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Saudi Energy Minister: OPEC+ Seeks to Hedge against Possible Scenarios in the Future

A photo of Prince Abdulaziz bin Salman during his participation in the Future Investment Initiative conference in Riyadh. (Reuters)
A photo of Prince Abdulaziz bin Salman during his participation in the Future Investment Initiative conference in Riyadh. (Reuters)
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Saudi Energy Minister: OPEC+ Seeks to Hedge against Possible Scenarios in the Future

A photo of Prince Abdulaziz bin Salman during his participation in the Future Investment Initiative conference in Riyadh. (Reuters)
A photo of Prince Abdulaziz bin Salman during his participation in the Future Investment Initiative conference in Riyadh. (Reuters)

Saudi Energy Minister Prince Abdulaziz bin Salman said on Tuesday that the goal of the OPEC+ alliance - which includes members of the Organization of the Petroleum Exporting Countries (OPEC) and major oil producers - was to hedge against possible scenarios in the future.

Addressing the Qatar Economic Forum, which is organized by Bloomberg, the energy minister stressed that the alliance would continue to be proactive, preemptive and hedge against what may come in the future.

“We should be brave enough to attend to the future without continuing the so-called 'kicking the can' policies, those policies that may allow us to fend the situation for this month, next month or the month after but with that we are losing sight of our intentions and our more important objectives,” he said.

About speculations in the oil market, Prince Abdulaziz said: “Speculators, like in any market, are there to stay. I keep advising them that they will be ouching, they did ouch in April, I don’t have to show my cards... but I would just tell them watch out.”

In his speech, the minister touched on the hydrogen sector, and said that there were no clear policies for investors regarding this sector.

“There is no clear policy in this regard... How can we talk about future energy when the vision is not clear?” he asked.

Saudi Arabia, along with other OPEC+ producers, have announced sudden voluntary cuts in production in April, which led to a rise in prices after a recession led by fears of the impact of a banking crisis on demand.

Members of the OPEC+ coalition will meet on June 4 in Vienna to decide on the next course of action.

The Saudi minister said that the coalition will continue to work proactively, preventively, and hedge against what might come in the future, regardless of any criticism.

He again blamed the Paris-based International Energy Agency (IEA) and its initial predictions for a 3 million barrel per day (bpd) fall in Russian production over the Ukraine war for misleading the market.

“Look who did the most in trying to bring forecasts and data and projections that really created most of the volatility that we have had in 2022 and continue to do so?” Prince Abdulaziz said. “There is an organization called the IEA, I think they have proven that it really takes special talent to be consistently wrong.”

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Business

Dubai Plans for Net-Zero Emissions Transport by 2050   

A bus is charged at a station in Dubai. (Asharq Al-Awsat)
A bus is charged at a station in Dubai. (Asharq Al-Awsat)
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Dubai Plans for Net-Zero Emissions Transport by 2050   

A bus is charged at a station in Dubai. (Asharq Al-Awsat)
A bus is charged at a station in Dubai. (Asharq Al-Awsat)

Dubai's Roads and Transport Authority (RTA) has rolled out its "Zero-Emissions Public Transportation in Dubai 2050" strategy.

With this strategy, RTA aims to contribute to mitigating climate change and minimizing its carbon footprint across three areas: public transportation, buildings and related facilities, and waste management.

The new strategy is aligned with UAE's preparations for COP28 and the UAE Net Zero by 2050 Strategic Initiative.

RTA noted that the strategy is consistent with the goals of the Dubai Economic Agenda D33 to consolidate the emirate’s status as one of the world’s top urban economies.

The primary objectives include the decarbonization of all taxis, limousines, and public buses, designing buildings with near-zero energy consumption, sourcing energy from renewable sources, and eliminating municipal waste by sending zero waste to landfills.

The strategy will result in reducing carbon dioxide emissions by 10 million tons and realizing financial savings worth 3.3 billion dirhams ($898 million) in comparison to current operations.

"The new strategy outlines a comprehensive approach to sustainability within RTA. Its primary objective is to enhance sustainability and reduce carbon dioxide emissions. At the same time, it contributes to realizing RTA’s mission of achieving global leadership in smooth and sustainable mobility through innovative roads and transport services that elevate the customer experience to world-class standards," said RTA Director-General and Chairman of the Board of Executive Directors Mattar Al Tayer.

"The new strategy encompasses ten initiatives, covering various RTA sectors and agencies, in addition to partnerships with the private sector that contribute to implementing the strategy over five years. The strategy will review, adjust and align future goals with changing circumstances."

