currency deposit ceiling has been lowered to A1 from Aa2, whereas the short-term ceilings remain at Prime-1 (P-1). The local currency bond and deposit ceilings have been lowered to Aa3 from Aa2. Why downgrade? Explainging the rationale for the rating downgrade Moody’s said with a government debt law yet to be passed and General Reserve Fund (GRF) assets likely to be depleted before the end of the current fiscal year (ending in March 2021), government liquidity risks have increased. Legislation passed by parliament so far, including the removal of the mandatory transfer of 10 per cent of government revenues to the Future Generations Fund (FGF) and the reversal of last year’s FGF transfer have only extended the point of depletion to December 2020. Even if the debt law is passed -- whether by parliament or by decree from Kuwait’s Amir while parliament is in recess -- it will likely not provide a credible medium-term funding strategy, which was a key driver behind Moody’s initiating the review for downgrade in March. The draft debt law, which has already been rejected once by the parliamentary financial and economic committee, contains a KD 20 billion debt ceiling which would be reached in less than two years under Moody’s baseline scenario. A lower ceiling possibly to win parliamentary approval would be exhausted even earlier given the large size of the government’s immediate and medium-term funding requirements. $90 billion funding need Even if the government received legal authorization to issue debt without the constraint of a ceiling, Moody’s projects net sovereign issuance of up to KD27.6 billion ($90 billion) would be required to meet the government’s funding requirements between the current fiscal year and the fiscal year ending March 2024, testing the capacity of the government to access such large financing. Limited response to low oil price Moody’s said the government’s continued inability to respond to severe revenue shocks from oil prices points to even weaker fiscal policy effectiveness than previously assumed. In contrast to earlier statements from the government that it would seek to reduce its expenditure in year-on-year terms, the passing of the budget for fiscal year 2020/21 incorporates a 1.6 per cent increase in expenditure, despite a budgeted 56 per cent decline in revenues. Kuwait has also made limited progress in reforming subsidies, which account for 22 per cent of government spending while Kuwait’s revenues remain highly dependent on hydrocarbon receipts, which averaged 89 per cent of government revenues between 2017 and 2019. Moody’s expects that fiscal consolidation will prove challenging due to the government’s inflexible spending structure. Why stable outlook While liquidity risks are particularly relevant in the near term, over the medium term upside and downside risks are broadly balanced reflected in the stable outlook. On the upside, Kuwait has a vast stock of sovereign assets held in the Future Generations Fund (FGF) which Moody’s estimates at 359% of GDP as of the end of fiscal year 2019/20. The assets and the investment income generated by the FGF are currently ringfenced from the general budget by law, indicating the obstacles Kuwait faces to resolve its funding challenges are primarily political, rather than outside of the control of the sovereign.

GulfNews Business

Lufthansa plans rapid COVID-19 testing starting October

Aviation|: Deutsche Lufthansa AG plans to start making rapid COVID-19 antigen tests available to passengers in October and is weighing the option of opening test centres at airports in the United States and Canada, a company executive said on Tuesday. The move comes as airlines and airports globally have urged countries to accept a passenger’s negative COVID-19 test as an alternative to travel restrictions and quarantines that have battered demand for travel. See more COVID-19 delays completion date for Spain's Sagrada Familia COVID-19: UAE announces new protocols for weddings, funerals, social events COVID vaccines approved for emergency use, for front-liners While the aviation industry has largely backed the use of Polymerase Chain Reaction (PCR) tests which take several hours to process in a lab, airline trade group IATA on Tuesday touted antigen tests that can be processed on site and typically give results within about 15 minutes. Abbott Laboratories recently won the US Food and Drug Administration approval for BinaxNOW, a $5 disposable device the size of a credit card. Some other antigen tests must be read using a small, portable device. “You know that companies like Abbott or Roche are bringing these tests to the market and we are definitely looking into this,” said Bjoern Becker, senior director, product management, ground & digital services for the Lufthansa Group. “You will see us applying them for new products within the next few weeks in October,” he told reporters during a virtual call. “That’s definitely the next thing to come.” Becker said Lufthansa is considering making the new antigen tests initially available to its first-class and business class passengers, given limited supply. Lufthansa is also looking at ways to expand its network of testing centers to airports in the United States and Canada, given that they are important markets, he said.