FEBRUARY 7, 2000

CONTENTS:
o   NEWS
  ·   REGION
        -RUSSIAN TANKER SEIZED VIOLATING SANCTIONS
        -BLIX TO START         
  ·   BAHRAIN
        -CONTACTS WITH ISRAEL
  ·   OMAN
        -WORLD TRADE ORGANIZATION 
  ·   SAUDI ARABIA
        -SOCCER MATCH WITH IRAQ  
  ·   UAE
        -MILITARY EXERCISE WITH FRANCE  
o   BUSINESS
  ·   REGION
        -ENERGY FUTURES
        -PRE-CONFERENCE SESSION ON OIL
  ·   KUWAIT
        -OIL DEAL LAWSUIT
  ·   SAUDI ARABIA
        -SEISMIC PROGRAM CONTRACT   
  ·   UAE
        -EXCHANGE LAW SIGNED
        -JOINT OIL PRODUCTION WITH JAPAN  
·   PERSPECTIVES
    o   ANALYSIS-Saudi Arabia, Oman knocking on WTO door
    o   ANALYSIS-Defiant OPEC unmoved by oil price pain
    o   IRAQ - OIL FOR FOOD UPDATE
 
 
·   LAST LINES

********************************************************************

                ~~~ HEADLINES ~~~~~~ HEADLINES ~~~~~~

 
   REGIONAL
 
RUSSIAN TANKER SEIZED VIOLATING SANCTIONS
A privately owned Russian tanker -- the Volgoneft-147 -- was seized on
February 3 in the Gulf of Oman by U.S. Navy forces after it was tracked
from Iraq and through Iranian territorial waters.  Secretary of Defense William Cohen said analysis of oil samples from the tanker revealed the oil
originated in Iraq, a violation of UN sanctions.  He added, "There also was
an Iraqi naval officer aboard the ship so it's pretty clear."  Moscow has
demanded the release of the ship, claiming oil samples reveal the cargo to
have originated in Iran.  The ship was diverted to an anchorage near
Muscat, Oman.

The standard practice for ships seized for violating sanctions has been to
sell the cargo with proceeds going to the UN.  The nation receiving the
diverted vessel to is then able to dispose of it -- either returning it to
the owner or through an open sale.  Officials in Moscow warn the seizure
will damage relations with the U.S.  Meanwhile, the U.S. is beefing up
Maritime Intercept Operations forces, according to Secretary Cohen, "We and
the United Nations want to maintain a containment policy to make sure that
we intercept as many illegal operations as we can."   Source: BBC, Reuters
"Tanker Smuggling Iraqi Oil"
"U.S. Diverts Russian Tanker to Oman"
"Sanction Busting Suspect Detained"
 
BLIX TO START
The UN Secretary-General, in a letter to the Security Council that was
issued (February 8), said that Hans Blix's appointment as Executive
Chairman of the UN Monitoring, Verification and Inspection Commission (UNMOVIC) would take effect on March 1.  In his letter, the Secretary-General says that he expects to be able to consult with Security Council members on that issue later this month. In response to questions about whether Iraq has indicated its acceptance of Blix, the Acting Deputy Spokesman noted that the United Nations has not received any communication from Iraq about whether Blix can work there. He noted that the Chairman's first tasks would be to form the College of Commissioners, produce a program of work and draft proposals for consideration by the Secretary-General and the Security Council. Only after that would the question of permission to work in Iraq arise.  
Source: UN Press Briefing, February 8, 2000; Provided by the Office of
International Information Programs, U.S. Department of State.

·   BAHRAIN
 
CONTACTS WITH ISRAEL
Crown Prince Shaikh Salman Bin Hamad Al-Khalifa met with former Israeli
Prime Minister Shimon Peres during the recent World Economic Forum in
Davos, Switzerland according to a Reuters report on February 1.  Shaikh Salman said relations with Israel would depend on progress in the peace process. His comments on the meeting, the first high level contact between Bahrain and Israel were reported in the Al-Hayat newspaper, "We told him we are approaching peace and if they are honest and take one step then we will take two steps. It was an initial meeting and God willing other moves, which we are studying, would be based on that. But, in the end, this depends directly on the peace process."  Source: Reuters, Al-Hayat

·   OMAN  

WORLD TRADE ORGANIZATION
Muscat is optimistic the WTO will accept its membership application at the
February 29 meeting according to Ministry of Commerce and Industry senior
official Said Riyami, quoted in a February 5 Reuters report.  Riyami said,
"We are confident that the WTO's working committee will adopt Oman's
schedule of commitment in goods and services in the February 29 meeting in
Geneva."  He also told Reuters that major foreign trade obstacles to
membership had already been removed.  Oman initiated the WTO membership
application in 1996. [See WTO membership analysis in this week's
"Perspectives."]
 