RTA's Board of Executive Directors reflected on various aspects, opportunities, and challenges associated with the new strategy and its implementation.

These include the costs of novel green technologies, the distribution of targets and their review over time, the importance of the availability of energy technology providers, particularly for electric buses and hydrogen fuel production stations, and other factors that contribute to the execution of the new strategy.

RTA has recorded significant accomplishments in sustainability. From 2014 to 2022, its energy and green economy initiatives have contributed to saving electricity by approximately 360 gigawatt-hours, and water savings of 300 million gallons, as well as saving around 88 million liters of gasoline, and 10 million liters of diesel. This is equivalent to avoiding 416,000 tons of equivalent emissions, yielding savings of approximately 420 million dirhams.

Business

Saudi Arabia, China Partnership for Geological Mapping Project in Arabian Shield Area

Minister of Industry and Mineral Resources Bandar al-Khorayef inspects a site during the tour (Asharq Al-Awsat)
Minister of Industry and Mineral Resources Bandar al-Khorayef inspects a site during the tour (Asharq Al-Awsat)
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Saudi Arabia, China Partnership for Geological Mapping Project in Arabian Shield Area

Minister of Industry and Mineral Resources Bandar al-Khorayef inspects a site during the tour (Asharq Al-Awsat)
Minister of Industry and Mineral Resources Bandar al-Khorayef inspects a site during the tour (Asharq Al-Awsat)

Saudi Arabia has launched a $207 million project of detailed geological maps of the Arabian Shield, one of the Saudi Geological Survey (SGS) projects, in partnership with the Chinese Geological Survey.

Minister of Industry and Mineral Resources Bandar al-Khorayef inaugurated the project, describing it as one of the most significant comprehensive strategic initiatives for the mining sector regarding the nature of the business, the volume of output, and the coverage area.

He added that the maps constitute the core of the general program of the geological survey, which is an essential element in achieving the goals of Vision 2030, and a first step towards endeavors, to be the third pillar of the Saudi industry.

Khorayef confirmed that the project aims to generate detailed digital geological data of the Arabian Shield, understand the origin of mineral deposits in the area, and strengthen the national geological database and the national library of drilling samples.

The data will provide domestic and international investors with a comprehensive understanding of Saudi Arabia's mining sector investment opportunities.

Geology

The Deputy Minister of Natural Resources for Geology and Chairman of the Chinese Geological Survey, Li Jianxing, said the project would become a new bridge between Saudi-Chinese relations, indicating that the maps will promote scientific progress in earth science and technology.

For his part, the Chinese Consul General in Jeddah, Wang Qimin, stated that the map project is an extension of the longstanding joint projects in the mining sector between the Kingdom and China.

He said it aligns with the Kingdom's Vision 2030 economic development plans and the Chinese Belt and Road Initiative.

Rock analyses

CEO of the Saudi Geological Survey, Abdullah al-Shamrani, explained that during the project, a detailed, high-tech digital geological mapping of all rocky outcroppings would be carried out, with an average of 700 examination sites per geological square.

He indicated that Saudi and Chinese geological experts would conduct several structural, mineral, and chemical analyses.

Shamrani divided the program into three main phases: initial settings, fieldwork and analysis, and final compilation of the map project.

The program is scheduled for 11 years and divided into two phases, the first extending to five years, including producing detailed geological maps of the promising mineral belt areas representing 40 percent of the project area.

The second phase spans over six years, during which 157 maps will be produced, representing the remaining area of the Arabian Shield.

Mineral deposits

The detailed geological maps project of the Arabian Shield aims to produce 271 detailed geological reports and maps of the Arabian Shield, in addition to providing the National Geological Database (NGD) with detailed digital geological data.

It will help enhance the understanding of the origin of mineral deposits and identify and explore new mineral deposits aiming to attract new investments in the mining sector.

The project is the hub for all information from the various historical and recent surveys in the form of two-dimensional maps showing the extent and types of mineralization in the Arabian Shield.

Business

Saudi Arabia Offers Freight Brokerage Services at Airports to Facilitate Trade

Cargo services at King Khalid International Airport in Riyadh (Asharq Al-Awsat)
Cargo services at King Khalid International Airport in Riyadh (Asharq Al-Awsat)
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Saudi Arabia Offers Freight Brokerage Services at Airports to Facilitate Trade

Cargo services at King Khalid International Airport in Riyadh (Asharq Al-Awsat)
Cargo services at King Khalid International Airport in Riyadh (Asharq Al-Awsat)

The Saudi government allowed freight brokers to provide services at airports to increase competitiveness and offer more options, which contributes to reducing import and export costs.

