Iran-Pakistan to sign Free Trade Agreement

Iranian Ambassador Dr Reza Amiri Moghadam has indicated that a Free Trade Agreement (FTA) is likely to be finalized in the upcoming visit of Iranian President Ebrahim Raisi to Pakistan.

Addressing the business community during his visit to the Islamabad Chamber of Commerce and Industry (ICCI), the Iranian envoy said the FTA would increase mutual trade and several bilateral economic and trade agreements would also be signed during the visit.

He also said that the two countries need to have strong air, maritime and sea links, which will strengthen the economic relations and Pakistan, will also be connected to regional and global trade.

The ambassador emphasized the closeness of maritime links, especially Karachi and Gwadar and Chabahar and Bandar Abbas ports and said that Gwadar and Chabahar should be declared as sister ports.

The current bilateral trade volume paltry US$2.5 billion. Pakistan and Iran can fulfill 70% of each other’s needs by engaging in mutual trade, just as Iran imports halal meat, Pakistan can do a lot of work in Iran in this sector.

“After the FTA and bilateral agreements for the promotion of mutual trade, there is a strong possibility that the mutual trade between Pakistan and Iran would reach US$5 billion in the next few years,” he added.

The envoy added that the Pakistan-Iran gas pipeline was a significant project, which would benefit both the domestic and industrial sectors of Pakistan.

“Iran is serious about resolving Pakistan’s energy problems and that is why Tehran completed the gas pipeline project for US$1 billion in 2009 so that Pakistan could meet its energy needs,” he said, adding that it was essential that the project is completed at the earliest.

He added that Iran was already trading in gas and the energy sector with Turkiye, Turkmenistan and Azerbaijan, therefore Pakistan can also follow the procedure adopted by these countries.

He acknowledged that the banking channel between Pakistan and Iran was a serious issue, but Iran has banking links with Turkiye, Bahrain and Iraq.

 

Bangladesh offers lucrative deals for offshore gas exploration

Bangladesh is ending a yearlong hiatus on oil and gas exploration in the Bay of Bengal as it scrambles to plug dwindling energy reserves that could run out in under a decade.

On Sunday, the South Asian nation opened bidding to dozens of international companies, including ExxonMobil, Chevron, ConocoPhillips and China's Sinopec, on 24 offshore blocks spread across 15 deep and nine shallow waters.

The bidding process, which ends an eight-year pause on exploration tenders, will be open for six months as Bangladesh grapples with energy shortages and struggles to pay for imported fuel and gas from its fast-shrinking dollar reserves.

The country faced a spike in fuel prices in the wake of Russia's invasion of Ukraine, forcing it to turn to the International Monetary Fund last year for a US$4.7 billion bailout package.

Despite being seen as a promising source of natural gas, Bangladesh has long struggled with lagging exploration, with just 18 wells drilled in the past 12 years, according to state energy company PetroBangla. Just four new gas fields were discovered over that period.

Analysts said a key reason was international companies exiting Bangladesh over unfavorable terms in production-sharing contracts (PSCs), which set how the government and a company will share risks, costs and profits from tapping natural resources.

The American energy giant ConocoPhillips terminated a contract in 2015, citing unfavorable terms, Australia's Santos and Singapore's KrisEnergy exited exploration projects in 2020 after incurring losses.

However, PetroBangla said new contracts will carry more favorable conditions.

"We have amended our last PSC, and the new contract model has attractive terms for the international companies," Chairman Zanendra Nath Sarker told Nikkei Asia.

The new contracts will offer a revenue-sharing model, a 5% higher share of production and better pricing mechanisms, he added.

"I think it's a win-win situation for both the parties," Sarker said.

Revenue-sharing contracts could work out better for the country, which didn't benefit from previous profit-sharing agreements, said Badrul Imam, a professor at the University of Dhaka's geology department.

"[They] led to unfavorable outcomes for Bangladesh due to cost-recovery provisions," he said. "This new PSC has already generated interest among many reputed companies. We need to understand that unless we tap the potential of our offshore gas reserves, we will face a severe energy crisis within the next 10 years."

Bangladesh's economic boom has been powered by natural gas, the main source of electricity generation for decades. But dwindling reserves from older fields and a growing reliance on imported LNG are making the country increasingly vulnerable to external factors affecting energy supply.