·   SAUDI ARABIA
 
SOCCER MATCH WITH IRAQ
An Iraqi soccer team will play a Saudi Arabian club in the Kingdom on
February 9 -- the first visit of an Iraqi team to the country since the
Gulf War in 1991 -- according to an unnamed source cited in a Reuters February 3 report.  The match is part of the Asian Club Championship.  Source: Reuters

·   UAE
 
MILITARY EXERCISE WITH FRANCE
Troops from France began the ground segment of military exercises -- dubbed
Gulf 2000 -- with UAE counterparts February 2 according to the official
news agency WAM and Reuters.  The maneuvers will run through February 10 and include 30 aircraft, naval components -- such as the aircraft carrier Foch, escort ships and a submarine -- as well as 5500 troops.  WAM quoted UAE Chief of Staff Shaikh Mohammed Bin Zaid Al-Nahayan as saying, "Gulf 2000...aims at raising the fighting ability and increasing the effectiveness of cooperation among the participating troops."  France and UAE signed a defense cooperation agreement in 1995.  French forces will also exercise with forces from Kuwait, Oman and Qatar later this month.  Source: Reuters, WAM

~~~~BUSINESS AND FINANCE NEWS~~~~

·   REGIONAL
 
ENERGY FUTURES - AT WEEK'S END - 02.04.00
Light Crude (NYM)       $28.70/bbl UP from $27.55/bbl on 01.28.00
Brent Crude (IPE)       $25.97/bbl UP from $25.90/bbl on 01.28.00
Heating Oil (NYM)       $.788/gal UP from $.732/gal on 01.28.00
Natural Gas (NYM)       $2.74/mmbtu UP from $2.54/mmbtu on 01.28.00
Unleaded Gas (NYM)      $.797/gal UP from $.748/gal on 01.28.00  
Source: CNNfn.com 

PRE-CONFERENCE SESSION ON OIL
A meeting of oil ministers from the GCC states is set for February 23 in
advance of next month's OPEC conference in Geneva where talks will focus on
the extension of oil production cuts according to a Qatari oil ministry
official.  The report by Reuters, carried in Gulf News, noted that U.S.
Energy Secretary will be visiting Saudi Arabia and Kuwait for oil market
discussions around the same time as the oil ministers meeting.  Among GCC
states only Bahrain and Oman are not members of OPEC.  Source: Gulf News,
Reuters
 
·   KUWAIT
 
OIL DEAL LAWSUIT
BP Amoco is excluding three partners in its effort to win the rights to
explore potentially rich oil fields in northern Kuwait as claimed in a
lawsuit filed on February 1 and cited by Paul Thomasch writing for Reuters.
LASMO Plc, Khaleej Petroleum Co. and Al Nawasi Trading Co claim BP Amoco is
breaking a 1997 teaming contract.  Reuters quoted Washington attorney
Jonathon Schiller as saying, "This lawsuit was made necessary because BP
Amoco refused to include its partners...in the consortium submitting a bid
on this enormous and important Kuwaiti oil project."  Kuwait will open
private bidding for rights to explore the fields this spring and could
bring in over $7 billion in foreign investments according to Reuters.  Source: Reuters.

·   SAUDI ARABIA
 
SEISMIC PROGRAM CONTRACT
Saudi Aramco awarded a contract to Petroleum Services ASA for a large 3D
seismic program in the Kingdom.  The project will start this year and run
through 2003 with an option for Saudi Aramco to extend it for two
additional years.  The first three years of the contract is valued at over $50 million.
Source: Business Wire
 
·   UAE
 
EXCHANGE LAW SIGNED
President Shaikh Zaid Bin Sultan Al-Nahyan approved the formation of a
stock exchange regulatory agency clearing the way for stock markets to open in Dubai and Abu Dhabi this year according to Tara FitzGerald writing for Reuters on February 2.  The infrastructure has been in place and trading is expected to open by April in Dubai and in Abu Dhabi within six months thereafter.  According to the official WAM news agency, Economy Minister Sheik Fahem Al Qasimi said, "The law paves the way for dealing in stocks in a legal and transparent way and will preserve stockholders' rights."  Source: Reuters, AP, WAM
 
JOINT OIL PRODUCTION WITH JAPAN
The Japan National Oil Corp (JNOC) will cooperate with the Abu Dhabi
National Oil Company (ADNOC) in developing the oil industry in the UAE
according to an official WAM news agency report, cited by Reuters on
January 31.  The JNOC-ADNOC agreement for technical research and development of oil production was signed during a recent visit of JNOC's chief to the UAE. Source: WAM, Reuters

