Demonstrating Dubai’s dynamism on the global stage, Dubai World, the government’s holding company, in August agreed a long-term strategic partnership including a $5bn investment with MGM Mirage, the world’s second largest casino operator. At the same time, Borse Dubai was making an all-cash $4bn hostile bid for Nordic exchange operator OMX.
Meanwhile, back in the UAE, two less controversial initiatives, the emergence of the Dubai Mercantile Exchange (DME) and the development of the multi-billion dollar Khalifa Port and Industrial Zone, a joint venture between the Abu Dhabi and Dubai governments, are likely to have a significant international impact.
Diversification is critical for both Dubai and Abu Dhabi, particularly since Dubai’s oil output is dwindling to less than 100,000 barrels a day (b/d).
The DME, part of the Dubai International Financial Centre (DIFC), was established in June and as chief executive Gary King explains, is well on its way to becoming “a new global benchmark for Middle East crude oil”.
The DME’s unique aspect is that it has changed the way oil is traded. In the past, Oman’s 700,000 b/d output and Dubai’s were priced on the OTC (over-the-counter) market. But since June 1 – and given the Oman government’s decision to use the Dubai exchange to price its oil – the DME’s oil futures contract provides the pricing mechanism for the physical delivery of Omani and Dubai crude.
The price of the physical delivery of Omani crude in August is based on the monthly average of futures contracts on the DME in June. This worked out at $66.05 a barrel for the August shipments. With the Oman benchmark price this provides a new pricing mechanism for Middle East sour crude compared with other benchmarks for sweet crudes, such as the UK’s Brent crudes.
The Oman contract is working well and the DME’s Mr King, apart from two spread contracts based on Omani oil, hopes to expand the exchange’s commodity range with a new jet fuels futures contract also based around physical delivery.
The high-tech exchange is owned 32.5% by the Dubai government, 32.5% by the clearer NYMEX, 30% by an Oman investment fund and 5% by seat-holders. The exchange has three tiers of members with large international banks, such as HSBC, Goldman Sachs and Morgan Stanley, acting as clearing members. With NYMEX technology and the Dubai Financial Services Authority (DFSA) as a recognised world-class regulator, the DME is seen as a new development for the Middle East and the Asian region.
In Abu Dhabi, another key development is taking place which reflects a new era of co-operation between the governments of Abu Dhabi and Dubai. Seen as Abu Dhabi’s most important infrastructure project, the Khalifa Port and Industrial Zone (KPIZ) represents a massive multi-purpose port and industrial facility, 30 kilometres south of Jebel Ali, between Abu Dhabi and Dubai.
This multi-billion dollar development will be operated by a 50/50 joint venture between Abu Dhabi and Dubai. Ahmed Saeed Al Calily, chief executive of the Abu Dhabi Ports Company, says: “We are no longer competing [with each other], we are competing with the rest of the world. There is a strong need to come together locally and create a mega commercial hub for the Middle East.”
The project includes the construction of a container and industrial port (five kilometres offshore) and the development of more than 100 square kilometres of industrial, logistics, commercial, educational and residential special economic and free zones. Planned to open for January 2010, the infrastructure will also include a massive 1.3 million-ton aluminium smelter, also a joint venture between the two emirates.
This new port, which will replace Abu Dhabi’s Port Zayed facility that is to be turned into a commercial development, is aimed at unifying the country’s infrastructure. And along with the port facilities in Dubai and Jebel Ali, the new massive complex is expected to make the UAE, in Mr Calily’s view, “the industrial and commercial hub of the Middle East”.