The Saudi Crown Prince Mohammed bin Salman launched the National Transport and Logistics Strategy in 2021, which aims to position the Kingdom as a global logistics hub connecting three continents. It also seeks to improve all transport services, promote sustainable economic development, and competitiveness adequate to the Vision 2030

Zakat, Tax and Customs Authority (ZATCA) called on shipping agents to benefit from the customs services provided at the airports, most notably the availability of data submission, the issuance of delivery permissions, and the ability to split incoming shipments.

The authority said that, based on the services provided, the freight broker would be responsible before the customers until the shipment arrives, allowing the customer to deal with only one party.

The agent is the link in the global supply chain process, said the authority, stressing that the services it shall provide customers with constitute an opportunity to compete with the prices offered by transport companies and other agents.

This process would present the customer with more options and contribute to reducing import and export costs.

- Increasing operations efficiency

Recently, the authority allowed freight brokerage companies to obtain a license to practice customs clearance and enable them to activate their role in facilitating trade. It would also raise the efficiency of operations and logistics.

Through this step, ZATCA aims to enable freight brokers to provide distinguished services that align with its objectives towards boosting Saudi position as a global logistics platform by facilitating and developing procedures.

It would help achieve flexibility in the customs clearance process in cooperation and coordination with all relevant authorities.

- National strategy

The Saudi strategy focuses on developing infrastructure, launching several platforms and logistical areas, implementing advanced operating systems, and strengthening effective partnerships between the public and private sectors.

One of the strategy’s main objectives is to increase the contribution of the transport and logistics sector to the gross domestic product from six to ten percent by leading the industry to support the national economy, enable business growth, expand investments, and increase the annual non-oil revenues to $13 billion in 2030.

Business

Saudi Tourism Revenues Jump 70% in 2021

The Al-Rudaf Park in Taif, western Saudi Arabia. (Asharq Al-Awsat)
The Al-Rudaf Park in Taif, western Saudi Arabia. (Asharq Al-Awsat)
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Saudi Tourism Revenues Jump 70% in 2021

The Al-Rudaf Park in Taif, western Saudi Arabia. (Asharq Al-Awsat)
The Al-Rudaf Park in Taif, western Saudi Arabia. (Asharq Al-Awsat)

Operational revenues of tourism-related activities in Saudi Arabia amounted to $56.8 million in 2021, a 70.8 percent increase compared with 2020, revealed the General Authority for Statistics (GAStat).

The Authority said the increase included all distinctive tourism activities. The revenues from accommodation for visitors accounted for 33.2 percent and food and drink made up 29.9 percent of the total figure.

Operational expenses

Total operating expenses of tourism-related activities reached $29.9 million, an increase of 92.2 percent from 2020.

Operational expenses related to accommodation represented 31.6 percent and food and beverage related operations accounted for 29.7 percent of total operational expenses.

Administrative data from the Ministry of Tourism showed that the annual occupancy rate in hotel rooms reached 42.1 percent in 2021.

During December, the Kingdom witnessed the highest monthly occupancy rate at 53.3 percent. The annual occupancy rate of furnished housing units stood at 49.3 percent in 2021. The highest monthly occupancy rate was 55 percent.

Number of employees

The General Authority revealed that the number of workers in tourism-related activities reached 767,819 during 2021, including 516,382 in the food and beverage sector and 101,861 in accommodation sector.

The sectors employed 81 percent of the workforce in tourism-related activities. Saudi workers accounted for 26.8 percent of the workforce, with males making up 58.1 percent of the total and females 41.9 percent.

During the first quarter of 2023, the Kingdom received about 7.8 million international tourists, the highest historical quarterly performance, and marking a growth of 64 percent compared to the same period in 2019.

Saudi Arabia occupied second place on the list of the most developed countries worldwide, according to the latest data from the UN World Tourism Organization (UNWTO).

The Kingdom advanced 16 places in the International Tourism Revenue Index, reaching 11th place in 2022, compared to 27th place in 2019, according to the World Tourism Barometer report issued by the UNWTO in May 2023.