~~~ PERSPECTIVES ~~~~~~ PERSPECTIVES ~~~~~~

                     *     GW     *

NOTE: GulfWire wishes to thank Reuters for granting permission to reprint
this article.
 
ANALYSIS-SAUDI ARABIA, OMAN KNOCKING ON WTO DOOR
By Tara FitzGerald

DUBAI, Jan 24 (Reuters) - Saudi Arabia and Oman, the only Gulf Arab states
outside the World Trade Organization (WTO), will boost their investor
appeal by joining the group and encourage much-needed economic liberalization, analysts say.

Both countries expect their bids for membership to be successful soon and in Oman's case, membership could be imminent, trade officials said.  
Analysts said Saudi Arabia, which has a closed economy that offers high
levels of protection to many of its industries, stands to benefit the most
from the wider access to markets that is offered by WTO membership.
 
"This (Saudi Arabia) is a country that will benefit from opening up its
economy, especially for the major exports like petrochemicals among
others," said Henry Azzam, chief economist at the Beirut-based Middle East Capital Group.

The country derives more than 70 percent of its export earnings from oil.
Saudi Minister of Commerce Osama bin Jaafar bin Ibrahim Faqih said recently
the kingdom had completed multilateral talks within the framework of the
organization and was now negotiating at the bilateral level.
 
One Riyadh-based economist said WTO membership would raise Saudi's GDP
growth by between 0.5 and one percent per year, kicking in around one year
from accession. Economists have estimated real GDP growth at 2-2.5 percent
this year.
 
WTO MEMBERSHIP HAS PROS AND CONS
But membership could also be a double-edged sword.
 
Accession will mean the removal of government subsidies to the private
sector and agriculture, as well as abolishing trade barriers, quotas and
customs duties.
 
"With the removal of subsidies and tariffs (local) industries will suffer,"
said Said al-Shaikh, chief economist at Saudi Arabia's National Commercial
Bank.
 
"As a result Saudi will gradually have to shift to more of an
export-oriented industry to seize more available opportunities," Shaikh
added.
 
BENEFITS FOR OMAN LESS OBVIOUS
 
Azzam said membership benefits were less obvious for Oman as it did not
have such developed industry sector and exports.

An official at Oman's Ministry of Commerce said the sultanate had now
removed all major foreign trade obstacles to full WTO membership.
 
"Oman is quite advanced in its accession bid and does not need much more
time. It's just a question now of coming up with the final documents," one
official in Geneva told Reuters.
 
Aubyn Hill, general manager at the National Bank of Oman, said he thought
WTO-inspired competition would be important in increasing efficiency in the
sultanate's banking sector.
 
Oman began moves to join the organization in 1996, while Saudi's accession
bid started in 1993.
 
Late last year, Saudi Arabia announced a series of unprecedented
liberalization measures aimed at opening up its economy to foreign
investment. These measures would also effectively remove some of the
obstacles to WTO membership.
 
Saudi Crown Prince Abdullah said in October the kingdom was working towards
relaxing legal restrictions hampering foreign investment, including
reviewing tax laws for foreigners and allowing them to own property.
 
But diplomats and analysts say the kingdom still has some way to go in
opening up its economy.
 
"They still have to move on liberalizing trade and services and opening the
economy more before members like the Americans and the Canadians and others
are fully prepared to endorse their membership of the WTO," one
Riyadh-based Western diplomatic source said.
 
The Economist Intelligence Unit said in a country outlook this month that
the Saudi government would persist in its determination to join the WTO,
"although it may balk at the timetable for liberalization such a move would
require."
 
(With additional reporting by Saleh Al Shaibany in Muscat)
 
Copyright Reuters Limited 2000
 
                             *     GW     *
 
NOTE: GulfWire wishes to thank Reuters for granting permission to reprint
this article.
 
