Gulf Arab states — which form the Gulf Cooperation Council (GCC), a loose economic bloc — have enjoyed a six-year boom on the back of soaring oil prices. But oil export revenues have shrunk as crude fell from a record above $ 147 in July to $ 38 at the year end.
Coupled with the financial crisis, this has led to a big push among Gulf states to revisit contracts as prices in general fall.
“Many projects in the Middle East involving foreign partners are expected to be at least delayed until the credit crisis is over,” said John Sfakianakis, chief economist for HSBC’s Saudi subsidiary SABB bank in Riyadh.
Kuwait cancelled a petrochemical joint venture with Dow on Sunday, less than a month after it signed the deal, amid weak oil prices, a protracted political crisis and the global financial crisis.
Dow is involved in another project — Oman’s Al Duqm refining and petrochemical complex announced in 2004 — which was slated to be built by 2009 but has been pushed back to 2012. The credit crisis may well spell trouble for a project that has seen costs spiral.
“We can expect to see the GCC countries becoming more meticulous when it comes to reviewing the value of their investments in existing and future projects, whether it is energy, power or industrial,” Amol Kotwal, a deputy director at consulting Frost and Sullivan in Bangalore, said.
Total hydrocarbon export revenues are seen tumbling 38.8 percent next year to $ 376.3bn, after soaring 42.2 percent this year, according to a Reuters survey.
Other projects under review in the Gulf include Saudi oil giant Aramco’s $ 9bn investment in the 900,000 barrel per day offshore Manifa oilfield project.
There is also doubt over Saudi Arabia’s joint-venture refinery project with US oil company ConocoPhillips, with bidding delayed until the second quarter of next year, from the fourth quarter in 2008.
“No doubt with a potential global downturn, national oil companies are having to look more closely at their … plans,” said analyst Raja Kiwan at PFC Energy.
Foreign partners are having second thoughts about projects in the region too. Global miner Rio Tinto abandoned its 49 percent stake in an aluminium joint venture in Saudi Arabia this month because of difficulties getting financing.
Elsewhere in Saudi Arabia, the Saudi Railways Organisation plans to re-tender a multi-billion dollar project to build a giant rail link connecting the north of the kingdom to its south, a banker familiar with the deal said.
“There will be a delay of one to two years because we advised the organisation to take advantage of lower contracting costs that resulted from the crisis,” said the banker, who declined to be named.
In neighbouring Kuwait, the same group of legislators who led the charge against the Dow deal, renewed calls to also halt a $ 15bn project to build the country’s fourth refinery.
“What we are experiencing in the Middle East at the moment is a temporary aversion to risk,” Tariq Alsuqair, a Saudi-based energy economics analyst with Trace Data International.