Business

Saudi Arabia Expands Exploration of Mineral Resources

Mahd Ad Dahab gold mine, one of the oldest mines in Saudi Arabia (Asharq Al-Awsat)
Mahd Ad Dahab gold mine, one of the oldest mines in Saudi Arabia (Asharq Al-Awsat)
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Saudi Arabia Expands Exploration of Mineral Resources

Mahd Ad Dahab gold mine, one of the oldest mines in Saudi Arabia (Asharq Al-Awsat)
Mahd Ad Dahab gold mine, one of the oldest mines in Saudi Arabia (Asharq Al-Awsat)

The Saudi Ministry of Industry and Mineral Resources called on emerging individual explorers, small and medium-sized local companies, and investors to register in the "Nuthree" Mining Exploration Incubator initiative.

Nuthree aims to empower emerging individuals and local companies in the mineral exploration sector to create a sustainable local exploration environment to develop the Kingdom's resources and become an entry point for promising industries in cooperation with the General Authority for Small and Medium Enterprises (Monshaat).

The Ministry recently announced that until the end of March, the total number of valid mining licenses in the sector had reached 2,314.

The Ministry's official spokesman, Mohammed al-Jarrah, said that the incubator aims to develop the skills of emerging explorers and employ their capabilities and support them with enablers that ensure sustainability in the mining exploration sector.

It helps by promoting investment, transferring and exchanging knowledge and experience between leading mining companies, and building sustainable strategic partnerships.

Jarrah stressed the importance of enabling entrepreneurship in mineral exploration locally from a regulatory perspective and financing and supporting it with the appropriate infrastructure to enhance its business and drive economic growth in the sector.

He noted that the initiative is in line with the goals of Vision 2030 and the National Industrial Development and Logistics Program (NIDLP) to make the mining sector the third pillar of national industries.

Jarrah indicated that the initiative targets students and academics, small and medium-sized companies applying for an exploration license, emerging exploration companies, and investors interested in the mining sector.

The incubator will also provide services to support startups, including analyzing geological data, assisting them in obtaining exploration licenses, and offering intensive courses and training workshops in earth sciences.

It will conduct events and sessions with experts and specialists in mineral exploration, laboratory services, samples analytics, geophysical survey for metal detection, preserving diamond drilling samples, offering guidance throughout the initiative program, and providing office space.

The spokesman pointed out that the advanced companies will be evaluated according to essential criteria by examining the experiences of the work team and the previous work, assessing the financial efficiency, and their readiness to enter the incubator programs.

Business

Turkish Lira Teeters Near Record Low as Erdogan Secures Victory 

Turkish President Recep Tayyip Erdogan, accompanied by his wife Emine Erdogan, addresses his supporters at the Presidential Palace in Ankara, Türkiye, May 28, 2023. (Presidential Press Office/Handout via Reuters)
Turkish President Recep Tayyip Erdogan, accompanied by his wife Emine Erdogan, addresses his supporters at the Presidential Palace in Ankara, Türkiye, May 28, 2023. (Presidential Press Office/Handout via Reuters)
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Turkish Lira Teeters Near Record Low as Erdogan Secures Victory 

Turkish President Recep Tayyip Erdogan, accompanied by his wife Emine Erdogan, addresses his supporters at the Presidential Palace in Ankara, Türkiye, May 28, 2023. (Presidential Press Office/Handout via Reuters)
Turkish President Recep Tayyip Erdogan, accompanied by his wife Emine Erdogan, addresses his supporters at the Presidential Palace in Ankara, Türkiye, May 28, 2023. (Presidential Press Office/Handout via Reuters)

Türkiye's lira wobbled near record lows against the dollar as President Recep Tayyip Erdogan secured victory in the country's presidential election on Sunday, extending his increasingly authoritarian rule into a third decade.

The currency was at 20.05 to the dollar during Asian hours, just shy of the 20.06 record low hit on Friday.

The lira, prone to sharp swings before regular trading hours, has weakened more than 6% since the start of the year and lost more than 90% of its value over the past decade with the economy in the grip of boom and bust cycles, rampant bouts of inflation and a currency crisis.

Since a 2021 crisis, the authorities have taken an increasingly hands-on role in foreign exchange markets with daily moves having become unnaturally small and mostly recording a weakening while FX and gold reserves have dwindled.

"The current set up is just not sustainable," said Tim Ash at BlueBay Asset Management. "With limited FX reserves and massively negative real interest rates the pressure on the lira is heavy."

Erdogan prevailed despite years of economic turmoil which critics blame on unorthodox economic policies which the opposition had pledged to reverse.