Over the past two decades, Bangladesh consumed about 13 trillion cubic feet (TCF) of gas, but only about 2 trillion cubic feet of new gas reserves were discovered over that period. The country's existing gas reserves are likely to be exhausted by 2033 in the absence of new discoveries.

Bangladesh's oil and gas exploration efforts in the Bay of Bengal also pale in comparison to neighboring India and Myanmar, which have both made frequent gas discoveries in the waterway.

The government's hesitance to explore these potentially rich offshore reserves "hindered domestic production and favored private businesses involved in LNG imports," Imam said.

Development of the energy sector has long lagged that of the power sector, said Shafiqul Alam, the lead energy analyst at the Institute for Energy Economics and Financial Analysis, a US-based think tank.

Bangladesh "provided more attention on the power sector capacity expansion" but could not step up its "efforts on enhancing energy security," Alam said.

Despite resolving maritime boundary disputes with Myanmar and India over the past decade, Bangladesh has yet to ramp up offshore gas exploration ‑ even as Myanmar made promising discoveries bordering Bangladesh's territory in the Bay of Bengal.

Niaz Asadullah, a professor of economics at Monash University Malaysia, said geopolitical considerations likely influenced the timeline of developments in Bangladesh's energy sector.

"The incumbent government increasingly favored non-Western companies, particularly when it prepared for a third term in power," Asadullah said, adding that the number of contracts awarded to the Russian state-owned company Gazprom for drilling gas wells had doubled in the past few years.

Meanwhile, Dhaka opened the door for more domestic power generation, transmission and distribution, awarding contracts worth at least US$4.5 billion to private and state-run Indian companies.

In January, Bangladesh's ruling Awami League and Prime Minister Sheikh Hasina won a fourth consecutive term.

"With the national election concluded, the government now feels well-placed to navigate the politics of new lucrative energy sector contracts with interested regional and international economic powers," Asadullah said.

Aid ship reaches Gaza coast

According to Reuters, the first ship carrying food aid reached the coast of the Gaza Strip on Friday, where hopes for a ceasefire to rescue the population from starvation suffered a new blow after Israel rejected the latest truce counter-proposal from Hamas.

The charity World Central Kitchen (WCK) aims to deliver the aid on a temporary jetty, though precise details of how supplies would reach shore have not been made clear.

If the new sea route is successful, it may help to ease the hunger crisis affecting Gaza, where hundreds of thousands of people face malnourishment and hospitals in the worst-stricken northern areas have reported children dying of starvation.

However, aid agencies have repeatedly said that plans to bring in aid by sea and through air drops will not be enough to satisfy the territory's vast needs.

Since October 2023 the Israeli assaults have killed more than 31,000 people and driven nearly the entire 2.3 million population of Gaza from their homes.

The United Nations says all of Gaza's 2.3 million people are suffering from a food crisis and a quarter of them are on the precipice of famine, especially in the north.

Israel, which sealed off all land routes into Gaza apart from two crossings on the territory's southern edge, denies blame for hunger and says aid agencies should do a better job distributing food.

The agencies say they need better access and security, both of which are the responsibility of Israeli forces that have blockaded the strip and stormed its cities.

The distribution of the limited aid that arrives has been chaotic and frequently violent under the watch of Israeli tanks.

In one of the worst reported incidents yet, Gaza health authorities reported at least 21 people had been killed and 150 wounded on Thursday night, blaming Israeli forces for opening fire into a crowd queuing up for food at a road junction near Gaza City.

There are increasing signs of friction between Washington and its close ally Israel over the conduct of the war, which officials in President Joe Biden's administration say is being waged with too little care for Palestinian civilians.

US Senate Majority Leader Chuck Schumer, the highest ranking Jewish official in the United States and a leader of Biden's Democratic Party, called on Thursday for Israelis to hold an election and replace Netanyahu.

He described Netanyahu as an obstacle to peace who was destroying Israel's international standing. "Israel cannot survive if it becomes a pariah," Schumer said.

Netanyahu's Likud Party said his policies had widespread public support. "Senator Schumer is expected to respect Israel's elected government and not undermine it," it said. "This is always true, and even more so in wartime."

