Middle East Series: Part 1 0 comments

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The newspapers have been trumpeting the rise of the Middle-East across all sectors, a pretty obvious theme to all who have observed the sustained rise of oil prices. This is seen as the second great boom of the Middle-East after the heady OPEC-cartel days of the 1970s, but many have observed that the distribution of the oil money has been far more responsible this time round, with money not just flowing abroad to buy foreign assets (eg. US Treasuries, luxury hotels and retail assets), but also domestically along various avenues: construction of crucial infrastructure (communications, roads, water), oil-and-gas and petrochemical projects, services-related industries (finance, tourism) --- in order to ensure long-term sustainability of revenue streams as well as to diversify them. The Middle-East theme has been touted as one of the key investment themes to watch for the next few years; locally I remember at least one well-known analyst highlighting it as a strong theme for 2006 (Gabriel Yap).

This is such a broad and interesting theme that it'll probably take several parts to cover it. From a standing start, with limited knowledge of the key cities save for the politics of the region and the main countries involved, I'll look at them from an economic angle, with a focus on where key investments and money flow could go in the future. Please contribute if you know more about the region.

An overview of the region must start from the geopolitics. Two maps below, one overlooking the region's neighbours and another focusing on the region proper:

Middle-East overall strategic view

Middle-East region


Geopolitics is especially important in this region because of the historical political uncertainty, which suggests high investment risk. Yet this risk is not even across the region --- the areas around Israel up to Iran have been traditional flashpoints, with the Saudi-Arabian peninsula relatively more stable (where the UAE and Qatar are on), probably because the stretch of water that is the Persian Gulf is where the US can project its naval power upon, to protect against any cross-Gulf threat (obviously from Iran). An overview of the maps also facilitates understanding of why Russian and European influence have traditionally been important here (proximity, in addition to former colonialism), and also the importance of the Persian Gulf, through which most of Arabian oil is shipped to Asia.

(For those interested in reading more about Middle-East geopolitics, you can check out The truth laid bear --- a collection of blogs on the Middle East)

An overview of the main component countries of the Middle-East, with an emphasis on the key economic resource --- oil and gas resources --- that will provide the oil money to propel growth. The Middle-East is said to produce ~20% of the world's oil but 40% of its oil exports (that's the important figure). The countries are listed in descending order of general importance (self-judged):

(Note: oil production and export figures - 2004; oil & gas reserves figures - 2006)

Saudi Arabia
- World's No. 1 oil producer, world's No. 1 oil exporter, world's No. 1 oil reserves, world's No. 4 gas reserves
- Economic summary: (2005 est.): per capita $12,900.
- By labour force: agriculture 12%, industry 25%, services 63%
- By industries: crude oil production, petroleum refining, basic petrochemicals; ammonia, industrial gases, sodium hydroxide (caustic soda), cement, fertilizer, plastics; metals, commercial ship repair, commercial aircraft repair, construction
- Growing banking and financial-services sector; growing emphasis on tourism, especially along the Red Sea coast and pilgrimage tours to Mecca/Medina

Iran
- World's No. 4 oil producer, world's No. 4 oil exporter, world's No. 3 oil reserves, world's No. 2 gas reserves
- Economic summary: (2005 est.): per capita $8,100.
- By labour force: agriculture 30%, industry 25%, services 45% (2001 est.)
- By industries: petroleum, petrochemicals, textiles (2nd most important after petroleum), cement and other construction materials, food processing (particularly sugar refining and vegetable oil production), metal fabrication, armaments

UAE
- World's No. 10 oil producer, world's No. 6 oil exporter, world's No. 6 oil reserves, world's No. 5 gas reserves
- Economic summary: (2005 est.): per capita $29,100.
- By labour force: services 78%, industry 15%, agriculture 7% (2000 est.)
- By industries: petroleum and petrochemicals; fishing, aluminum, cement, fertilizers, commercial ship repair, construction materials, some boat building, handicrafts, textiles
- Important services: international banking, financial services, regional corporate headquarters, tourism

Kuwait
- World's No. 11 oil producer, world's No. 7 oil exporter, world's No. 5 oil reserves, world's No. 20 gas reserves
- Economic summary: (2005 est.): per capita $22,800.
- By industries: petroleum, petrochemicals, cement, shipbuilding and repair, desalination, food processing, construction materials

Iraq
- World's No. 14 oil producer, world's No. 11 oil exporter, world's No. 4 oil reserves, world's No. 10 gas reserves
- Economic summary: (2005 est.): per capita $3,400.
- By industries: petroleum, natural gas, phosphates, sulfur

Turkey
- Economic summary: (2005 est.): per capita $7,900.
- By labour force: agriculture 36%, industry 23%, services 41% (3Q04)
- By industries: textiles, food processing, autos, electronics, mining (coal, chromite, copper, boron), steel, petroleum, construction, lumber, paper
- Substantial tourism
- a traditional link between Europe and Middle-East, with railroad of international importance, Baghdad Railway, linking Europe with Asia Minor and the Middle East

Qatar
- World's No. 14 oil exporter, world's No. 13 oil reserves, world's No. 3 gas reserves
- Economic summary: (2005 est.): per capita $26,100.
- By industries: crude oil production and refining, LNG, ammonia, fertilizers, petrochemicals, steel reinforcing bars, cement, commercial ship repair
- Regional banking center

Israel
- Economic summary: (2005 est.): per capita $22,300.
- By labour force:public services 31.2%, manufacturing 20.2%, finance and business 13.1%, commerce 12.8%, construction 7.5%, personal and other services 6.4%, transport, storage, and communications 6.2%, agriculture, forestry, and fishing 2.6% (1996)
- By industries: high-technology projects (including aviation, communications, computer-aided design and manufactures, medical electronics, fiber optics), wood and paper products, potash and phosphates, food, beverages, and tobacco, caustic soda, cement, construction, metals products, chemical products, plastics, diamond cutting, textiles, footwear
- Doubtful whether it will benefit from neighbours' oil boom given political differences

Bahrain
- Economic summary: (2005 est.): per capita $20,500.
- By labour force:agriculture 1%, industry, commerce, and services 79%, government 20% (1997 est.)
- By industries: petroleum processing and refining, aluminum smelting, iron pelletization, fertilizers, offshore banking, ship repairing, tourism
- Major financial center
- Key Western ally; base for U.S. navy's 5th Fleet, which patrols the Persian Gulf

Egypt
- Economic summary: (2005 est.): per capita $4,400.
- By labour force: agriculture 32%, industry 17%, services 51% (2001 est.)
- By industries: textiles, food processing, tourism, chemicals, pharmaceuticals, hydrocarbons, construction, cement, metals, light manufactures
- Strong foreign aid from Arab neighbours and the West
- Home of the Suez Canal which facilitates East-West trade

Oman
- Economic summary: (2005 est.): per capita $13,400.
- By industries: crude oil production and refining, natural and liquefied natural gas (LNG) production; fishing, construction, cement, copper, steel, chemicals, optic fiber

Lebanon
- Economic summary: (2005 est.): per capita $5,300.
- By industries: banking, tourism, food processing, jewelry, cement, textiles, mineral and chemical products, wood and furniture products, oil refining, metal fabricating
- Best days are behind them since civil strife in 1970s. Lebanon was previously the distribution center for the Middle East, and commerce was its major industry. Beirut, a free port, was the region's financial and commercial hub.


I omit the economically less significant nations of Syria, Jordan and Yemen.


References:
(1) Infoplease: Middle-East Atlas
(2) CIA: The World Factbook
(3) Infoplease: Top oil and gas producers/exporters/reserves