ANALYSIS-DEFIANT OPEC UNMOVED BY OIL PRICE PAIN
 
By William Maclean
 
LONDON, Jan 25 (Reuters) - A reinvigorated OPEC seems in no mood to listen
to complaints about high prices as it luxuriates in a revived flow of
petrodollars.
 
A steep oil price rise is putting fresh pressure on the exporter cartel to
release its grip on the taps and stop markets soaring out of control,
analysts say.
 
But oil ministers enjoying the highest prices since the 1991 Gulf War
appear determined that nothing shall spoil the party.

"What (price) rise? There is no rise. It is normal, very normal," Kuwait oil Minister Sheikh Saud Nasser al-Sabah said.

OPEC ally Mexico says the latest spike is a blip. Venezuelan Oil Minister
Ali Rodriguez sees only a "short term phenomenon."
 
The Organization of the Petroleum Exporting Countries has engineered the
highest prices in nine years by curbing supply, swelling the coffers of
member states after a damaging glut and price slump in 1998.
 
Key producers including OPEC kingpin Saudi Arabia are now suggesting
year-long curbs on output should be extended beyond their end of March
expiry to shore up prices.
 
But the prospect of ever tightening supply is raising concern in Washington
about renewed inflation in a presidential election year if prices stay too
high too long.
 
OIL SHORTAGE COULD GET WORSE

"Does OPEC have a death wish after all?" said London's Center for Global
Energy Studies (CGES).

"It seems key OPEC decision makers have forgotten the havoc wreaked on oil
demand in the 70s and early 80s by gratuitously high oil prices."
 
U.S. Energy Secretary Bill Richardson announced on Monday he would hold
talks next week with the oil ministers of Mexico and Venezuela and next
month with their counterpart in Saudi Arabia.
 
He has recently made plain his concern at the highest prices since the 1991
Gulf War and at global oil stockpiles sinking toward record lows.
 
OPEC can ill afford to ignore the United States, which wields enormous
commercial influence as the world's largest energy market and is a hungry
customer for Saudi, Venezuelan and Mexico crude.
 
It also enjoys huge political clout as Saudi Arabia's dominant strategic
ally.
 
Analysts note Richardson has been urged by some members of Congress to tap
the nation's oil emergency stockpile to push down prices.
 
But OPEC sources say the group is not about to buckle to pressure. They say
the latest price spike of $3 a barrel in the past two weeks has more to do
with a temporary blast of unusually cold weather in the northeastern United
States than with global supply and demand.

Prices will cool off as temperatures return to normal, they say, pointing to a $1.50 fall in the price of benchmark Brent since a fresh nine-year peak of $27.11 on Friday.

"There is no shortage of oil," a Gulf Arab source said, adding Richardson's
gambit appears more to do with U.S. domestic politics than with the
realities of the global oil market.
 
"We have to stop this business of trying to always interfere in things when
the situation changes," the source said of Richardson's proposed visit to
Saudi Arabia next month.
 
"I understand traders doing this, but I don't understand officials doing
this."
 
OPEC MAY OVERPLAY ITS HAND
 
But analysts warn OPEC against overplaying its hand. While the cartel may
look askance at political pressure, it cannot ignore the threat to its
market share posted by high prices.
 
A lengthy spell of firmer prices will encourage investment by producers
outside OPEC that will eventually bring on new supply that could threaten a
new glut and depress prices.
 
"The real deciding factor will be that they don't want to see their share
of the world market shrink longer term," said Tim Evans, senior commodity
analyst at Pegasus Econometrics.
 
"The longer OPEC keeps constraints in place, the harder the landing that
they are going to have later on," said analyst Geoff Pyne at Standard Bank
in London.
 
One result could be an increase in price volatility and more speculation --
the exact opposite of OPEC's stated goals -- as OPEC tries to micro-manage
a famously skittish market, said Petroleum Finance Co, a Washington DC-based consulting firm.

At stake is global economic stability as well as OPEC's much-vaunted claim
to be a responsible supplier of a strategic commodity that is the lifeblood
of industrialized society.
 
Gordon Gray, director of oil and gas research at Salomon Smith Barney in
London, told Reuters Television that high prices were not sustainable in
the long term.