 

Donald Lu to testify before Congress panel

The US House Foreign Affairs Com­mittee has tasked its Subcommittee on the Mid­dle East, Africa, and Cen­tral Asia with conducting a hearing on the future of democracy in Pakistan, scheduled for March 20.

The hearing will also delve into the dynamics of US-Pakistan relations following the February 08, 2024 general elections.

Donald Lu, the Assis­tant Secretary of State for South and Central Asian Affairs, will be the sole witness for the hearing. Lu’s alleged involvement in the cipher controversy adds significance to his testimony.

The PTI and its leader, Imran Khan, allege that Lu threatened to destabilize the PTI government during a March 2022 meeting with then Pakistani ambassador in Washing­ton, Asad Majeed Khan.

The issue is frequently brought up during US State Department news briefings by journalists from both Pakistan and the US. The department consistently dismisses these allegations as unfounded.

The decision to have Lu attend the hearing un­­derscores the departm­e­nt’s desire to resolve the controversy by providing clarification on its stance.

In a statement from Houston, Texas, the PTI’s US chapter claimed that persistent efforts by Pakistani Americans led to the much-anticipated announcement of a Congressional hearing on this.

This bipartisan hearing is expected to draw significant attendance from both Democratic and Repub­lican legislators.

 

Supply Lines: Red Sea Update

According to the Bloomberg, Red Sea shipping diversions may last a few more months, and some people think they could go on even longer.

That’s among the takeaways from the CEO of Hapag-Lloyd, the world’s No. 5 container line, in an interview Thursday on Bloomberg TV. Rolf Habben Jansen was speaking as the Hamburg, Germany-based company announced 2023 earnings that showed a steep drop in revenue and profits from a year earlier.

Houthi attacks on ships in the Red Sea have disrupted supply chains since mid-December 2023, forcing carriers to change routes and redo schedules — adjustments that have helped absorb excess capacity.

As a result, they’re burning more fuel and taking longer to deliver, with some needing to purchase more containers given the extended routes. The added costs are getting past along to customers.

The longer routes around southern Africa initially boosted spot container rates but those are coming down, Jansen said. “The services are stabilizing, which also means that the market is getting calmer.”

He indicated, though, that there’s no telling when the Red Sea will be safe enough to transit again.

“We hope that we’re going to be able to go back through in a couple of months,” Jansen said. “But I know there are also people that think that it will last quite a while longer.”

In the medium term, excess capacity may return to weigh on freight rates. Hapag-Lloyd expects the market to remain difficult for carriers given the large number of ship deliveries this year, Jansen said in the company’s 2023 annual report.

Sharing that view was Zim Integrated Shipping CEO Eli Glickman, who spoke on a conference call on Wednesday. “Once the Red Sea crisis is resolved, we will likely revert to the supply-demand scenario that began to play out in ‘23, setting up a more challenging third and fourth quarter of 2024 for the industry, including us,” he said.

It’s not just the shipping companies facing a tough environment. World Trade Organization Director-General Ngozi Okonjo-Iweala told Bloomberg in an interview that “the risks are all on the downside.”

But corporate supply chains have gotten more resilient and flexible. Here’s a rundown of comments that a few big shippers and a major port operator have offered this week:

Samsonite CFO Reza Taleghani: “So if you think about things you read about in the news, shipping delays, Red Sea, et cetera, we are just fine. We have inventory exactly where we need it to be. All of our facilities, even if there is a week or two delays, not that big of a deal.”

Adidas CEO Bjorn Gulden: “We have a little bit of headwind in freight in the first half because of the Red Sea situation, and as you know, if the freight companies have a chance to do something they increase prices. That should normalize and then the rest of everything that has to do with margin is going in the right direction.”

Williams-Sonoma CEO Laura Alber: “When a problem comes along, they’re real. The Red Sea disruption is pretty terrible. However, it is not costing us any more money. So far it is costing us about 10 days of delivery, give or take. And as I mentioned last time, we padded the deliveries to our customers once we heard about it, so we didn't disappoint them.”

DP World Group Chairman Sultan Ahmed bin Sulayem: “Despite the uncertain start to 2024 with the ongoing Red Sea crisis, our portfolio has continued to demonstrate resilience. The outlook remains uncertain due to the challenging geopolitical and economic environment.”

