The Middle East is deeply integrated into the Asian supply chain, and is thus a core element in Asia’s economic advantage. Development cannot be separated from security that is two-dimensional; on the one hand lies security related to the transport of oil and gas while on the other are matters of regional security. Consumers with emphasis on those with increasing energy demands like India, China and Japan have responsibility to contribute to Gulf security. Producers also have responsibility to efficiently supply products.
Thus, an Asian security agenda in the Gulf needs to be aligned along four main tenets, according to a report released by the Center for Middle East Development, UCLA. The “hot spots”: Promote regional security by concentrating on “hot-spot” issues, including the situation in Iraq, a nuclear Iran, and the Israel-Palestine peace process. Development: Develop the regional economy in a way that ensures equality and mutual benefit. Economic growth depends on extensive cooperation and a commitment to equality and integration. Education and unemployment are both closely tied to development and security. Thus they are good areas to work on first. Trade architecture: Create new mechanisms for bilateral and multilateral cooperation between Asian powers and the Gulf Cooperation Council (GCC). Many Asian powers would like to open their energy sector and play a more active part in international energy development. At the same time, Gulf states are interested in diversifying their economies and attracting investments. Dialogue: Work with the GCC to promote understanding between energy producers and consumers. New institutions should be created to allow space for dialogue, negotiation, and cooperation on matters related to energy security and trade.
Recent proposals focus on the creation of a West Asian Forum (WAF) as one way to pursue the objectives enumerated by the “four-point plan.” Such a regional body would promote trade and investment between India, China, the United States, and the Gulf. The WAF would operate with the Gulf Cooperation Council as its nucleus, much the way the ASEAN acts as a nucleus for the Asia–Pacific economic forum, APEC. The forum would address all issues that impinge upon the security concerns of West Asia, especially the security of Gulf energy.
The forum would be two-tiered. On one level, the financial architecture of free trade and investment would be discussed, in the context of security. On a second, yet parallel, level, the forum would act as a platform to promote technology and investment innovation. The emphasis on this level would be idea generation. The spirit of the forum would be cooperation - which is not only desirable, but also unavoidable.
Asia and the Gulf should cooperate to strengthen energy, economic, and strategic ties. In particular, technology transformation can be one of the most effective ways to enhance cooperation. The example of Japan in this regard offers a model to follow. Japan has significant gains through creating new devices both to save energy and to use it more wisely. As oil prices rise, Japan continues to develop more high-tech solutions for renewable energy. Sharing this intellectual wisdom with other countries in Asia as well as the Gulf may lead to more efficient ways to share limited energy resources. Improving energy efficiency is indirectly tied to security. By improving technology and increasing the availability of electricity, nations can improve the quality of life for their citizens. This move in turn decreases destabilizing factors tied to civil discontent, poverty, and unemployment.
Taken together, these recommendations can add value to the economies of both Asia and the Middle East. They can promote energy security, investment, trade, and innovation between Asia and the Gulf. If implemented, both regions stand to reap the benefits of energy conservation, strategic cooperation, increased cash flow, and higher standards of living.
Each of the countries in the Gulf Cooperation Council (GCC) has a central bank with established monetary arrangements with each other in recognition of their common interests. However, current government surpluses in the region coupled with projected increases for the foreseeable future are creating undue pressure on the real estate and stock markets.
Additionally, limited investment opportunities within each state restrict the opportunity to create new jobs and to further diversify the economies of the region.
To this end, a regional, or possibly a GCC central bank, much like the US Federal Reserve in Washington DC, could be established to serve as a common forum and meeting place for the existing central banks, which would continue to have the same functions and accountabilities as they now possess.
A regional central bank would serve as a common forum and meeting place for the region’s existing central banks, leaving the existing banks to continue performing their current functions and maintaining the accountabilities that they now possess.A monthly digest could be assembled, and the new mechanism would facilitate a common GCC currency initially planned for 2010 but the deadline was abandoned earlier this year.
The Gulf monetary union project, designed to emulate the euro zone, has been delayed by old political rivalries as certain states are concerned not to give too much sway to Saudi Arabia, the largest Arab economy and the world's top oil exporter.
On March 30, 2010, the Saudi central bank chief was named to head a Gulf monetary council underlining the Kingdom's dominance in a single currency project and reducing prospects for the United Arab Emirates and Oman to return.
