Lord Mayor of London Alan Yarrow believes the current 'Oil Shock' is a good thing

Gulf News

The Lord Mayor of London Alan Yarrow visits Dubai to help ensure that the UK remains the financial partner of choice. See more at: http://gulfnews.com/gntv

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00:00Well, I mean, there's no doubt that the problem that was arising was the extraordinary increase

00:18in alternative forms of power, maybe PV panels, maybe solar power, maybe hydrogen, electricals,

00:29motivation for cars and so on. And so not only has it been the fact that the technology

00:34is going ahead very rapidly and making energy much more efficient and therefore having an

00:41impact on demand, we've also got fracking, which of course, as far as the state's concerned,

00:46has taken a huge amount of that very, very marginal balance which the Gulf states had

00:52in OPEC. That sort of pricing of power went. And quite correctly, I think what's happened

00:58is that there's a recognition of the fact that if countries are trading on $105, for

01:03example, which has been quite steady for some time at $105 or thereabouts, we won't see

01:08any real progress in the diversification to get away from carbons, hydrocarbons effectively.

01:13So what we're now seeing is a real shock's come in the system. Most countries now recognize

01:20that they cannot rely on a price of oil, which effectively has left them in a comfort

01:27zone, which at the moment was actually unrealistic. So this is quite a shock, I think, to the

01:33GCC countries. A shock, but I think actually it's a beneficial shock. But the other also

01:37important point here is that it was a tax on growth in the West, the high $105 price.

01:47Bringing it back down to around about $50 and $60, perhaps, in that sort of range, that's

01:51going to give the economies and the consumer in what I describe as the other more mature

01:56countries quite a big boost. So we've got an interesting balance here that we've got

02:02locally questions about diversification away from hydrocarbons. At the same time, in Europe

02:08and other places, particularly India, for example, where they are energy deficient,

02:13those countries are going to have a real boost to economic growth. And that in itself

02:19has an impact on ultimate demand, and then ultimately on the oil price again. So it's

02:25like all these things, it goes in cycles.

02:32Well, I mean, again, it's about demand. The supply, when it comes down to dynamic finance,

02:41it's also quite important to find the right asset base. Not all assets are easily financed

02:46through Sharia-compliant financing. If it's a movable asset, for example, like an oil

02:51rig or something like a car, for example, will be registered, and you've got to have

02:55it licensed. An oil rig is not. That can move from one country to another. So it's not,

03:01you can't finance everything through Sharia-compliant financing. It's got to be something which

03:05basically is asset-based. So the right types of assets have got to be around. But it's

03:09about the demand. The supply and the technology is there, and you can quite easily move the

03:16financing into a product which actually can offer you interest-free loans. But interest-free,

03:22of course, doesn't mean it doesn't cost you. It's, again, just a method of it coming off

03:28the capital rather than interest payment being paid. These things are very much to do with

03:34interpretation. But at the end of the day, a profit is still taken. Otherwise, people

03:38wouldn't make the money available.

03:44We've got a very open relationship, hugely mutually supportive with government and also

03:50with the regulators. I haven't got an MOU in mind. The reality is that you have a, MOUs

03:57are one thing, but they're more statements of cooperation. We've always had a very strong

04:05and cooperative and respectful relationship with Dubai and with Abu Dhabi and with most

04:13of the Gulf. So we don't feel the need to actually go around signing MOUs unless they

04:20want us to. It's not necessary. I don't think it's necessary.

04:28Gosh, everything. I mean, oil price, budgets. You can't have something come down from $105

04:36to, I don't know, where are we, $48 without having an implication on budgets. A short-term

04:42fall in the price of oil in itself is not a problem. It is how long it's going to be

04:48down there. You've got different break-even costs, very big budgets out there, 2020, 2030,

04:542040 budgets, plans going forward, all on a predicted oil price which is considerably

05:01higher than the existing oil price. So the question is, plan A, no problem at all, continue

05:07with the amount of expenditure going in for infrastructure. Most of the Gulf countries

05:14have got a lot of reserves out there and they can continue to use those reserves to actually

05:21put in their infrastructure. However, you're spending the country's treasures effectively.

05:27You've got to have a self-perpetuating process. So they're all building their plan Bs now.

05:32They're all saying, OK, guys, that's our public face of what we can do and what we're going

05:36to say we're going to do. But reality is anybody who's worth their salt in the finance ministry

05:41will be working on a plan B. And the question is, what's that plan B going to look like?

05:52Certainly. Again, it's an issue of long-term institutions. I mean, quite a lot of the sovereign

05:59funds, for example, are very conservative in the way that they actually manage their

06:03money. They're looking for utility-based assets which are going to give them an endowment

06:09type of income. And they are – take the carryover, for example, very successful sovereign

06:15fund, probably the oldest one, around for 60-odd years, very well managed, has maintained

06:21a very, very conservative approach. We in the UK and other places around the world have

06:27got big infrastructure spend to be put in. We've got Crossrail, the biggest railway

06:32structure in the world. It's all now being properly financed. We've got the Thames Tideway.

06:37We've got Ebbs Fleet. We've got a number of things now, very big infrastructures, which

06:42look attractive to people who want a steady income from a long-term asset play. That's

06:51us looking for money for our high-value contracts.

06:54Equally, on the other way around, there are infrastructure spend which is going to have

06:58to take place. Take, for example, Oman with Dukhum, which is a building out at the moment,

07:08the port at the southern part of the Omani state. That's going to be a very important

07:13infrastructure. There's a railway line from Kuwait right the way down, which effectively

07:17is supposed to give another avenue of transport just in case the Straits of Hormuz comes under

07:21its pressure. There's a lot of infrastructure spend going on potentially. And we in the

07:27City of London, as the leading international financial centre, can offer all sorts of instruments

07:32and access to overseas funds to help finance it.

07:39I am extremely optimistic. I take the view that this oil shock has been good for everybody.

07:50I think it's been good for the consumer in Europe, India and the countries which effectively

07:56are hydrocarbon short. And it's given them a chance to re-stimulate growth. It's a big

08:02growth stimulus. Number one, I think it's good for the Gulf countries because it's made

08:06them realise and recognise the fact that the price is volatile and they've got to

08:12continue pursuing their diversification away from hydrocarbons. And this in itself has

08:18got to be good news because I think it stimulates a lot of people thinking about how they're

08:22approaching it and whether or not it's all been voice rather than action. And now action

08:27needs to take place.

08:36For more UN videos visit www.un.org

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