Brave, bold experiments

With one bold stroke—handing over operating control of all its offshore hydrocarbon operations to Petrofac, a service provider—Dubai has raised eyebrows globally. No one has done this before. To do this the emirate had to take back control of its offshore fields from the main foreign concessionaire, Conoco Philips-operated Dubai Petroleum Company. But globalised, free-market Dubai’s motivation doesn’t seem to come from a desire to wrest control from a foreign private company. Dubai’s goal is to boost production from its declining fields.

The ground-breaking move, which in many ways is experimental, is one of a series of events in the region that show its governments are not resting on their laurels and basking in the glow of high oil prices. Nor are they refusing to engage with foreign firms and using demand pressure as a crude lever against international companies in the way that Russia and Venezuela are.

On the contrary, Dubai’s innovative move reflects how the region’s producers are repositioning themselves to take advantage of market forces and make the best of foreign technology and expertise. Oman and Saudi Arabia are working with foreign firms in enhanced oil recovery projects, while Qatar pushes back the technological frontiers of natural gas technology. In some cases, the economic moves are matched by political reforms, which in turn have an impact on petroleum and gas production.

Kuwait’s government is preparing to negotiate with the newly elected parliament over the cabinet’s plans to open the oil sector further to overseas investment and increase crude output.

The nations that are signing bi-lateral trade deals with the United States have agreed to legalise trade unions as part of the package.

And Iraq’s Kurdish regional government is using its newfound autonomy to let small foreign firms drill for oil and gas within its borders.

Nor are more economically conservative Iran and Saudi Arabia being left out—they are privatising their petrochemical sectors.

As Middle Eastern nations join the World Trade Organisation they have to open up their downstream operations to international competition, which will result in Shell and Total petrol stations flourising on Arabian roads.

Some of these experiments may fail while others prosper. But what they show is that the region is not staying static and making the mistake of using high energy prices as a cushion to sit on. Instead they are diversifying their economies and economic models and are trying out different and imaginative ways of doing things.

Although the Middle East’s political and economic systems are very different, its governments face many of the same challenges: growing populations of young citizens who need employment opportunities; economies that are very dependent on fickle energy prices; the remorseless march of globalisation and foreign competition; increasing rhetoric from the United States about finding other energy sources; and the region’s political instability.

The winds of change are blowing across the Gulf and, despite what many political analysts say, instead of battening down their hatches to insulate them selves from change, its oil producers are hoisting their sails to catch them.

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