The UAE, the world's third largest oil exporter, withdrew from the project in May 2009 in a protest to place the monetary council in Riyadh, three months later Oman followed suit.Muhammad al-Jasser, head of the Saudi Arabian Monetary Agency (SAMA), will be the first chairman of the joint monetary council, a forerunner for a regional central bank. A recent Reuters poll however, showed that Gulf states are not seen adopting a common unit until 2015.
* Reproduced by Middle East Observer, Issue 2 Vol. 1, April-May 2010
Natural gas is an important source of energy (Photo from: knowledge.allianz.com)
By Antonia Dimou
The notion by Russia, Iran and Qatar to create an OPEC-like group of natural gas exporters, which appeared recently in certain columns of the international press, is not new. The idea was first raised by Iran's Supreme Leader, Ayatollah Ali Khamenei in January 2007, and was enhanced three months later on April 2007 when then Russian President Vladimir Putin and Qatar's Emir, Sheik Hamad bin Khalifa Al Thani, announced they would jointly explore the creation of a cartel to represent the interests of producer countries in controlling the global market.
A pipeline and requisite infrastructure to connect countries in the Gulf to areas of consumption either in the Far East or Europe is an option very regularly introduced in discussions in the context of various economic forums as a means to foster long-term development and growth. According to this option,natural gas is the most realistic substitute for oil, but successfully making the substitution depends on transport and the addition of many more pipelines.
It is undoubted that Russia, Iran, and Qatar have more than half of today's natural gas reserves. While Russia is a leading natural gas exporter, Qatar mainly exports liquefied natural gas, and Iran is actually a gas importer due to lack of development of its gas fields. This reality makes the notion of creating an OPEC-like mechanism difficult to sustain.
The question that has to be answered is; “Why is that?”
First, unlike oil, which is traded on an exchange that constantly updates the market price based on supply and demand, gas is sold under tight contracts that allow buyers to lock in prices for at least up to 25 years. That said, a cartel would likely have little impact.
Second, pipeline infrastructure requires high-cost investment, which usually makes long-term contracts necessary. Iran is under economic sanctions and no international investment exceeding a certain amount is permitted, and thus companies that do not comply with the sanctions’ provisions are fined.
Third, liquified natural gas could be traded as a commodity similar to oil, but at some other point and not in the instant future.
Based on the above, the conclusion that can safely be reached is that the recent announcement by Russia, Iran and Qatar to form an OPEC-like cartel has no permanent and immediate character but rather seems to be a pure political commitment to create something in the future.
* Reproduced by Middle East Observer, Issue 2 Vol. 1, April-May 2010
Oman, the source of two-third of the world's oil exports, is in the middle of the East-West trade routes, ensuring easy access to markets in the Middle East, India, South-East Asia, Africa and Europe. The Sultanate is considered ideal for long-term investments as it posses a modern infrastructure, a strong industrial base, a stable government, and, most notably, the institutions that protect and favour foreign investment.
Oman’s membership in the World Trade Organization (WTO) ensures its adherence to international trade norms and practices, while its participation in the Indian Ocean Rim Associations for Regional Cooperation (IORARC) opens up a potential market of over 1500 million consumers. Additionally, membership in the Arab Gulf Cooperation Council ensures duty-free export of products within the Council’s member countries.
Oman offers a number of incentives that guarantee foreign investment. Major incentives focus on: provision of soft loans with low interest rates and easy payback periods; full repatriation of capital, net profit and royalties; up to 100% foreign ownership; exemption from customs duty on import of plant equipment; credit insurance through export; no personal income tax; relief from customs duty on raw materials for up to 10 years; corporate tax holiday of up to 10 years.
Foreign investors are assured of a reliable infrastructure that includes, among others, industrial estates and access to capital. Specifically, eight industrial estates, with another underway, provide complete support systems to industry in different parts of Oman. These estates offer a comprehensive range of services that could extend to their own gas-fuelled power stations and water supply, and housing complexes for the workforce.
The industrial estates in the Sultanate are eight namely Al Rusail, Sohar, Raysut, Nizwa, Sur and Al Buraimi, in addition to the Information Technology Industry Estate, Knowledge Oasis Muscat (KOM) and Al Mazyounah Free Zone, which aim to attract foreign investment, nationalize national capital, enhance the private sector, introduce new technology and promote international trade.
