CITI Bank Loans to Dubai Raise the Possibility of Future Economic Trouble For the Emirate

Take a careful look at this article from the WSJ from this week.

With questions about Dubai’s looming debt obligations swirling, Citigroup Inc said it had raised $8 billion for the Persian Gulf city-state over the course of the past year and still had a positive outlook on its economy.

CitigroupChairman Win Bischoff was quoted in the bank’s statement Monday as saying Citigroup continues to see Dubai as among its “most significant markets.”

“This is in line with our commitment to the [United Arab Emirates] market in general, and reflects our positive outlook on Dubai in particular,” the statement quoted Mr. Bischoff as saying.

Dubai’s transformation in recent years from a sleepy backwater port to a booming financial and shipping hub has come thanks to large infrastructure projects undertaken by state-owned companies such as Emaar and Dubai World. Dubai’s growth is now under threat because the emirate has had to rely almost entirely on outside financing to fund these projects, and project finance and foreign credit lines have shrunk because of the global credit crunch and falling oil prices.

Citigroup, which enjoys a longstanding banking relationship with the emirate, voiced its confidence at a time when Dubai has attempted to reassure investors and its creditors that it is capable of servicing the $80 billion of debt that the city-state and its companies have outstanding. More urgently, Dubai has $12 billion of nonbank debt coming due in 2009, according to Fitch Ratings.

Analysts and bankers in Dubai question where that cash is going to come from next year, especially since two pillars of Dubai’s economy — real estate and banking — are feeling the pinch. The statement from Citibank did little to address those concerns…SOURCE

Add to the artcle’s concern over banking and real estate a very real slow down in tourism and transport and the perfect economic storm beginning to hit the UAE is just starting to emerge.  Of course, you have to wonder what is going on a Citi Bank too when just in November they sold 6 billion in Dubai debt at a loss.

Oil’s Last Hurrah?: Why the Gulf May Never See $100 a Barrel Oil Again

When the Saudis upped their output to try to save the Republicans in Washington last Summer, few thought that  it would be the beginning of the same time of glut that hit in the early 1990′s when gasoline dropped to under $1.00 per gallon in the U.S.  However, that’s exactly where things are headed now.  It’s another perfect economic storm for the oil producers.  Demand crashed just as the KSA was trying to leverage political power in Washington D.C. through oil.  This was supposed to keep the economy on-track until after the November elections.  However, the wheels came off the economy a few months earlier than expected (in October).  This left OPEC in a very bad position.

Now, the price has fallen so much that there is almost no safety net.  Virtually every OPEC member (with the exception of Abu Dhabi @ $25) are at or below break-even pricing for oil.  This is going to put huge pressure on the Gulf economies going forward.

The bigger question is what happens to price now?  The situation is very similar to the crash of the early 1990′s.  Unless OPEC gets serious about controlling supply, I may take 5-10yrs to get the price where the Gulf economies want it. However, the push to keep some revenues coming in will keep the oil flowing.  OPEC’s problems will be much bigger over this price breathing space.  The world is gearing up to give up oil.  Alternative vehicles of many different types will come online over the next few years.  This will keep a permanent downward pressure on oil prices from about 5 years out when the manufacture and sales of such vehicles reach critical mass.

In the near term, oil will see $20 a barrel long before it reaches $100 again.  Peak oil theory is dead.  The new theory is ‘dead oil’.  Within 20 years the oil market will be relatively insignificant on the global stage. And, unless the Gulf can reposition itself economically there will not be a positive future going forward.

Here is the latest article on oil price from the Gulf News:

Oil dips to four-year low

http://archive.gulfnews.com/articles/08/12/05/10264892.html

12/04/2008 11:35 PM | By Himendra Mohan Kumar and Shakir Husain Staff Reporters

Abu Dhabi/Dubai: The price of global benchmark crude on Gulf News fell to below $46 (Dh168.9) per barrel to its lowest in nearly four years, causing more concern among major producers about the commodity’s sliding value.

Leading members of the Organisation of Petroleum Exporting Countries (Opec) with huge infrastructure projects to fund are worried about their shrinking export revenues.

With the prospects of global economic growth weakening, oil has shed about two-thirds of its value since July when it traded more than $147 per barrel.

In yesterday’s early trading, US light crude for January delivery was down 57 cents to $46.22 a barrel. It earlier touched a low of $45.30, the lowest since February 9, 2005. London Brent crude was down 67 cents at $44.77.

Yesterday Iran said $75 a barrel was a fair price, echoing earlier comments by Saudi Arabia’s King Abdullah Bin Abdul Aziz and Oil Minister Ali Al Nuaimi.

Iran also believes that the market is oversupplied and producers should cut output to balance the fundamentals of supply and demand.

“It is obvious that the market is oversupplied,” Reuters quoted Iran’s Opec governor Mohammad Ali Khatibi as saying.

Opec will announce a production cut at its meeting in Algeria later this month, Qatar’s Energy Minister Abdullah Bin Hamad Al Attiyah told reporters in Dubai on Wed-nesday.

Industry analysts said the fall in oil price could harm the Gulf economies, but for now these countries are cushioned against lower crude prices because of the financial reserves they have accumulated from the previous high revenues.