"An Erdogan win offers no comfort for any foreign investor," said Hasnain Malik, head of equity research at Tellimer.

"Only the most optimistic would hope that Erdogan now feels sufficiently secure politically to revert to orthodox economic policy."

Erdogan's surprisingly strong showing in the first round of the election two weeks ago had triggered a selloff in Türkiye's international bonds and a spike in costs to insure exposure to its debt amid fading hopes of a change in economic policy.

The nation's dollar bonds slipped to their lowest in at least six months last week, while the cost of insuring exposure to Türkiye's debt via credit default swaps (CDS) rose to a seven-month high.

On Monday, the bond maturing in 2036 was stable, Tradeweb data showed. CDS too were steady after closing at 666 basis points on Friday. It was around 480 bps before the election.

In his victory speech, Erdogan acknowledged that inflation was the most urgent issue, but said it would also fall, following the central bank's policy rate that was cut to 8.5% from 19% two years ago.

Analysts were cautious in how much economic change Erdogan's new government would herald.

"Erdogan is unlikely to embrace an outright economic orthodox approach," Wolfango Piccoli, co-president at advisory firm Teneo said in emailed comments.

"However, some adjustments to the current heterodox approach could be adopted with the aim of gaining time ahead of the March 2024 local elections."

Trading is expected to be thin on Monday, with many markets in Europe, as well as the United States closed for holidays.

Business

US-Chinese Business Delegation Seeks Launching Int’l Alliance for Green Energy in Riyadh

Neil Bush (Asharq Al-Awsat)
Neil Bush (Asharq Al-Awsat)
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US-Chinese Business Delegation Seeks Launching Int’l Alliance for Green Energy in Riyadh

Neil Bush (Asharq Al-Awsat)
Neil Bush (Asharq Al-Awsat)

A delegation of US and Chinese businesses is scheduled to visit Saudi Arabia on Monday, in an effort to establish a multinational alliance or league headquartered in Riyadh.

The primary objective of this alliance is to channel investments into cutting-edge technologies that promote a sustainable green economy and facilitate the achievement of carbon neutrality.

Neil Bush, who is leading the delegation, has expressed dedication to establishing a worldwide alliance in Riyadh that will play a pivotal role in shaping the bright prospects of green energy.

The primary objective of this alliance is to emerge as a prominent driving force behind investments in advanced technologies, specifically aimed at fostering a sustainable green economy.

Bush added that the delegation’s visit to Saudi Arabia is exploratory in nature, and they have a proposal aimed at developing the “Skytower Zero Carbon Industrial Park.”

Moreover, the delegation is prepared to respond to specific projects related to renewable energy, hydrogen, and ammonia in Saudi Arabia.

Continuing his remarks, Bush said that the delegation’s strategy is fundamentally global, merging top-notch technologies and services from both the US and China. Additionally, it aims to draw capital investments of a magnitude like those made by Saudi funds to execute the proposed projects.

According to Bush, the delegation comprises organizations within the Zero Carbon alliance, whose objectives align with Saudi Vision 2030 and the 2060 Net Zero initiative.

He highlighted that the focus is currently directed towards investing in renewable energy sector infrastructure and manufacturing.

The alliance the delegation is seeking to form includes Atlas Renewable, a company led by Bush.

It also includes Energy Vault, a US-based renewable energy company specializing in the design, installation, and management of storage solutions.

Additionally, CNTY, a Chinese company active in renewable energy storage, and EIPC, a Chinese quasi-governmental organization, are set to be part of the alliance.

Bush stated that the Zero Carbon industrial park will rely on green energy sources, combining renewable energy generation with effective short- and long-term storage.

He elaborated that the consortium, known as the alliance, will attract renewable companies specializing in wind energy, solar energy, and storage technologies.

These companies will be encouraged to establish manufacturing facilities within the industrial park, thereby creating a substantial number of job openings in the region.

Bush added that global cooperation is essential in combating climate change, and it is exemplified by the approach of the alliance, which has been successfully implemented in China and Mongolia.

This approach involves bringing together the best expertise to design integrated systems that enhance the effectiveness of renewable solutions, with storage playing a crucial role in the mix.

Bush affirmed that the alliance holds the knowledge and expertise required to attain optimal operational efficiency for renewable systems

Bush also praised the current transformation taking place in Saudi Arabia, considering it a true and sustainable renaissance.

He explained that the significant changes occurring in the Kingdom, along with the growing number of diverse global corporate relationships being established, will undoubtedly operate according to global strategies, and connect nations worldwide, as Saudi Arabia emerges as a global hub.