Additionally, the Sultanate’s well-organized private banking sector provides a wide range of financial services and credit facilities to investors. The Industrial Bank of Oman offers advisory services and considers equity participation in industrial projects. Also institutions like the Oman Development Bank channels government funding to help the private development of the economy and offers soft loans to small-scale industries and the service sector. Muscat Securities Market, the established and regulated stock market, is a potential source of new capital for the private sector, helping investors raise capital for the expansion of current projects and for the initiation of new ventures.
Setting up business in Oman is mainly facilitated by the Omani Centre for Investment Promotion (OCIPED) which provides services for new investment projects in the Sultanate. OCIPED was established to provide investors with the information and much needed practical help with the form of feasibility studies, of setting up operations and identifying export markets for finished goods.
At the same time, OCIPED coordinates with a number of agencies of importance to foreign investors such as the Ministry of Commerce and Industry, the Oman Chamber of Commerce and Industry, the Oman Development Bank, the Export Guarantee and Financing Agency, the Public Establishment for Industrial Estates, the Muscat Security Market, the Commercial Court, and the Ministry of Social Affairs, Labour and Vocation Training.
Reproduced by Middle East Observer Issue 2 Vol. 1, April-May 2010
What is your view of the new Turkish foreign policy as promoted by Foreign Minister Ahmet Davutoglu, particularly in regards to Turkish-Israeli and Turkish-Syrian relations?
The notion of improving Turkey's relations with its neighbours is in itself sound, but the Turkish-Syrian rapprochement is in a separate category. It is related to Turkey's good relationship with Tehran so much so that the Syrians are now boasting of a new bloc in the Middle East. This reinforces the radical camp in Middle Eastern politics. Turkey has distanced itself from what used to be a strategic relationship with Israel. Erdogan may have put his unique personal stamp on this move but there is broad support in his party for at least a measure of distancing from both the US and Israel.
Let’s come to the recent situation between the Turkish and Israeli foreign ministries, with the escalated tensions between the two countries. How much has the recent tension affected the strategic nature of the Israeli-Tuskish relationship?
The question has in fact been answered above. In the give and take between the two governments both sides committed tactical mistakes that aggravated the negative trend.
How do you think that the advanced state of relations between Turkey and Syria effects Syria’s calculations?
Syria feels reinforced by this relationship. In its dealings with the US and the EU, it claims also that Sunni Turkey serves to balance the relationship with Shiite Iran.
On May 2008, Damascus, Jerusalem, and Ankara announced simultaneously in that Turkey has been acting as mediator in negotiations betweenSyria and Israel aimed at a comprehensive peace agreement. These talks however, reached to an end a year later. How feasible is achieving such a peace agreement?
Turkey is no longer mediating between Israel and Syria and that role is likely to revert back to the US through the work carried out by Senator Mitchell.
Israel and Syria were close to an agreement in 2000. TheUnited States was mediating at that time. Ehud Barak was the Israeli Prime Minister and late President Hafez al-Assad of Syria actually met with President Clinton but the talks collapsed. Why was that, and what are the lessons learnt?
All three parties to the 2000 effort share the blame. In my view, the single most important reason for the failure was al-Assad's illness and imminent death. Physically, mentally and politically he was weakened and he preferred to use his residual power in order to secure his son's succession.
Israel wants Syrians to take some major political decisions in return for the Golan Heights. For e.g. Israel wants Syria to reduce its ties to Hezbollah and to Iran. Is that at all possible and what other Israeli demands are on the negotiating table?
This is, indeed, Israel's major current demand in addition to the familiar demand for a full fledged peace treaty and adequate security arrangements. It is feasible but would require a protracted effort and considerable skills on the part of the US to obtain it.
What are Israel’s non-negotiable premises in an arrangement with Syria? Would it accept a demilitarised Golan, under the supervision of an international peace force?
Israel needs more than a demilitarized Golan. The Golan is too small an area. There would have to be a much larger area of limited deployment and a monitoring station on Mt Hermon.
And do you see any immediate prospects for Syrian-Israeli reengagement on peace talks? Is an agreement, or are negotiations, with Syria any more imminent today than yesterday?
