Emerging trends in MENA and around the globe
Castlereagh’s Market Monitor collection offers top-tier news and analysis of future trends and buried topics in business, geopolitics, energy, finance and more. Utilising on-the-ground sources and including commentary from some of the region’s top analysts and policy experts, gain a fresh perspective on developments in the Gulf, Middle East, North Africa and further afield.
Just before Israelis embark on almost a month of Jewish High Holidays, traditionally a time of repentance and asking for forgiveness – something not often associated with the country’s politicians – they will go to the polls to choose the 22nd Knesset. It is the second time this year that Israel has held elections, after voting last April failed to produce a government. Once again, all indications are that the results will not be decisive.
Although the increased chatter surrounding Saudi Aramco’s IPO plans is exciting, what is needed is more clarity surrounding the motivation for recent personnel changes, and future thinking regarding energy policy and the Aramco strategy from key decision makers. What investors and potential investors dislike is uncertainty.
In recent months, the market has touted Saudi Arabia’s success in capturing a larger share of China’s crude imports, surpassing Russia as the top supplier and even reaching record high export levels this summer. This development is in part the result of recent, strategic downstream investments by Saudi Arabia in China, but equally as much a mark of economic pragmatism and shifting winds in global crude markets. The kingdom will continue to face stiff competition in supplying the Chinese market, particularly from Russia, and has further work to do to secure its longer-term competitive advantage compared to other key suppliers.
While preparing for a future protected from the vagaries of the oil markets, Saudi Arabia is likely to struggle with lower oil revenues as it attempts to shore up global markets. It is getting very little help from other OPEC and OPEC+ members, and the more it undergirds prices the more the dynamic US oil sector forges ahead. 2018 was a calmer year for the kingdom’s oil sector and fiscal situation. Stronger oil prices and a more stable domestic policy environment put the kingdom’s finances on a stronger footing. The country now has ambitious plans to carry out, including Saudi Aramco’s initial public offering (IPO), as the global financial and economic landscape becomes more difficult.
When Abdel Fattah El Sisi seized power in July 2013 Egypt was beset by chronic electricity shortages. Six years on, and total electricity generating capacity is nearly double the peak load. Much of the credit for this rests with the electricity minister, Mohammed Shaker, who was appointed in March 2014 before Sisi’s election as president, and with Sherif Ismail, who took over the petroleum ministry in July 2013 and set in place policies that stimulated a revival in the natural gas sector. However, the political dividends have accrued to Sisi, who can point to the turnaround in the energy sector as a notable achievement of his presidency – and as a justification for its extension.
Excitement over the discovery of several large natural gas fields in the Eastern Mediterranean at the beginning of this decade was greatly tempered by the fields’ close proximity to two of the world’s most intractable geopolitical conflicts – the Arab-Israeli conflict and the Turkish/Cypriot dispute – and further complicated by the Arab Spring revolts. While the geopolitics continues to prevent the fields reaching their full potential a decade later, much has changed – most notably, plans to hard wire gas developments together, which could make them more financially viable and create an important regional gas hub.
The finance sector in the GCC region is about to pass a significant threshold which holds the potential to revolutionise many aspects of citizens’ lives. Just as the arrival of the mobile phone in the late 1990s allowed GCC states to leapfrog many developed countries already wedded to the infrastructure of the landline, financial technology (Fintech) could once again catapult them ahead of the pack: the combination of a conducive policy environment, desire among leaders to steal a globally competitive edge and a rich, but poorly penetrated market looks very promising.
Saudi Arabia has announced a trillion-dollar pipeline of infrastructure projects aimed at diversifying the economy beyond oil and positioning the kingdom as a global hub for investment and logistics. The development agenda has created opportunities in a range of new areas such as smart cities, tourism and clean energy. But while the country is telling the world that it’s open for business, the plans are beset by challenges: low levels of foreign direct investment and shaky investor confidence coupled with corporate financing constraints will require new approaches in politics and governance.
The sultanate has every reason to be deeply anxious about the actual and potential conflicts on its northern and southern borders, but it also has an opportunity to turn this situation to its advantage. This has been evident in the recent flurry of activity for projects aimed at developing ports and industrial areas on the country’s Arabian Sea coast into bunkering centres for international shipping and major producers of refined petroleum products and petrochemicals.
Across the Gulf region, national oil companies (NOCs) are evolving into commercial and global enterprises, in different ways and with varying degrees of success. Their strategic directions are influenced by factors related to their leaders’ development priorities, geopolitical drivers, resource endowments and commercial opportunities. While some have been pioneers in globalization since the nationalizations of the 1970s and 1980s, it is only in the last several years that others have made their mark worldwide.
Utility firms in developed markets will increasingly align corporate strategies with the trend of decarbonisation. The “utility of the future” will invest substantially in boosting renewable power generation, pursuing demand “behind the grid” and offering electric vehicle services. This strategy will bring them into greater competition with major oil and gas and tech firms.
The six Gulf Arab states, incorporating several of the biggest, and wealthiest, players in the global oil and gas markets, cannot seem to stop selling debt. And investors, hunting for yield in a global low rates environment, are driving demand for more bond issues from the region. Despite the recent escalation in geopolitical tensions, issuance is likely to remain strong but restricted to sovereign or state-owned entities, able to borrow more cheaply.