UAE sees no immediate risk to oil flow through Strait of Hormuz

The region was shaken last year by attacks on oil tankers near the Strait of Hormuz and an assault on Saudi energy plants. (AFP/File)
Short Url
Updated 09 January 2020

UAE sees no immediate risk to oil flow through Strait of Hormuz

  • The situation is not a war, and what is happening now should not be exaggerated, says minister

ABU DHABI: The UAE’s energy minister said on Wednesday he saw no immediate risk to oil passing through the vital gateway of the Strait of Hormuz after Iran attacked bases housing US forces in Iraq.

Iranian officials have said the missile strikes were a response to Friday’s killing of top Iranian commander Qassem Soleimani in Baghdad.

The situation is not a war, and what is happening now should not be exaggerated, Suhail Al-Mazrouei said on the sidelines of a conference in Abu Dhabi, capital of the UAE, an OPEC producer.

“We will not see a war,” he added. “This is definitely an escalation between the US, which is an ally, and Iran, which is a neighbor, and the last thing we want is more tension in the Middle East.”

Oil prices were about 1 percent higher on Wednesday, but well below highs hit in a frenetic start to the trading day after the missile attacks raised the specter of a spiraling conflict and disruption to crude flows.

Opinion

This section contains relevant reference points, placed in (Opinion field)

Iranian Oil Minister Bijan Zanganeh was quoted by the semi-official ISNA news agency as saying on Wednesday that Tehran was benefiting from rising oil prices, and also called on the US to quit the region.

“The trend of oil prices is up and this benefits Iran ... Americans should stop disturbing the region and let the people of the region live,” Zanganeh said.

The secretary-general of the Organization of the Petroleum Exporting Countries (OPEC), Mohammed Barkindo, told the conference in Abu Dhabi that oil facilities in Iraq, the second biggest producer in OPEC, were secured and output was continuing.

He said global spare oil capacity stood at around 3-3.5 million barrels per day (bpd), with the majority held by Saudi Arabia, the top producer in OPEC.

The UAE’s Mazrouei said OPEC would respond to any possible oil shortages if needed, within its “limitations.” But he saw no sign of a supply shortage, with healthy demand and global oil inventories hovering around the 5-year average.

“We are not forecasting any shortage of supply unless there is a catastrophic escalation, which we don’t see,” he said.

Barkindo said he was confident that leaders in the Middle East were doing everything possible to restore normal conditions.

The region was shaken last year by attacks on oil tankers near the Strait of Hormuz and an assault on Saudi energy plants that initially halved the Kingdom’s crude output.

Washington and Riyadh blamed their common foe Iran, also an OPEC member, for those strikes, a charge Tehran denied.

Barkindo said the forecast for global demand growth was around 1 million bpd, adding this was “not robust and not alarming.”

Asked what message he would send to US President Donald Trump, Barkindo told the gathering that the United States’ emergence as a leading oil and gas producer should carry shared responsibility for energy market stability.

“The continued task of the OPEC+ to maintain stable oil markets on a sustainable basis is a shared responsibility of all producers including the US,” Barkindo said.

“OPEC alone can’t shoulder that responsibility. We invite the United States to join us in this noble objective,” he added.

OPEC and its allies, a grouping known as OPEC+, has been capping production since 2017 to avert oversupply and support prices. The US is not part of this oil supply management agreement.


Embattled Turkey looks to US dollar swaps as virus costs bite

Updated 03 April 2020

Embattled Turkey looks to US dollar swaps as virus costs bite

  • Turkey looking for access to the US Federal Reserve’s dollar swap lines as the country’s economy struggles with the costs of the coronavirus pandemic
  • The outlook for the Turkish lira in coming months is grim, with the global stay at home campaign likely to undermine tourism revenues as well as export-based businesses

ANKARA: Turkish officials are believed to be negotiating with their American counterparts for secure access to the US Federal Reserve’s dollar swap lines as the country’s economy struggles with the costs of the coronavirus pandemic.

In March, as the contagion spread across the world, the US central bank established liquidity swap lines with the Bank of England, Bank of Japan and European Central Bank as well as their counterparts in Canada and Switzerland, before piping dollars into other central banks in Singapore, Australia, Mexico and Brazil.

However, no swap lines have been extended to Turkey whose budget deficit reached almost 5 percent of gross domestic product (GDP) last year.

“With the lira weaker than it has been since the 2018 spat with the US over the imprisonment of pastor Andrew Branson and with net foreign currency reserves almost depleted, the ability of Turkish central bank to sustain the currency is limited,” said Wolfango Piccoli, co-president of Teneo Intelligence in London.

Experts say that the outlook for the Turkish lira in coming months is grim, with the global “stay at home” campaign likely to undermine tourism revenues as well as export-based businesses in the country.

Tourism accounts for about 13 percent of Turkey’s $753 billion economy.

Following the introduction of quarantine restrictions, Turkey’s export volume dropped 3.9 percent on a yearly basis to $42.8 billion in the first three months of 2020, while last month the country’s exports narrowed by 17.8 percent compared with a year earlier, reaching $13.4 billion.

Piccoli said that Turkey’s hopes for a swap line with the Fed shows that Ankara remains reluctant to ask the International Monetary Fund (IMF) for assistance, mainly for political reasons.

However, other experts say that Turkey’s foreign reserves are depleted and Ankara may be forced to approach the IMF to survive the crisis.

So far, about 85 countries have applied to the IMF for emergency support. But borrowing money from the IMF was among the main criticisms directed by the ruling Justice and Development Party against its political rivals.

Meanwhile, Fitch Ratings on Friday joined other international ratings agencies by lowering its 2020 growth outlook for the Turkish economy from 3.9 percent to 0.8 percent, while raising its 2021 growth estimates from 4 percent to 4.5 percent.

The country’s economic outlook was also revised downwards by Moody’s, which said Turkey’s economy will be “hit hardest” among G20 economies, with a contraction in second- and third-quarter GDP of about 7 percent.

“As before, the Turkish government will enable the state banks to defend the lira, which will be increasingly difficult. The outlook for the lira, despite the current depreciated state, is more negative than positive,” Emre Deliveli, a Turkish economist, told Arab News.

Deliveli said that Turkey may ask for IMF help in July or August after its summer tourism revenues fall.

“But this option is valid only when it becomes obvious to the officials in charge of the economy and Treasury, as well as to Turkish President Recep Tayyip Erdogan, that there is no other choice,” he said.

Turkey’s central bank on Tuesday announced new stimulus measures for the financial sector and economy, and also said that it will increase government debt buying while offering new avenues for cheap funding.

“Resources are running out, I don’t think the current strategy is sustainable,” said Timothy Ash, a London-based senior emerging markets strategist at Bluebay Asset Management.

“So the options are to let the Turkish lira find its own level, or try to replenish foreign exchange reserves either with Fed swap line or an IMF program,” he told Arab News.

According to official figures, thousands of struggling Turkish firms, especially in the food, tourism and manufacturing sectors, have applied to state authorities for compensation payments for about 420,000 employees.

More than 400,000 companies in Turkey have been closed because of lockdown measures against the pandemic. In a country that already has 4.5 million unemployed, a further two million people are expected to become jobless in the near future.