I do not. I think the current priority of both the US and Israel is to deal first with the Palestinian track.
The recent nomination of Robert Ford as the US ambassador to Syria is the first nomination since the American ambassador was pulled in 2005 following the assassination of Lebanese Prime Minister Rafik Hariri. What do you think the appointment of Robert Ford means for the US-Syrian relationship and US policy?
It was part of the US effort to improve the bilateral relationship with Syria independently of the Israeli issue. The Syrians are good at pocketing such good will gestures.
From your experience, what are Syria’s interests in an improved relationship with the United States?
Syria would like to join the mainstream of international life and to receive US aid, like Egypt. But is the regime ready to take the risk of a genuine opening up?
* Ambassador Itamar Rabinovich is Israel's former Ambassador to the United States and former Chief Negotiator with Syria in the mid 1990's.He is the incumbent of the Ettinger Chair of Contemporary Middle Eastern History of TelAvivUniversity.He is currently Chairman of the Board of the Dan David Foundation, Distinguished Global Professor at New York University, a member of the Advisory Council of APCOWORLDWIDE, Chairman of the Advisory Board of the Wexner-Israel Program, a member of the Trilateral Commission, a member of the International Advisory Board of the Brookings Institution in Washington, a member of the International Advisory Board of The American Interest, and a non-resident Distinguished Fellow at the Saban Center, Brookings Institution. He is also Vice Chairman of the Institute for National Security Studies (INSS), an external institute of Tel Aviv University, and a senior research fellow at the DayanCenter for Middle-Eastern studies. Ambassador Rabinovich is a member of the American Philosophical Society, a foreign member of the AmericanAcademy of Arts and Sciences and has recently served as Visiting Professor at the KennedySchool of Government at HarvardUniversity.
The Jordan Atomic Energy Commission (JAEC) recently announced that the Kingdom will not concede its rights to develop its peaceful nuclear programme in line with international standards, and indicated that Jordan will not follow the route of the UAE, under which the Gulf state conceded the right to engage in enrichment or reprocessing activities in return for cooperation from the US. Also, the JAEC clarified that the government will not sign any agreement that is prone to compromise its rights as enshrined in the Nuclear Non-Proliferation Treaty (NPT).
The JAEC is currently examining four offers from nuclear technology suppliers, namely Canada, South Korea, Russia and an offer from a joint French-Japanese venture (AREVA and Mitsubishi Heavy Industries), and by the end of April 2010, the JAEC was to qualify two of the offers and spend the next year negotiating with the short-listed companies to select the winning bidder.
Jordan has close cooperation with four of the “big five” nuclear powers namely Russia, the UK, China and France, and discussions are underway to sign a nuclear cooperation agreement with the US. Jordan is on pace to construct two 1.000-megawatt Generation III reactors in the next 15 years in order to transform the country from an energy importer to an electricity exporter. The Kingdom’s first nuclear reactor, slated for a site near Aqaba, is expected to be constructed within the next decade. Under a mining agreement signed on February 21, 2010, the French company AREVA is obligated to provide the Kingdom with its needs of enriched uranium, and mining activities will commence in central Jordan as early as 2012. This is the first uranium mining agreement and one of the largest contracts ever signed in Amman, which forms the first phase of Jordan’s domestic nuclear power programme.
As prerequisite to several regulations to govern the nuclear sector, the Jordan Nuclear Regulatory Commission (JNRC) established in 2007 is in the final stages of reviewing the new Law on radioactive safety and nuclear security drafted with the assistance of the International Atomic Energy Agency (IAEA).
The current legislation, the 2007 Radioactive Protection and Nuclear Safety and Security Law, deals only with small-scale radioactive materials, and does not take into account the amount of regulation needed for the Kingdom's nuclear programme. Thus, the new Law on nuclear safety to set a regulatory framework is essential. Key regulations are those focusing on the extraction, mining and milling of nuclear materials, and the safety of research nuclear installations, sub-critical assembly and zero-power reactors.
Other regulations cover the JNRC’s work with Worley Parsons, the government's consultant for preconstruction preparations for Jordan’s first nuclear reactor, and concern site approval, construction permits, environmental reports and emergency evacuation plans.
The new Law is to come into effect ahead of major milestones in Jordan's peaceful nuclear programme, such as the sub-critical assembly of the nuclear research reactor in Irbid, estimated to begin within two years, along with the uranium mining.