Bush elaborated on the alliance’s perspective, emphasizing Saudi Arabia as the central hub for the entire Middle East.

He noted that a key objective of the alliance is to attract substantial investments and leverage cutting-edge technologies from the US and China to carry out crucial projects in Saudi Arabia, in line with its ambitious carbon-neutral objectives.

Furthermore, he highlighted that manufacturing companies will be attracted to establishing operations in the Kingdom to manufacture equipment that caters to domestic demands and could be exported to the broader region.

Business

Egypt Expects ‘Remarkable’ Increase in Direct Investment

Hossam Haiba, CEO of the General Authority for Investment and Free Zones (GAFI), and other officials during a ceremony granting a golden license to establish a home appliances factory. (Asharq Al-Awsat)
Hossam Haiba, CEO of the General Authority for Investment and Free Zones (GAFI), and other officials during a ceremony granting a golden license to establish a home appliances factory. (Asharq Al-Awsat)
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Egypt Expects ‘Remarkable’ Increase in Direct Investment

Hossam Haiba, CEO of the General Authority for Investment and Free Zones (GAFI), and other officials during a ceremony granting a golden license to establish a home appliances factory. (Asharq Al-Awsat)
Hossam Haiba, CEO of the General Authority for Investment and Free Zones (GAFI), and other officials during a ceremony granting a golden license to establish a home appliances factory. (Asharq Al-Awsat)

Hossam Haiba, CEO of the General Authority for Investment and Free Zones (GAFI), expected the Egyptian market to achieve a remarkable increase in direct investment in the coming period, following the huge presidential and governmental support to investment.

Haiba handed over two golden licenses to two manufacturers specializing in the production of home appliances and durable goods on the 10th of Ramadan City, bringing the total number of companies that obtained the golden license to 15 so far.

GAFI CEO emphasized that the future goal is that all investors obtain the golden license, to start pumping investments and establishing factories in the shortest time possible.

A statement issued by the GAFI revealed that the first golden license was received by Umit Günel, General Manager of Beko LLC. According to the license, Beko will establish a factory for the manufacture and assembly of durable consumer goods and electrical appliances.

The second license was received by Luis Alvarez, CEO of BSH Home Appliances, Egypt, and the owner of the trademark (Bosch), with the aim of establishing a factory for cookers and refrigerators.

Beko Egypt plans to complete the first phase of the factory by the end of this year, at an investment cost of USD 107 million. The factory will provide 1,300 direct job opportunities.

BSH Egypt will complete the first phase of its industrial project in the last quarter of next year, at an investment cost of 50 million euros ($53.5 million), creating 500 jobs.

The golden license is an all-inclusive approval whereby an enterprise can establish, operate and manage its project. It encompasses many permits including building permits and permits to allocate the necessary real estate for the project.

It is granted by a decree of the government to companies that establish strategic or national projects contributing to Egypt’s development.

During the past fiscal year 2021/2022, GAFI facilitated the procedures for establishing about 31,000 companies, in addition to facilitating the procedures for increasing the capital of another 2,000, with an increase of 9.4 percent in the number of firms.

Haiba added that the main factors that contributed to the decision to grant the golden license to the two companies are their plans to localize the technology of manufacturing home appliances in the Egyptian market and the target to export a large part of the products to foreign markets.

Such factors are consistent with Egypt's Vision 2030 and boost the Egyptian economy, he added.

Business

Turkish Lira’s Long Decline a Symbol of Strife

Seagulls gather on grass close to an electoral poster bearing a portrait of the Turkish President and leader of the Justice and Development (AK) Party Recep Tayyip Erdogan ahead of the May 28 presidential runoff vote, in Istanbul, Türkiye, on May 27, 2023. (AFP)
Seagulls gather on grass close to an electoral poster bearing a portrait of the Turkish President and leader of the Justice and Development (AK) Party Recep Tayyip Erdogan ahead of the May 28 presidential runoff vote, in Istanbul, Türkiye, on May 27, 2023. (AFP)
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Turkish Lira’s Long Decline a Symbol of Strife

Seagulls gather on grass close to an electoral poster bearing a portrait of the Turkish President and leader of the Justice and Development (AK) Party Recep Tayyip Erdogan ahead of the May 28 presidential runoff vote, in Istanbul, Türkiye, on May 27, 2023. (AFP)
Seagulls gather on grass close to an electoral poster bearing a portrait of the Turkish President and leader of the Justice and Development (AK) Party Recep Tayyip Erdogan ahead of the May 28 presidential runoff vote, in Istanbul, Türkiye, on May 27, 2023. (AFP)

As Türkiye's lira hit a record low ahead of the country's election decider on Sunday, the currency is looking increasingly dysfunctional with investors concerned about what may be in store if Recep Tayyip Erdogan secures another decade in power.