 

Iranian oil output exceeds 3 million bpd

The US Energy Information Administration (EIA) in a report put Iran’s oil output at 3.2 million barrels per day (bpd) for February 2024.

According to the report OPEC’s total output during the month under review was up 170,000 bpd to 26.47 million bpd.

OPEC’s latest monthly report, however, has put Iran’s crude oil production at 3.148 in February, noting that the Islamic Republic maintained its place as OPEC’s third-biggest oil producer in the month.

According to the mentioned report, the price of Iran’s heavy crude increased by 20 cents in February to reach US$80.34 per barrel.

The director of the National Iranian Oil Company (NIOC) Explorations Department has said the country’s oil explorations registered a 300 percent growth in two years of the administration of President Ebrahim Raisi, who assumed office in August 2021.

Mehdi Fakour said the oil explorations have shown a considerable increase in various sectors as compared to the past five years, Mehr News Agency reported.

He added that the oil explorations made in the first two years of the current administration have registered a 300 percent hike.

The feasibility studies of some explorations have started in the country, he said, adding that negotiations have been made with a number of industrial production companies.

Currently, the oil exploration activities in the country are at a satisfactory level, Fakour added.

Earlier, the Head of the National Iranian Oil Company Mohsen Khojasteh Mehr said that the company has a 100-year vision for exploration, emphasizing that the company is determined to carry out maximum exploration operations to discover and maintain the country’s reserves.

Back in February, the International Monetary Fund in a report on Iran’s microeconomic indicators said the increase in Iran’s oil production in 2023 exceeded expectations.

The fund attributed the increase in its estimate of Iran's economic growth in the mentioned year to the higher-than-expected increase in the country’s oil production.

According to the new estimates of this international entity, Iran's economic growth in 2023 reached 5.4 percent, registering a significant increase compared to the previous year.

The International Monetary Fund had previously estimated that Iran's economic growth would reach only 3.0 percent in 2023.

Iran's crude oil exports grew by roughly 50 percent in 2023 to a five-year high of about 1.29 million bpd, with the vast majority going to China, according to Nikkei Asia.

The report, citing the International Energy Agency (IEA), put Iran’s oil production at 2.99 million bpd last year, 440,000 barrels more than in 2022.

As reported, IEA predicts a further rise of 160,000 barrels of Iran’s oil exports in 2024.

This increase is expected to contribute to a less tight market, alongside increases by the US and Brazil. The IEA sees global supply rising by 1.5 million bpd to an all-time high this year.

 

Pakistan: Saga of Financial Challenges

Once hailed as a financial wizard, Ishaq Dar's return to Pakistan was accompanied by grandiosity, with a Red Carpet reception. However, the same individuals who celebrated Dar's financial prowess are now touting Muhammad Aurangzeb as a savior capable of instantly resolving Pakistan's myriad issues. While Aurangzeb may possess exceptional banking skills, his comprehension of Pakistan's complex economic landscape raises doubts.

Adding to the skepticism is his hefty monthly salary of US$100,000, amounting to a staggering US$1.2 million annually. Despite decades under the IMF microscope, Pakistan struggles to generate sufficient dollars to finance its imports, with around US$150 billion from overseas Pakistanis disappearing into a financial abyss over the last five years.

The finance minister's primary task now is to persuade the lender of last resort to release more dollars, settling outstanding loans and facilitating imports, particularly for the elite. The proposed solutions involve increasing electricity and gas tariffs, raising interest rates, and imposing additional duties and taxes, collectively squeezing every Pakistani financially.

Financial wizards argue that these measures will bridge the budget deficit, but they overlook the resultant surge in government borrowing and the negative impact on local manufacturers' competitiveness. This situation brings to mind the saying, "An expert is a person who makes things complicated." Pakistanis are inundated with advice on improving taxes, but there's a glaring absence of plans to tax those enjoying exemptions since independence, and austerity measures are conspicuously lacking.

As Pakistan rushes into talks with the IMF, concerns persist about addressing GDP growth, boosting exports, and curbing extravagance. The impending debt servicing crisis looms large, and while the IMF may greenlight a larger and extended standby program, the real question lies in whether policymakers have viable strategies to maintain debt servicing at a sustainable level.