Category Archives: Iraq

Economic Impact of US Intervention in Syria

As the world awaits the decision of whether the US will intervene in Syria’s bloody civil war, the price that country is paying is growing day by day.

Hundreds of thousands of people have been slaughtered and cities that were once cultural capitals have been annihilated. Inflation is at triple digits, GDP has literally halved and the jobless rate has quintupled.

But the key question today, and the one that President Barack Obama has brought to US Congress, is whether military-led intervention will serve as an overdue punishment and warning to Bashar Al Assad and his regime, or whether it will simply deal a final blow to the country as the Syrian regime’s allies retaliate aggressively at the expense of innocent civilians.

While it is the humanitarian cost that is the number one consideration here, the economy, even in its current state, is still a lifeline for thousands of Syrians. The global economic impact of an escalation of the civil war is also a factor that is being mulled because of the ripple effect on global markets.

Based on interviews with half a dozen senior economists focused on Syria, Rebel Economy has put together a list of the key economic impacts of US military-led intervention in Syria:

Higher Oil Prices

Although Syria is not a major oil producer, many expect the oil price to spike, mainly because Western intervention in Syria is likely to lead to a bigger regional conflict involving major oil producers and two strong allies to the Assad regime, Iran and Russia.

More than two years into Syria’s civil war, Assad is settling his bills for Russian arms orders to try to shore up ties with his most powerful ally, this Reuters investigation reveals.

Oil prices have already hit an 18-month high, but if the civil war escalates with military strikes the oil price is expected to spike further, playing havoc with global markets as the cost of production soars.

Some oil analysts are estimating that Brent Crude could rise above $120 per barrel as a result of a military strike, while some, including those at Société Générale, see prices climbing to $150 per barrel in the short-term.

A possible spillover into Iraq, OPEC’s second largest producer, would cut the volume of oil from the global market and raise prices. Iraq’s Kirkuk oil pipeline has already been targeted six times in August. This has forced Iraq to cut oil shipments from pipeline by more than half for September.

Foreign Currency Troubles

Pressure on foreign reserves will grow as energy prices rise, especially in countries dependant on imports. Some countries near to Syria are particularly vulnerable to foreign currency pressures, including Lebanon and Jordan whose currency reserves stand at near 10-year lows. This means they could have trouble covering the cost of imports if the conflict in Syria escalates.

And the lower reserves fall, the more currency depreciation is possible and the more pressure on imports.

In Syria, in the days following the US’ announcement of possible military intervention, the Syrian pound has taken a beating on the black market.

Here’s Professor Steve Hanke’s update. He’s a professor of Applied Economics at Johns Hopkins University:

The Syrian pound (SYP) has lost 24.07% of its value against the US dollar in the two days since Kerry’s announcement. Currently, the exchange rate sits at 270 SYP/USD, yielding an implied annual inflation rate of 291.88%. In countries with troubled currencies, there is no better measure of economic expectations than the black-market exchange rate. The recent deterioration in the SYP/USD exchange rate clearly indicates that Syrians are anticipating Western military intervention in the near term.

Trade Routes Disrupted

Analysts say it’s unlikely for key ports in the Gulf or cargo traffic through the Suez Canal to be disrupted as a result of military intervention, however perception is king.

Even the threat of increased disruption could send insurance rates skyrocketing and delay the passage of goods passing through Lebanon’s Port of Beirut.

Contagion effect

Aside from the impact on the oil markets and the major oil producers tied to Syria, many other countries in the region could see an adverse impact on their economies because of Syrian strife. Turkey for example, already suffering from a hard to manage current account deficit, could see it widen as political instability weakens the lira and raises oil prices.

And of course Israel has threatened aggressive action if attacked by Hezbollah or the Syrian army, which could impact both Lebanon and other countries in the region if the conflict escalated fast.

Overstating the impact?  

Despite all the above pointing to an Armageddon scenario, some still say that an intervention will do no more than dent the Syrian regime.

Samer Abboud, a visiting scholar at the Carnegie Middle East Center and political economist, says the “regime is so boxed in economically and any major economic effects have already occurred – sanctions, the disrupting of production and trade routes, and so on – that the “limited and narrow” strikes will not be as debilitating as we may think”.

