Strategies behind the Iran sanctions — Arab News' weekly energy recap

Crude oil prices continued their downward momentum with Brent crude falling to nearly a three-month-low at $72.83 per barrel. (AFP)
Updated 03 November 2018
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Strategies behind the Iran sanctions — Arab News' weekly energy recap

RIYADH: Crude oil prices continued their downward momentum with Brent crude falling to nearly a three-month-low at $72.83 per barrel.
WTI also fell to $63.14 per barrel. The commitment of Saudi Arabia and Russia to offset any shortages after the imposition of sanctions on Iran have eased oil prices. Noticeably, Saudi Arabia increased its production to 10.7 million barrels per day (bpd) in October and is capable of increasing output further if needed. Russia produced at a post-Soviet-era peak of 11.36 million bpd in September. This news has comforted the market with the knowledge that any supply shortages from Iran will be effectively met.
Tomorrow, the US economic sanctions on Iran will come into force. These sanctions were supposed to take Iranian oil exports to zero amid the “highest level of economic sanctions” imposed. However, the US granted waivers to Iran’s top buyers, so that Iran will still be able to legally export at least one million bpd.
Even prior to the sanctions, Iran’s crude oil exports went down from 2.2 million bpd to 1.5 million bpd, as most of Iran’s customers have found other suppliers. Despite the US waivers, many nations will continue to look for other options to purchase the crude oil they need, as the US waivers could be withdrawn with little warning.
It is not clear yet if Iranian condensate will be included in this latest round of sanctions. It was not included during the 2012 sanctions because the Obama administration did not consider condensates to be crude oil. Much of Iranian condensate is from natural gas processing plants. There has been no Trump administration policy statement on whether Iranian condensates will be treated the same way as crude oil.
Any crude oil Iran can sell will be some relief for the country as it is running out of storage. Early last month, Iran was forced to move two million barrels of crude into a bonded storage tank at the port of Dalian in northeast China. It used a similar tactic during previous US sanctions. Such a ploy is necessary so that Iran can maintain enough storage for condensate from its natural gas fields. Otherwise, they would be forced to shutter natural gas production. That would cause severe unrest among its population since natural gas is used for about 70 percent of Iranian domestic energy consumption, including home heating.
China is the largest importer of Iranian crude. China used to be the largest importer of US shale oil until the outbreak of the US-China trade dispute. Now is the time for China to play its cards, inviting the US to de-escalate the trade dispute if China agrees to buy US crude in place of Iranian barrels. Considering that China’s trade surplus with the US has hit record highs, this could be a win-win situation. The only question is whether the US oil export infrastructure can keep up with the volumes needed. US oil exports have faced some challenges lately, dropping to 1.5 million bpd from a peak of two million bpd.
Another issue, which is also uncertain in regards to the US sanctions, is the small amount of trade of Iranian crude oil which is done through small banks outside the US financial system. Those banks helped Iran to export oil during 2012 sanctions. This is despite the fact that Iranian oil tankers will face huge challenges in securing insurance that is mandated by the refineries’ discharging ports.
Finally, it is unknown if the sanctions will include Iran’s “swap” arrangements with neighboring countries. Iran does oil-gas swaps with Caspian Sea nations. It also does oil swap deals with these countries, so that Tehran can supply northern areas with oil processed at the Tehran, Tabriz, and Arak refineries without having to transport it all the way from wells in the south. In another swap deal, Iraq sends oil from its northern Kirkuk fields to Iran by road, to be refined in Iran.
In return, Iran sends the same amount of crude to Iraq’s southern ports for exports. These swaps are considered an outlet for Iranian crude oil and US sanctions on them could cause considerable disruption.


Dubai property developer Damac on hunt for land in Saudi Arabia

Hussain Sajwani
Updated 18 March 2019
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Dubai property developer Damac on hunt for land in Saudi Arabia

  • Brexit a “concern” for UK property market says Sajwani
  • Developer mulls investing “up to £500 million” on London project

LONDON: The Dubai-listed developer Damac says it is scouting for additional plots of land in Saudi Arabia, both in established cities and the Kingdom’s emerging giga-projects such as Neom.
Hussain Sajwani, chairman of Damac Properties, also said the company would look to invest up to £500 million ($660 million) on a second development in the UK, and that it is on track to deliver a record 7,000 or more units this year.
Amid a slowing property market in Dubai, Damac’s base, the developer is eying Saudi Arabia as a potential ground for expansion for its high-spec residential projects.
Damac has one development in Jeddah, and a twin-tower project in Riyadh — and Sajwani said it is looking for additional plots in the Kingdom.
“It’s a big market. It is changing, it is opening up, so we see a potential there … We are looking,” he said.
“In the Middle East, Saudi Arabia is the biggest economy … They have some very ambitious projects, like the Neom city and other large projects. We’re watching those and studying them very carefully.”
The $500 billion Neom project, which was announced in 2017, is set to be a huge economic zone with residential, commercial and tourist facilities on the Red Sea coast.
Sajwani said doing business in Saudi Arabia was “a bit more difficult or complicated” that the UAE, but said the country is opening up, citing moves to allow women to drive and reopen cinemas.
He was speaking to Arab News in Damac’s London sales office, opposite the Harrods department store in Knightsbridge. The office, kitted out in plush Versace furnishings, is selling units at Damac’s first development in the UK, the Damac Tower Nine Elms London.
The 50-storey development is in a new urban district south of the River Thames, which is also home to the US Embassy and the famous Battersea Power Station, which is being redeveloped as a residential and commercial property.
Work on Damac's tower is underway and is due to complete in late 2020 or early 2021, Sajwani said.
“We have sold more than 60 percent of the project,” he said. “It’s very mixed, we have (buyers) from the UK, from Asia, the Middle East.”
Damac’s first London project was launched in 2015, the year before the referendum on the UK exiting the EU — the result of which has had a knock-on effect on the London property market.
“Definitely Brexit has cause a lot of concern, people are not clear where the situation will go. Overall, the market has suffered because of Brexit,” Sajwani said.
“It’s going to be difficult for the coming two years at least … unless (the UK decides) to stay in the EU.”
Despite the ongoing uncertainty over Brexit, Sajwani said Damac was looking for additional plots of land in London, both in the “golden triangle” — the pricey areas of Mayfair, Belgravia and Knightsbridge, which are popular with Gulf investors — and new residential districts like Nine Elms.
Sajwani is considering an investment of “up to £500 million” on a new project in the UK capital.
“We are looking aggressively, and spending a lot of time … finding other opportunities,” he said. “Our appetite for London is there.”
Damac is also considering other international property markets for expansion, including parts of Europe and North American cities like Toronto, Boston, New York and Miami, Sajwani said.
The international drive by Damac comes, however, amid a tough property market in the developer’s home market of Dubai.
Damac in February reported that its 2018 profits fell by nearly 60 percent, with its fourth-quarter profit tumbling by 87 percent, according to Reuters calculations.
Sajwani — whose company attracted headlines for its partnership with the Trump Organization for two golf courses in Dubai — does not see any immediate recovery in the emirate’s property market, or Damac’s financial results.
“(With) the market being soft, prices being under pressure, we are part of the market — we are not going to do better than last year,” he said. “This year and next year are going to be difficult years. But it’s a great opportunity for the buyers.”
But the developer said Dubai was “very strong fundamentally,” citing factors like its advanced infrastructure, safety and security, and low taxes.
In 2018, Damac delivered over 4,100 units — a record for the company — and this year, despite the difficult market, it plans to hand over even more.
“We’re expecting north of 7,000,” Sajwani said. “This year will be another record.”