Jordan is signatory to several international conventions, including the nuclear Non-Proliferation Treaty, the Convention on Nuclear Safety, the Convention on Early Notification of a Nuclear Accident, the Convention on Assistance in the Case of a Nuclear Accident and the Comprehensive Test Ban Treaty.
AMMAN -Jordan’s banking sector fared well during the recession of the last two years due to tight central regulation and an overall cautionary outlook, resulting in healthy deposit and profit levels that are attracting increased interest from overseas lenders.
As the global financial crisis was felt across the region in late 2008, the Jordanian government announced it would guarantee all deposits until the end of 2009,a pledge it later extended until the end of 2010. This commitment came on top of an existing scheme operated by the Jordan Deposit Insurance Corporation that insured deposits of up to $14,000 if a bank fails. There has been no significant pressure put on Prime Minister Samir Rifai to extend the blanket guarantee. While it has been in place, the state has not needed to bail out any of the country’s lenders nor has there been concerns over a possible crash.
While financial institutions elsewhere in the region have faltered, all of Jordan’s 15 local banks posted a profit in 2009, with four managing to post an increase in their loans' portfolios. However, total earnings for the banking sector fell to $942.2 million last year from $1.3 billion in 2008.
The solid position of Jordan’s banks was further bolstered in the first half of 2010 by a rise in deposits at licensed banks of 4.5 per cent in the January to June period, with the additional $1.3 billion taking the total held to $29 billion. This increase in deposits was matched by higher levels of credit extended by Jordan’s banks, with a further $814 million in loans made in the first six months of 2010, lifting the overall balance of credit facilities to $19.75 billion.
According to Antonia Dimou, an associate at the Centre for Strategic Studies of the University of Jordan, the country’s economy only suffered a minimal impact from the crisis, with the Central Bank of Jordan (CBJ) having ensured the stability of the banking system while maintaining monetary stability.
“The setting of 12 per cent as a percentage for capital adequacy has preserved the banks from any financial problems and led to a near impossibility of bankruptcy,” Dimou said in an article carried by the World Press Organisation on August 19. “The world standard for capital adequacy does not exceed 8 per cent; however, Jordan used a conservative banking system to save its banks in 2008.”
This, combined with the fact that the financial sector is tightly regulated also helped it avoid any major meltdown during the international economic crisis. According to data from the central bank, local lenders only had some $40 million worth of exposure to toxic papers, a very low level, especially when the sector’s high profits for 2008 are taken into account.
There has been increasing interest in the Jordanian banking sector by overseas lenders. Late in 2009, the CBJ announced it was granting operating licences to three new lenders: The Jordan Dubai Islamic Bank, National Bank of Abu Dhabi (NBAD) and Saudi Arabia’s Al Rajhi Bank, which would take the number of licensed financial institutions operating in the country to 26. Of these three, Jordan Dubai and NBAD have already opened their doors, with Al Rajhi looking to commence operations this month.
However, while the banking sector is expanding, both in the number of lenders and in its capital value, the industry has come under fire from some quarters who say banks initially reined in credit during the crisis instead of focusing on building up deposit and asset levels. There is a strong need for a specialised financing institution that would allow players in the industrial sector to gain access to funding and to circumvent the stringent lending measures applied by commercial banks, believes financial analyst Ali Tabbalat.
“Commercial banks prefer to extend short-term loans and these policies do not fit the industrial sector whose production process takes a long time,” Tabbalat said in an interview with The Jordan Times in mid-August.
This view was echoed by Nazzal Armouti, the deputy chairman of the Jordan Chamber of Industry, who said setting up a financial institution offering long maturities and reasonable interest rates is a basic need for the development of the industrial sector. “We, as industrialists, always call for setting up such a bank otherwise the sector will suffer and the country will lose important investment opportunities,” he said on August 11.
Though credit may currently be tighter than some would like, the fact that Jordan’s banking sector has ridden out the financial crisis without faltering means that it is better placed than many to increase funding should the economic outlook improve.
Oxford Business Group (OBG) is a highly acclaimed global publishing, research and consultancy firm, which published economic and political intelligence on the markets of Asia, Eastern Europe, the Middle East, and North and South Africa.
(Photo from: landcoalition.org)