For one, though we mentioned above the impact of trade routes, in fact local reports from Lebanon suggest the Port of Beirut is doing much better than expected. The Daily Star reports:

About 2,200 such vehicles enter the port daily, twice the number at the start of the year, and the multicolored containers are stacked five high rather than three. While Lebanon’s growth has suffered during the two-and-a-half-year conflict next door in Syria, port traffic has risen as traders avoid risky overland transit. Domestic demand is also increasing as Lebanon absorbs 1.2 million Syrians fleeing their war-torn country.

Unlike Libya, which had little to no foreign support, Syria has the powers of Iran and Russia behind it arming it and financing the regime. The West’s reluctance and delay to intervene is also ultimately buying more time for the Syrian regime to replenish stocks, move somewhere new and high military assets.

It has also weakened the West against Syria, allowing the regime and its allies to calculate that any intervention will be short and not a major long-term threat, according to Abboud:

Regime allies are unlikely to cease financial and material support in the aftermath of intervention, regardless of whether the regime is perceived to be losing ground on the battlefield. Intervention will only strengthen the commitment and resolve of regime allies and supporters, particularly Iran and Hezbollah. If they can withstand the intervention, then the West’s only major military option will have been confronted.

What is clear is that even though the question of intervention is complicated and mired with complexities, the longer the West waits to decide, the more time the Syrian regime has to retaliate with strength.

Why The Oil Market Is Wrong On Egypt

This guest post is by Robin Mills, energy strategist and economist. He is the author of “The Myth of the Oil Crisis” and “Capturing Carbon”. 

An unlikely pairing has made it to the headlines this week: international oil markets and Egypt.

The price of US light crude oil has risen above $100 a barrel for the first time since September 2012 while Brent crude oil, the European benchmark, has risen to about $105, apparently on concerns over political turmoil in Egypt.

Energy analysts left, right and centre say there’s risk the unrest in Egypt could spread to other parts of the Middle East impacting oil supply.

But there is no truth in this.  Oil markets are usually jumpy over perceived geopolitical risk, even when there is no logical connection to any realistic supply disruption. 

Most importantly, Egypt is not a major oil exporter – in fact, it is a net importer of about 90,000 barrels per day (bpd). Fears that Egyptian turmoil will spread to neighbouring countries could only be rooted in an ignorance of the region and a lack of awareness of the past two and a half years.

Some of the increase in oil prices may be driven by fears for the Suez Canal.  But this is actually not such a vital waterway for oil – nothing like the celebrated Strait of Hormuz, which carries some 17 million bpd of crude oil.

In contrast, the Suez Canal transited a measly net of about 100,000 bpd (see the table below for details) in the first three months of this year.


What’s more, the Suez Canal is even less significant for oil transport than Egypt’s Sumed pipeline, which runs from Ain Soukhna on the Red Sea, crosses the Nile south of Cairo and terminates at Sidi Kerir near Alexandria on the Mediterranean.

It carries crude oil from south to north, and transported 1.7 million bpd of oil in 2011, up from 1.1 Mpbd in 2010.

If anything, liquefied natural gas (LNG) transit through Suez is more significant on a net basis, mostly running south-north (probably largely representing Qatari supplies to Europe).

A disruption in Suez, which seems unlikely, would have much more significant implications for world trade generally, than for oil specifically.

The bottom line is that more worrying for oil markets should be the disruption of Libyan production, now below 1 million bpd due to strikes and protests, and the continuing crisis in Iraq, a major oil producer. Yesterday, in continuing insecurity, two cars bombs exploded in the southern oil city of Basra, which had been relatively secure.

Iraqi oil exports in June were at a 15-month low due to pipeline sabotage, technical problems and bad weather at southern loading ports.

The real reason there has been a relative gain of US oil prices over European prices is clearly not because of Middle Eastern events, but due to other domestic developments including new pipelines that will open up once landlocked crude supplies in Oklahoma.

On the other hand, negative factors seem to be overlooked – the reduced probability of conflict with Iran after the election of pragmatist president Hassan Rouhani, and weak Chinese economic data.

As often happens, with a collection of data pointing in opposite directions, the oil market has chosen the most dramatic, if the least relevant, to respond to.

Breakfast Wrap: Citadel’s New Energy Chief, Centamin Spat, Mubarak-Era Projects

Egyptian private equity outfit, Citadel Capital, has appointed petroleum industry veteran, Mohamed Shoeb, as Managing Director of its energy division.

It is the latest sign of how Citadel is quietly moving toward filling a gap in the energy market which is likely to be left after a reform of the country’s energy subsidies.

