Daily News Egypt

The deal of economics: Egypt needs Saudi oil, but for what price? - Daily News Egypt

Advertising Area




Advertising Area




The deal of economics: Egypt needs Saudi oil, but for what price?

Experts believe the US role made the rich oil country resume its oil shipments


Since the 3 July revolution that ousted the former Muslim Brotherhood-affiliated president, Mohamed Morsi, the Kingdom of Saudi Arabia has been one of the main supporters of the new regime headed by President Abdel Fattah Al-Sisi. Saudi King Salman bin Abdulaziz stated many times that the bilateral relations between Saudi and Egypt are powerful and strong. However, the past months have witnessed tensions between Egypt and Saudi Arabia, which happened after a dispute in the Security Council of the United Nations.

The oil-rich country notified the Egyptian government that oil shipments would be resumed, without clarifying the reason of suspending it or resuming it.

But what do the benefits of the deal between Aramco and the Egyptian government represent for Egypt and Saudi Arabia? And what was the Kingdom’s reason to freeze its shipments? And what is the reason for resuming them?

Aramco will resume oil product shipments to Egypt some six months after suddenly halting them
Aramco will resume oil product shipments to Egypt some six months after suddenly halting them

Daily News Egypt asked experts about their opinions, and they pointed out that it’s more of a political issue than an economic one.

The former dean of Economics and Political Science at Cairo University, Aliaa El-Mahdy, said that the deal is important to Egypt because it supports Egypt’s need of oil products to generate power and provide the market’s demand.

She added that the Egyptian side made deals with Libya and Iraq when Saudi Arabia froze its oil, yet the deals seem not to be equivalent to the Aramco deal, which provides easier ways of payment over many years, which currently helps Egypt due to its shortage of foreign currencies.

“If the Kingdom froze the shipments again, the government must announce the other options it might have,” El-Mahdy added. She explained that gas companies that work in Egypt announced many new gas discoveries, which are supposed to be enough to generate electricity for local demand.

It is worth mentioning that British Petroleum (BP) has made a gas discovery in the North Damietta Offshore Concession in Egypt’s East Nile Delta. BP said its third discovery in the area, according to Reuters.

The Katameya Shallow 1 exploration well was drilled to a total depth of 1,961 metres in a water depth of around 108 metres, the company said.

“This latest discovery confirms our belief that the Nile Delta is a world-class basin,” BP chief executive Bob Dudley said in a statement.

The well is 60 kilometres (37 miles) north of Damietta city in northern Egypt. BP has 100% equity in the discovery.

Additionally, Aramco will resume oil product shipments to Egypt some six months after suddenly halting them, the Egyptian Ministry of Petroleum said on Wednesday, signaling a potential thaw in relations after months of tension.

Saudi King Salman bin Abdulaziz stated many times that the bilateral relations between Saudi and Egypt are powerful and strong
Saudi King Salman bin Abdulaziz stated many times that the bilateral relations between Saudi and Egypt are powerful and strong

The ministry said in a statement that it was working with Aramco on a timetable for the resumption of shipments and that the reasons behind the October cutoff were purely commercial.

“It was agreed that the Saudi Arabian side would resume Aramco’s shipping of oil products as per the commercial contract signed between the Egyptian General Petroleum Corporation (EGPC) and Aramco,” the statement said.

It’s important to mention that on 7 November last year, Bloomberg published an article, stating that Saudi Arabian Oil Company halted shipments of oil products to Egypt indefinitely, forcing the Arab world’s most populous nation to buy fuel in world markets at higher costs.

“The state producer, known as Saudi Aramco, informed the Egyptian General Petroleum Corporation in early October that it would suspend supplies of refined oil products, leaving Egypt little choice but to resort to tenders for meeting local demand. It wasn’t clear at the time if the freeze was only for October. Aramco had agreed earlier this year to provide Egypt with 700,000 metric tonnes of refined products each month for five years, in an arrangement valued at about $23 billion,” the article read.