"Erdonomics", as the 69-year old president's unorthodox, growth-chasing policies are often dubbed, have driven the lira down 80% over the last five years, embedding an inflation problem and shattering Turks' confidence in their currency.

Since a painful 2021 crisis, the authorities have taken an increasingly hands-on role in foreign exchange markets, to the point that some economists now openly debate whether the lira can still be regarded as freely-floating.

Its daily moves have become unnaturally small and mostly go in one direction - down.

Tens of billions of dollars of FX and gold reserves have been used up - another sign of systematic micro-management.

Exporting firms are now obliged to sell 40% of foreign exchange revenues to the central bank, while a lira depreciation-protected bank deposit scheme that helped snuff out the 2021 turmoil remains a crucial but potentially costly defense.

"The key thing is that the lira is being artificially held in place," said Paul McNamara, director of emerging market debt at asset manager GAM, likening some of the measures to de facto capital controls.

Depositors have put some $33 billion into depreciation-protected bank accounts in the last two months, bringing the total to $121 billion - almost a quarter of all Turkish deposits.

"It is basically impossible to see a nice smooth resolution to all of this," McNamara said.

Credibility

Government insiders who spoke to Reuters in recent days have said there is now disagreement about whether to stick with the current economic strategy that prioritizes low interest rates, or switch to something more orthodox after the election.

The lira's close management has limited its drop to just over 2% since the first round vote two weeks ago, but other key markets have been signaling strong concerns that Erdogan will not change course.

The cost of insuring Türkiye's debt against default has shot up 40%. Benchmark international market bonds have fallen back 10%-15% and key FX market volatility gauges that look a year or more ahead have hit record highs.

Daron Acemoglu, an Institute Professor at the Massachusetts Institute of Technology, says the problem is the policy mix and dwindling FX and gold reserves, which are now $105 billion in gross terms but $115 billion in the red if FX swap arrangements and loans are excluded from the calculations.

"I am convinced that what we have right now cannot continue," Acemoglu said.

"The dollar-protected lira accounts, are they credible?" he asked, pointing to their potential cost to the government in the event of a full-blown crisis, and the fact that parallel exchange rates are now widely offered in Türkiye's bazaars due to the demand for dollars.

"We are getting back to the 1990s," he said referring to the build-up phase of one of Türkiye's most damaging crises that culminated in a devastating devaluation in 2001.

The final countdown?

Eyes are now on the FX reserves and the lira as it surpasses 20 to the dollar, the latest major milestone in its long descent.

Acemoglu said it was difficult to predict if or when things could come to a head. A strong tourist season should bolster reserves again in the short-term, while recent injections into the state coffers from "friendly" countries and Russia have also helped.

In the run-up to the election analysts at JPMorgan had forecast that the lira would fall as far as 30 per dollar without a clear shift back towards orthodox policy.

They now assume Erdogan secures victory on Sunday and makes good on his campaign promises to boost incomes and rebuild the country after February's earthquake.

Some investors are concerned that if the market spirals again, authorities might resort to more draconian capital controls, something the government has repeatedly said is not on the cards, as it seeks to cover its $230 billion, or 25% of GDP, external funding gap.

It has already spent years squeezing the life out of international lira lending markets to the degree that Bank of England data shows trading in major centers like London has shriveled to less than $10 billion a day on average from $56 billion back in 2018.

The increasing currency market dysfunction though has skewered optimism that previously brought many foreign investments to Türkiye.

"These weren't seen as cheap assets, they were seen as jewels," MIT's Acemoglu said of the M&A banking boom heyday. On the situation Erdogan now faces, assuming he wins? "I don't necessarily see an easy way out".

