This Week's Other Big News from the Mideast

From the Lex Column in yesterday's Financial Times ("Holy Hydrocarbons"):

An old joke in Israel says that Moses turned left when he should have turned right during his desert wanderings. After all, he had the rotten luck of finding almost the only country in the Middle East virtually bereft of oil and gas.

In a piece of news this weekend overshadowed by the ceasefire agreement in Gaza - but with perhaps equally important security implications - a major natural gas find was announced 90km off the coast of northern Israel. Nobel Energy of the US, which owns a 36 per cent interest, called it the biggest in the company's history, saying the lower bound of the reserve may be 3,000bn cubic feet.

As sweet as such a discovery is for a small country whose right to exist is denied by most of the leading owners of the global energy reserves, it is a bitter pill for the BG Group and the Palestinian Authority. BG owned a major stake in the field and, reportedly against the objections of its country manager, allowed its rights to lapse without compensation three years ago. Instead, it focused on its holdings in Egypt and off the shore of the Gaza Strip, where it invested amid optimism over the peace process.

Even after Hamas won an election in 2006 and took control of Gaza in 2007, BG's negotiations over selling gas from GAza to Israel, which seeks to plug a looming supply gap, continued. Hamas opposed the deal as an "act of theft", both because Israel was the buyer and because the proceeds would have gone to the Palestinian Authority. Negotiations broke down over price in late 2007.

Along with its disastrous December rocket barrage, this is another Palestinian own-goal. Noble's new discover could supply Israel for decades. BG, meanwhile, is left supplying gas-rich Egypt, a much less lucrative prospect. Perhaps Moses had a sense of direction after all.

This brings to mind the late Israeli foreign minister Abba Eban's quip¹ that the Arabs of Palestine "never missed an opportunity to miss an opportunity".

The photo of the natural gas rig above is from Noble Energy's website.

¹That line has been quoted frequently recently, including in this Economist leader from a couple of weeks ago, "The Hundred Years' War".

E-Mail From a Friend in Russia

This morning I got an e-mail with some Cyrillic letters in the "from" field. At first I thought it might be international spam, but it turned out to be a message from a friend of mine named Beck (his American nickname) who is originally from Uzbekistan, but came to the U.S. for his bachelors and masters degrees, and subsequently got a green card. After a short stint in the cubicles of corporate America, he left for greener pastures: Russia. Now he works for an investment firm in Moscow, and he offered this bit of advice about investing there:

Think about it, US is not a very attractive market in terms of investments now due to economic situation and falling dollar. Russia, on the other hand is booming economically, and there are thousands of undervalued stocks to invest in.

I agree with him about the unattractiveness of the broad U.S. market now, but I am still a little wary of investing in Russia directly. I do own shares of a T.Rowe Price mutual fund that has holdings in Russia (TREMX) and has more than doubled over the last 3 years. Of course, Russia is benefiting from the secular bull market in commodities, but there are ways to benefit from that secular bull market while taking on less political risk, in my opinion (e.g., investing in selected Canadian or Australian companies).

Then again, he's there, and I'm here, so perhaps there are aspects to the Russian story he sees that I don't. If I learn more, I'll post it here.

Here is a link to the English-version website of Beck's firm, Broker Credit Service, if anyone would like to check it out.