But he added: "The key factor is the inventory situation globally, which is
extremely tight. It is set to get even tighter in the very short term  --
the next one to two months."
 
Copyright Reuters Limited 2000
 
                             *     GW     *
 
IRAQ - OIL FOR FOOD UPDATE
 
United Nations Report (Iraq)
 
U.N. official appeals for quicker action on Iraq contracts
 
Iraq's oil industry is in "a lamentable state" and Security Council holds
on contracts for oil industry spare parts threatens the country's oil
production, the head of the U.N.'s Iraq program warned February 7.
 
In a private meeting with the council, Benon Sevan, executive director of
the Office of the Iraq Program said that "unless key items of oil industry
equipment are made available and commissioned within a short time, the
production of oil is likely to drop, even under a regime of severe risk
management.  This is a very clear warning."
 
Sevan said that about $250 million of the equipment needed has actually
arrived in Iraq while $288 million worth remains on hold.  There are
currently sufficient funds in the program so that Iraq can purchase the
additional $300 million worth of spare parts authorized by the Security
Council in December.
 
He noted that 92 oil contracts have been approved by the council's
sanctions committee for 254.6 million barrels for an estimated revenue of $6,600 million.
 
Nevertheless, Sevan said the volumes of oil approved and exported show "a
marked reduction" over the previous period but with the price of oil much
higher revenues have not dropped.
 
"The oil market continues to be volatile and therefore there is no room for
complacency in witnessing the rise in oil prices," he said.  "At the start
of the program three years ago the price of oil was at $18 per barrel, then
dropped to $8 per barrel and now is around $25 per barrel."
 
Under the Iraq oil-for food agreement, Iraq is allowed to sell oil under
strict U.N. supervision with the proceeds to be used for humanitarian goods
needed by Iraqi civilians as well as to pay for spare parts to keep the oil
industry operating and Gulf War related expenses such as the U.N. weapons
inspectors.
 
The Security Council has also asked for a review of the aid program to
determine whether the program is meeting the basic needs of Iraqi
civilians, but Sevan indicated that his office has not had much success in meeting that requirement.
 
"We should have no illusions here -- without the full support and
cooperation of the government it will not be possible to conduct a proper
review of the humanitarian situation and of the revenues needed to meet the
needs of the people," he said.
 
"Except in a few cases, however, it has not been possible to engage the
government formally in detailed discussions regarding the extent of
humanitarian needs and to collaborate on possible measures to address those
needs," Sevan said.
 
Sevan said his office is working with Security Council members on
streamlining the procedures to clear contracts to purchase food and
educational items in an attempt to eliminate some of the bottlenecks and
reduce the need for so many contract applications to be placed on "hold."
 
The U.N. official noted that there continues to be a steady increase in
both the number of applications placed on hold and their value, with 1,068 applications totaling $1,596 million currently on hold.   A small number of
costly items are responsible, he said, with 25 applications in the
electricity sector accounting for over $800 million of the holds.
 
The United States is responsible for a majority of the holds, but U.S.
officials say there are several reasons for the U.S. action.  More than 50
percent of the holds are because the contracts lack full technical
information from the government of Iraq and from the suppliers or
contractors so that the sanctions committee can make a reasoned decision.
 
The United States also has deep concerns about so-called "dual use" items
and the end use of certain equipment on the ground in Iraq once it arrives.
"Dual use" items are ones that can easily be converted or have the same use
in civilian and military sectors.
 
When U.N. weapons inspectors were on the ground prior to December 1998,
they were able to check that the equipment went for humanitarian purposes and were not diverted to the military for weapons production.  But with the
departure of the weapons experts and efforts to get the inspectors back into Iraq still delayed, the problem of dual use items is large because the
council has no way of monitoring on the ground if the items were diverted to re-start banned weapons programs, U.S. officials say.

The United States also has problems with some companies which engage in what the U.S. considers to be illegal trading activities with the government of Iraq, such as making payments to Iraqi officials, U.S. officials say.

Sevan also reminded the council that the "workload is enormous" for the U.N. staff overseeing the contracts.

"We are in the process of recruiting additional customs experts and support
staff to cope with the flood of applications which followed the high
revenue," he said.  "There is currently a backlog of around 800
humanitarian and oil sector applications -- my colleagues and I believe this is unacceptable and are making every effort to accelerate our processing of these contracts," he said.

(Distributed by the Office of International Information Programs, U.S.
Department of State.)
 
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