OPEC’s Cranky Cartel Behavior
Mideast oil and financial markets gyrated as OPEC swing producer Saudi Arabia offered to add global capacity with prices well below its budget breakeven $100/barrel, the UAE projected diversification calm amid another bout of Dubai property fever and Iran and Iraq struggled to recover from geopolitical squeezes. Saudi stocks were up 15 percent through October on momentum from a big bank offering and imminent non-resident opening under strict parameters, as building and transport projects sustained an over 60 PMI reading. GDP growth should be 4 percent but the fiscal surplus will disappear into next year on government infrastructure and social spending. Increased defense outlays will come from participation in anti-ISIS airstrikes but such efforts can be funded easily from the estimated $750 billion in foreign assets. Banks are implementing Basel III guidelines which may be reinforced by stronger no-interest Islamic-style mandates. The local employment push which initially repatriated thousands of overseas workers has been stymied by the lack of skilled graduates, although female recruitment has yet to be considered outside niche industries. The UAE is clinging to its top core universe 30 percent gain post-elevation as private capital inflows often from nearby trouble spots should reach $40 billion in 2014, according to the IIF. A small emirate just initiated an external bond, and trade and tourism have been solid non-hydrocarbon contributors alongside property, where Dubai values rose 15 percent on an annual basis in September. Bank NPLs are down to single digits as they face new mortgage lending and sovereign debt restrictions. World Expo 2020 preparations have not been affected by lower oil prices or state company residual credit constraints as CDS spreads continue to drop to half the crisis height. Iran has returned to 1 percent growth on partial sanctions respite ahead of the November deadline for a final nuclear deal. Inflation has tumbled to 15 percent and the black market currency fix has stabilized around 30000/dollar. The outright lifting of international embargoes could raise oil output another 1 million barrels per day and revive cross-border funding, with Euromoney magazine recently carrying a headline feature on the possible bonanza. European and Asian companies have regularly visited Tehran the past few months and the stock exchange organized a London promotion. Iraq on the other hand will fall into recession with the ISIS damage to energy facilities and security as reserves also slip 20 percent to $60 billion with capital flight. The Shia-Sunni-Kurdish divides may finally splinter the country after that fate was contemplated and avoided following the US toppling of Saddam a decade ago.
Libya’s economic and political collapse with the absence of central authority has cut daily oil take to half a million barrels, and fiscal and current account deficits will exceed 25 percent of GDP. With sovereign wealth fund assets still unknown and unavailable as court cases are pressed against foreign advisers in London official reserve drawdown will continue until potential medium-term depletion to match post-Kaddafi revolutionary hopes.
