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UAE South Korea deals in danger

UAE South Korea deals in danger

If crude oil demand sees sustained declines on a depressed euro, UAE investment projects with South Korea – carefully cultivated in recent years – could suffer.

May 26, 2010 2:35 by

Coming off a string of multibillion dollar deals, the UAE and South Korea are making beautiful music together. In December last year, a consortium led by Korea Electric Power won a $20 billion deal to construct four nuclear energy plants in the UAE. Samsung, Hyundai, Westinghouse, and Toshiba are other members of the winning consortium. The mega deal was the beginning of a deepening relationship between the two nations, as Samsung Engineering in April took home a $1.5 billion contract from Abu Dhabi Gas Development Company.

With Sheikh Mohammed bin Zayed in Seoul this week on a three-day diplomatic and economic visit, talks between Zayed and South Korean president, Lee Myung-bak suggest a deepening relationship that comprises more business and more politics.

“There is no doubt the mutual relationship between the two countries has witnessed great strategic shifts with the winning of the Korean consortium,” Sheikh Mohammed said.

Upon his arrival yesterday, the Crown Prince reiterated the UAE’s aspiration to “develop and deepen our relationship with active world economic powers, with Korea being at the forefront,” the National said.

But as global markets posted sharp declines yesterday, the specter of Korean conflict is an ominous backdrop. Combined with sustained downward pressures on crude oil demand and oil prices, the two emerging scenarios could spell a big chill for the continued business relationship between the two nations – at least in the near term.

Higher energy prices have encouraged oil companies in the Middle East and Africa to invest more in building new refineries and auxiliary facilities. But higher energy prices will be less certain as the declining euro continues to put downward pressure on crude oil demand for non-dollar currencies.

The price of oil is down nearly 20 percent in the last three weeks, and fell to a low yesterday of $67.64. Tadawul, the Saudi bourse and one of the largest Arab markets, declined nearly 7 percent, on sharp losses by market leader SABIC petrochemicals, Saudi Gazette reported Tuesday.

Saudi Arabia has repeatedly said that oil prices near $75 a barrel are necessary to encourage investment in future supplies to meet booming demand from emerging economies. Opec agrees that prices between $70 and $80 are good for both producers and consumers.

But both oil demand and price are declining on euro zone distress and political tensions.

“Oil is being dragged lower by all of the tensions in the world,” said Tom Bentz, a broker at BNP Paribas Commodity Futures Inc. in New York. “The Korean situation, Europe’s debt crisis and now the Spanish banks,” Bloomberg quoted.

Sheikh Ahmad of Kuwait said earlier this month that oil prices below $65 a barrel would “ring a bell” for OPEC ministers to hold an emergency meeting.

The downward pressure on crude oil demand from euro zone countries could put a big chill on the string of high dollar deals between the UAE and South Korea. The UAE ‘s budget for investing  in future supplies and meeting increasing demands from developing nations will shrink if oil prices hover far below the OPEC target zone for an extended period of time.

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