Shoeb is the former head of the state-run gas company, Egyptian Natural Gas Holding Company (EGAS), and prior to that was the vice Chairman for operations at the state oil company, Egyptian General Petroleum Corporation (EGPC).

The problems attached to both companies do not reflect kindly on Shoeb; EGAS was at the centre of a politically controversial cancellation of a gas contract to Israel, while EGPC is facing a potential bail-out from Egypt’s banks because of a mounting debt pile to foreign oil companies and banks for energy exploration.

However, the former EGAS head brings experience and knowledge of the nation’s state energy industry (and its specific challenges) that would be hard to find elsewhere.  Importantly, he has deep connections in the sector that will come in very useful for Citadel at a time when its most high-profile investments are in the energy market. These include:

– a $3.7 billion financing package for the Egyptian Refining Company project 

– A joint venture with Qatari investors to import liquefied natural gas into Egypt from mid-2013

UPDATE – This morning Citadel Capital sent a statement saying it had sold one of its investments, in a further sign that the private equity firm is focusing its strategy around five sectors including energy and transportation.

Its portfolio company National Petroleum Company Egypt Ltd. sold National Petroleum Company Shukheir Marine Ltd. to Sea Dragon Holding Ltd., a subsidiary of Canada’s Sea Dragon Energy.

“This transaction is the first of a number that will see us exit non-core portfolio and platform companies as part of our transformation over the coming three years into an investment company,” said Citadel Chairman Ahmed Heikal.


A spat between EGPC and Centamin’s Sukari goldmine appears to be almost resolved after customs authorities on Sunday allowed an export shipment of 1,600 kilograms of gold to the Netherlands, Egypt Independent reports.

Shipment had been halted by Egyptian customs because the petroleum and finance ministries had said Centamin owed the authorities back-dated payments for fuel. Centamin denied this and said its payments were up to date.

Josef El Raghy, chairman of Centamin, has faced labour strikes and fuel shortages that have forced the firm to halt production twice this year.

It’s a stark reminder of both a highly bureaucratic state where the lack of a signature can halt valuable exports that could shut a company down, and how fuel shortages at EGPC have the potential to trickle into important industries across Egypt.


One clear characteristic of the Morsi administration’s economic programme is its resemblance to Mubarak-era projects.  The following is no exception.  Egypt Independent reports:

Prime Minister Hesham Qandil has tasked the agriculture, irrigation, electricity and investment ministries to begin implementing a project the government hopes will reclaim and cultivate a million new acres of farmable land over four years

The mega-project aims to build up wheat production by 25%, corn production by 15%, and oil production from 10% to 40%. Sounds ambitious. For many investors, this announcement may appear flippant, especially given the agriculture minister’s throwaway remarks that “the project aims to reach self-sufficient production levels”.  By when? And how? Critical questions such as this are almost never answered.
National Bank of Egypt, the country’s biggest state bank, will finance the project. NBE has increasingly become the “Bail-Out” bank of Egypt, supporting EGPC and stepping in when projects get pricey.
Perhaps this project has the more realistic traits.  Egypt’s renewable energy authority, (NREA) will offer 7, 622km sq of land for private sector investors to wind energy stations under the Build, Operate, Transfer (BOT) scheme, Daily News Egypt reports.
The BOT scheme has been used by Egypt regularly in the past to help get past the financing hurdle for big infrastructure projects. It means a private entity receives a concession from the private or public sector to finance, design, construct, and operate a facility stated in the concession contract.  The government benefits from the final product – in this case, wind energy.
Under the BOT scheme:
Land would be sold to private companies for a small fee under the BOT scheme, granting them use anywhere between 20 to 25 years. Products used by private companies in the production of renewable energy sources would not be subject to taxes or customs duties.
Land is being offered in the Gulf of Suez area (1,222 sq km), West Nile (4,200 sq km) and East Nile (2,200 sq km) regions.
Energy giant BP is seeking to change the terms of its contract with the Iraqi government for the Rumaila oilfield in a reflection of the challenges facing western oil companies as they try to ramp up oil production in a country still dogged by poor infrastructure, red tape and export bottlenecks, the Financial Times reports.
The company is asking to scale back production, underscoring “how a lack of infrastructure and bureaucratic problems are constraining the growth of Iraq’s oil industry, forcing companies operating there to re-evaluate their production plans”.  

Breakfast Wrap: Lights Out for Egypt? A Show for the IMF, Qatar Defence Plans

If the latest comments from the government can be believed, the decision to enforce a 10pm curfew today for shops and restaurants will be postponed “indefinitely”, local development minister Ahmed Zaki Abdeen told Al Masry Al Youm.

