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New oilfield find a stroke of good luck for Dubai

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Anybody looking back over their life can recall moments that marked a turning point, or just sheer good luck. Dubai’s announcement that is has found a new offshore oilfield and will start production within a year appears to fall into this category.

Dubai has certainly had its run of misfortunes since the oil price drop in July 2008 and the financial crisis of that September. The worst moment was probably the debt crisis of mid-December last year that ended in an anti-climax with Abu Dhabi stumping up the cash.

New oilfield

We do not yet know how big or what production can be expected from the new Al Jalila oilfield, named after the daughter of the Ruler of Dubai and UAE Prime MInister Sheikh Mohammed bin Rashid Al Maktoum. But state news agency WAM said it ‘would give a strong impetus to all sectors of the local economy and provide a new source of income enhancing the comprehensive development of Dubai’.

Dubai oil production is understood to have dwindled to 50-70,000 barrels per day out of the UAE’s total of 2.3 million barrels per day which makes the country the world’s third largest oil exporter. This remains a useful cash flow for the emirate.

Debt mountain

Any new income will be welcome to help service the debts amassed by Dubai Government and state-owned companies in the boom years, variously estimated at between $85-170 billion. $22 billion in loans to Dubai World have been suspended pending a rescheduling of debts by the end of May or a liquidation of its real estate units Nakheel and Limitless.

Having struck oil last week Dubai will be hoping that good luck will come in threes, as the old superstition suggests. It is probably true that the emirate is already close to or at the bottom of its recent misfortunes.

A classic sign is an over-exaggeration of the negative, and international news comment has been heavily negative since the debt crisis. It is perhaps overlooking the obvious fact that in the event there was no debt crisis as the bills were paid up. That tends to suggest wealthy friends if nothing else.

It also emerged in The National last week that conditions applied to the money given to Dubai World from the Abu Dhabi bailout may make the Dubai Government a preferred creditor, above the banks, in any liquidation. That puts more pressure on the banks to settle, and would transfer assets from one government-owned entity to another in a liquidation.

More luck coming?

But after 18 months of bad luck, striking oil is a welcome piece of good fortune. What could reasonably follow?

One prospect is that the global stimulus plans produces higher general inflation levels though their printing of money, and that this results in another oil boom. This is what happened in the late 1970s and the economic conditions are not that dissimilar.

A third unexpected piece of good luck would be some kind of a breakthrough in the regional peace discussions. Dubai will always benefit as the regional commercial and financial hub city if business picks up in the Gulf.

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Written by Peter Cooper

February 6, 2010 at 10:07 am

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