Why Investors Shy Away From Saudi Arabia – Bloomberg

 In World
As oil prices have slumped into the low $40s per barrel, a new economic model that would offset the losses for the Organization of Petroleum Exporting Countries is more urgent than ever, yet multiple Middle Eastern conflicts are making that tougher to achieve. It’s clear that oil, gas, refining and petrochemicals alone cannot provide the jobs and diversification that the Middle East needs. 

Put simply, a continual stream of bad news and threatened disruptions to business deters new investors, especially those from far away who lack the know-how to pick their way through local complexities. The scale of the challenge is stark, even for Saudi Arabia. 

There is only room for one Dubai — the financial, logistics and tourism hub — in the Gulf. Even if Saudi Arabia were to develop a Dubai of its own, it would represent only 15 percent of gross domestic product. Qatar can live comfortably off its liquefied natural gas exports, but if its siege is prolonged, its aspirations in aviation, tourism and the 2022 World Cup will lie in ruins.

In the region’s more stable countries, which have low production costs, energy investments remain attractive, despite tough fiscal terms.

For the more troubled nations, large-scale international investment is scarce outside secure enclaves. At least keeping them operational is essential to maintaining a functioning state, which can gradually reassert control. Governments and foreign players together need to realize that security and business-friendliness are not alternatives but inseparable.

In four countries in the Middle East and North Africa, the growth and even survival of the energy industry is threatened by violent conflict. In Syria and Yemen, oil and gas production has almost dried up, and there is no end in sight to multi-sided civil wars.

Libya’s oil has rebounded in recent months with a series of political deals to reopen terminals, approaching 900,000 barrels per day, its highest level since July 2013. That will be difficult to sustain given the continuing division between weak competing governments in the west and east of the country, and a looming fiscal crisis.

Iraq, with Mosul almost recaptured from the Islamic State, and investment picking up again in its southern fields, has prospects for strong gains in production this year, perhaps to above 5 million barrels a day from the current 4.4 million. But an increasingly complex situation along the Syrian border, with U.S., Kurdish, Turkish, Russian and Iranian interests clashing, is one worry; the Kurdistan region’s September referendum on secession is another.

The six wealthy states of the Gulf Cooperation Council, long an oasis in the region’s conflicts, are increasingly involved, too, backing various sides in the Syrian and Libyan civil wars.

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