Business

Iraq Warned to End Oil Addiction to Avoid 'Intensive Care'

FILE PHOTO: A well head and drilling rig in the Yarakta oilfield, owned by Irkutsk Oil Company (INK), in the Irkutsk region, Russia, March 11, 2019. REUTERS/Vasily Fedosenko/File Photo
FILE PHOTO: A well head and drilling rig in the Yarakta oilfield, owned by Irkutsk Oil Company (INK), in the Irkutsk region, Russia, March 11, 2019. REUTERS/Vasily Fedosenko/File Photo
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Iraq Warned to End Oil Addiction to Avoid 'Intensive Care'

FILE PHOTO: A well head and drilling rig in the Yarakta oilfield, owned by Irkutsk Oil Company (INK), in the Irkutsk region, Russia, March 11, 2019. REUTERS/Vasily Fedosenko/File Photo
FILE PHOTO: A well head and drilling rig in the Yarakta oilfield, owned by Irkutsk Oil Company (INK), in the Irkutsk region, Russia, March 11, 2019. REUTERS/Vasily Fedosenko/File Photo

Oil-dependent Iraq has been warned its economy risks going into "intensive care" unless it diversifies in line with worldwide efforts to tackle the impact of fossil fuels on the climate.

The country's vast oil reserves are enough to produce crude at current rates for another century, but as the world works to wean itself off hydrocarbons, Baghdad has been slow to adapt, AFP said.

For years the energy industry has faced calls to help meet the goal of keeping global temperatures to 1.5 degrees Celsius above pre-industrial levels by reducing greenhouse gas emissions.

In April, the G7 countries -- Britain, Canada, France, Germany, Italy, Japan and the United States -- pledged to "accelerate" their "exit" from fossil fuels, aiming for carbon neutrality by 2050 "at the latest".

But sales of the commodity make up 90 percent of Iraq's budget revenue as it recovers from years of devastating conflicts and political upheaval, leaving it overly reliant on the sector.

"Currently, the whole economy depends on oil and the price of oil," political scientist Ammar al-Azzawi said.

"If oil plunges, our economy will go into intensive care."

His suggested remedy is to develop Iraq's industrial, agriculture and tourism sectors before the world shifts to alternative energy sources.

In March, the European Union said that by 2035 it would stop selling combustion engines in new cars, which will no longer be able to emit any CO2.

A global "energy transition is taking place, but not yet at the speed and scale that scientists and experts tell us is necessary to avert the worst impacts of climate change", said Ali al-Saffar, climate director at the New York-based Rockefeller Foundation.

'Seize the moment'

Suffering from prolonged droughts punctuated by frequent sandstorms, Iraq's 42 million people are already witnessing those consequences.

The largely arid country is considered by the United Nations as one of the five most affected in the world by certain impacts of climate change.

In 2020, during the coronavirus pandemic, Iraq saw the downside of its oil dependence when global demand for crude plunged.

"Iraq's export revenues fell precipitously and poverty rates doubled in the country almost overnight," said Saffar.

Ravaged by decades of conflict and home to crumbling infrastructure, Iraq needs oil income to fund reconstruction.

Sixty percent of public investment in 2021 was oil-related, compared with less than 17 percent in 2010, the World Bank said in a March report.

However, "the ease with which oil income is generated and can be redistributed to maintain networks of (political) power weakens" any push for reforms, the global lender said.

It urged Iraq to "seize the current moment of high oil prices" to begin its transition from oil dependence or risk facing more expensive and difficult reforms in future.

Baghdad will "diversify the economy" in the next 10 years, said Muzhar Saleh, economic adviser to Iraq's prime minister.

The government is focused on agriculture and major projects funded through public-private partnerships along with associated industries such as fertilizer production, he said.

With the introduction of modern irrigation technologies, Saleh hopes Iraq will increase its use of arable land from less than one million hectares currently to 1.5 million.

"In 50 years, we will not be as dependent on oil as we are today," he said.

'Green growth'

To initiate reforms needed to achieve "green growth", the World Bank estimates Iraq must spend $233 billion, spread out until 2040.

The bank said these investments include funding to increase the private sector's economic role and reform of the nation's failed electricity sector.

There are also several projects under way to reduce gas flaring, a polluting practice of crude extraction where natural gas escapes.

Iraq aims to have renewable energies cover a third of its electricity needs by 2030 and has signed several contracts for solar plants, including with TotalEnergies of France.

But while the EU is aiming to install electric vehicle charging stations on major highways by 2026 and hydrogen refueling stations by 2031, one Baghdad car salesman said Iraq is barely aware of the current hybrid vehicle technology he sells.

"The next step is electric cars... within two or three years," said Hassanein Makkie at his dealership.

But in a country where the electricity sector is far from reliable, the idea presents challenges.

"It takes a certain infrastructure to produce electricity in large quantities. We are not ready," Makkie said.