Egypt, which relies on imports to meet its energy needs, faces higher costs for gasoline and other oil products after the government decided to allow its currency to trade freely as a step towards stabilising an economy weakened by a dollar shortage. Tarek El Molla, the Egyptian oil minister, confirmed the indefinite suspension of Saudi fuel supplies on Sunday during a conference in Abu Dhabi, without giving reasons.

El-Mahdy stated that the Saudi side might get its benefits from the US or Egyptian side, because the political deals are usually done in the dark.

However, she stated that the deal won’t increase Egypt foreign debt, because the department of oil and electricity has its own profits, which would be used to repay Aramco.

However, Bloomberg’s article added, “this leaves Egypt in a very difficult position—the pound flotation means the government will have to pay much more for its imports, and now it has to go to the international markets to secure its gas oil and diesel supplies on much more difficult payment terms,” London-based Ehsan Ul-Haq, an oil-market analyst at KBC Energy Economics, said in a phone interview. “I don’t think Egypt will be able to get similar conditions from any other countries in the region.’’

State-owned EGPC has agreed to buy eight gas oil cargoes for November delivery to Alexandria, according to three traders with knowledge of the matter. Egypt also signed a memorandum of understanding to import crude from the State Oil Company of the Azerbaijan Republic—known as Socar—to supply its refineries, the oil ministry said on Thursday. The deal came after Egypt reached a deal with Iraq on 31 October to form joint ventures to produce oil and natural gas, the article read.

It seems that Egypt has other options, yet the Saudi deal is the best until now, according to the executive chairperson of Union Capital Incorporated (UC), Hany Tawfik, who believes that the deal is very important to Egypt since it reduces the demand of foreign currencies due to the easier methods of payment, adding that Egypt needs every amount of money in the current bad situation.

Yet it is important for the Saudi company to guarantee that the shipments aren’t going to get frozen again.

Unofficial dispute happened when Egypt voted in favour of a Russian-backed—but Saudi-opposed—UN resolution on Syria in October, which excluded calls to stop bombing Aleppo
Unofficial dispute happened when Egypt voted in favour of a Russian-backed—but Saudi-opposed—UN resolution on Syria in October, which excluded calls to stop bombing Aleppo

Tawfik doesn’t believe that the disputes between the biggest Arab countries might affect the bilateral economic relations, explaining that both Saudi Arabia and Egypt have strong relations that face the ups and downs, yet don’t get into diplomatic incidents.

It is important to note that the unofficial dispute happened when Egypt voted in favour of a Russian-backed—but Saudi-opposed—UN resolution on Syria in October, which excluded calls to stop bombing Aleppo. Then, in January, an Egyptian court rejected a government plan to transfer two uninhabited Red Sea islands—Tiran and Sanafir—to Saudi Arabia.

According to an article issued by Reuters, Pharos Holding energy analyst Karim Ezzat said about the resumption of oil product shipments, “politically, it is a very positive step.”

“It’s not the nominal amount that you get as such, but really the investments, the backing, and the political backing, those are the most important sides,” he continued.

Egypt had turned to the spot market in recent months, but also sought similar deals to make up the shortfall. Crude oil from Iraq is expected to arrive in late March as part of an agreement for 1 million barrels per month.

Still, the Aramco deal, which includes a low 2% interest rate to be repaid over 15 years, was difficult to match at a time of low oil prices and fiscal belt-tightening.

From another viewpoint, the CEO of Multiples Group, Omar El-Shinity, believes that the problems are being fixed politically and getting better economically.

El-Shinity said that the deal is very important to Egypt because it helps improve the trade balance and reduce its deficit. He added that the inflows of foreign currencies would increase in the future, allowing Egypt to pay for the shipments.

He also believes that the tension is political, adding that the problem of the two Red Sea islands might be a part of the problem, along with the UN dispute.

Regarding Egypt’s other options, he said that the products and commodities are available, but the problem is about money and finances.

Advertising Area




https://dailynewsegypt.com/2017/03/28/620038/
Breaking News

No current breaking news

Daily News Egypt Android App Available for free download on Google play
View
Daily News Egypt Ios App Available for free download on APP Store
View