Read this as: “We have realised that this move, meant more as a symbolic gesture to save energy and appear proactive, will actually be more detrimental than helpful for the domestic economy, and we have decided to abandon these plans for now.”

Aside from creating another situation where a lack of clarity is unnerving for the business community, whatever the government does now is likely to be criticised.  They either back-track from an original decision, making the president and his ministers look weak, or they stick to the plan which will cost the economy billions of dollars.

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On the bright side negotiations over a loan with the International Monetary Fund has pushed the Egyptian pound to a near 8-year low, Reuters reports.

Now is the time to swap all your pounds for US dollars! Personally I hold my cash in Sterling, the strongest currency in the world (Disclaimer: this is not investment advice, and I am not an investment advisor, but I am British and I have a strong alliance to the Great British Pound.)

Traders said that by letting the pound slip, the government seemed to be signalling to the IMF it is prepared to be flexible over the value of the currency, which many analysts say is substantially overvalued against the dollar, the Reuters report said.

This may be a comfort to the IMF delegation in Cairo, but it’s only the tip of the iceberg.  Some evidence must be offered to the IMF to show the government is full-steam ahead with energy subsidy reform, the biggest drain on the country’s finances and one of the reasons why foreign reserves have been down (i.e. to fund petroleum imports).

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Citadel Capital, an Egyptian private equity outfit, are slowly moving in to fill the gap that is forecast once the country’s subsidies package diminishes. 

The company’s $3.7 billion investment in the Egyptian Refinery Company was one way of doing this (refine at home rather than import more expensive already refined fuel).

Another is through investing $200 million on barges, ports and storage facilities that are already handling shipments of wheat, cement and phosphate, Bloomberg reports.

Why? Because as the subsidy reform hits Egypt’s transport system and cheap fuel is a thing of the past, trucks and railroads will cost more to run, tipping the scale towards cheaper modes of transport like barges.   

Within five years, the share of cargo moved by river may jump to at least 15%, [from just 0.5%] said Stephen Murphy, a managing director at the company.

Savvy, those Citadel Capital guys.

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Another group of shrewd, albeit indulgent, investors are the Qataris.

This FT piece on the reasons behind Qatar’s decision to create a 50 million Euro fund to invest in some of Paris’s poorest suburbs shines some light on the investment strategy behind the Gulf state.

The French political right and left united in disapproval.

Yet the reaction shows a fundamental misunderstanding of the way Qatar operates globally and what it is trying to achieve. The pattern of its international relations shows its investments are geared primarily to three things: profit, security and building a brand that appeals to its western allies despite not being a democracy.

It’s not until you get to the end of the piece that you realise why it’s singing the praises of Doha.

The author is deputy director for the Royal United Services Institute (Qatar), and would probably get fired if he wrote anything else. But still, interesting read in Qatar’s defence plans.

Breakfast Wrap: Iraq Central Bank Head Suspended, Mubarak’s Laundromat

Nothing is more controversial in business and finance than banking, as we saw yesterday with the media storm that erupted after the departure of Vikram Pandit as chief executive of Citigroup.

But the most contentious of all are the central banks.  These are organisations sitting at the juncture of both economic and government policy.

Yesterday we saw how controversial this industry can be when the governor of Iraq’s Central Bank was booted over allegations he had intentionally weakened the value of the Iraqi dinar against the US dollar.

“The cabinet decided to authorise Abdelbassit Turki, the head of the Board of Supreme Audit, to run the central bank indefinitely,” Prime Minister Nuri al-Maliki’s spokesman Ali Mussawi said, adding that Sinan al-Shabibi had been suspended from his post by the anti-corruption watchdog.

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Breakfast Wrap: Oil Companies In Egypt, Elitism in Politics, Strikes Impact Economy

In case you were wondering, Egypt continues to attract investment from foreign oil partners and the billion of dollars they are owed by the Egyptian government is not putting them off, the head of the state-run gas company Egyptian Natural Gas Holding Co told Bloomberg yesterday.

Chairman Mohamed Shoeib was so positive in fact that he said his company’s debts to overseas partners “aren’t that high,” without being more specific.

It’s a strange comment at a time when Egypt clearly owes even small and medium sized oil companies such as UK-based Dana Petroleum (not to be confused with the UAE-based Dana Gas) tens of millions of dollars.

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