US Exim fully reauthorised - but the Middle East gets turned upside down

Just in case you missed it, the good news is that the Export-Import Bank of the US (US Exim) has been fully reauthorised for a historic length of seven years. This is landmark, as the agency had been treading water and largely unable to compete properly in overseas markets for much of the time since 2015. 

The bad news though is that a good chunk of the business Exim would hope to support in certain parts of the Middle East could now be in doubt following the US administration’s drone attack and assassination of Iran’s General Qassim Soleimani in Iraq on 3 January and the subsequent fallout from that action.

First, let’s take a look at Exim – the fact that just before Christmas US President Donald Trump signed legislation fully reathorising the agency means that Exim can now put its full weight behind US exporting companies. This whole issue has been a real political dogfight in the US for the past few years, but anyone with a modicum of business sense on cross-border trade knows that this is the right move in an increasingly competitive global market.  

Exim says that the bipartisan legislation approved by Congress achieved two important goals: providing certainty to American businesses and workers that Exim is fully open for business; and, giving clear direction to focus on the economic and national security challenges from China.

Commenting on the development, Exim president and chairman Kimberly Reed said: “The legislation also directs Exim to focus on the important economic and national security challenges posed by China, which at my direction, Exim has prioritised since my confirmation in May (2019).” She added: “We have worked hard to deliver on the goals that I announced on my first day at Exim: fully reopening, reforming, and reauthorising Exim, thereby providing positive results for America’s workers and businesses, while protecting the American taxpayer. Today’s historic reauthorisation of Exim is a major victory for our nation and for keeping America strong.”

A week earlier, Exim released its revised strategic plan for fiscal years (FY) 2018 – 2022. This plan outlines the agency’s key goals and serves as a roadmap to fulfil its congressional mandate of supporting US jobs by facilitating the export of ‘Made in the USA’ goods and services.

Exim’s revised strategic plan includes five goals to further its mission. They are: Support US job creation by increasing outreach and medium- and long-term support for US exporters; Increase small and medium-size enterprise engagement with Exim to support the growth of US jobs; Level the playing field for US exporters to protect US competitiveness and enhance US national security; Protect US taxpayers through good governance and enhanced customer service; and, Recruit and retain top talent.

Chairman Reed remarked: “This revised strategic plan not only focuses on supporting US jobs – including in small businesses across America – but also ensures our agency is protecting US taxpayers through good governance, increased transparency, and other reforms.”

The political imperative is clear to see – full reauthorisation for Exim is a package which has had to be sold to politicians and in turn the public. As most in the global export finance community know, US Exim is unique and works very differently to other export credit agencies (ECAs) around the world. Competing with China’s Sinosure and China Exim is obviously something which is seen as a priority, but the Chinese agencies have much more leeway than US Exim, and of course the Chinese are not bound by OECD consensus. At the same time, US Exim is all about ‘made in the USA’ and it simply does not have the flexible mandates that we see from many other ECAs, particularly the European agencies where national content ratios vary drastically and there is also the concept of ‘national interest’. 

Middle East turmoil and concern

But going back to the real bad news for US exporting and contracting companies that already have US Exim cover or may be looking for it for contracts in the pipeline or future business, the recent events in the Iraq could well put a damper on some lucrative contracts in a range of sectors and markets.

The ‘out of the blue’ US drone-attack assassination of General Qassim Soleimani, leader of the elite Quds Force of the Iranian Revolutionary Guards, at Baghdad Airport on 3 January, sent initial shock-waves around the world. It will likely continue to generate other repercussions. Soleimani, among many other things, was responsible for the various proxy militias in the Middle East supporting Iran.

For those interested in reading more about Soleimani, I can direct you to the obituary published in the conservative UK newspaper The Daily Telegraph on 4 January, where the subtitle reads: ‘Charismatic leader of Iran’s elite Quds Force who became a key power broker in the Middle East’.

The surprise attack sent much of the mainstream media into frenzied copy of an all-out war scenario, and predictions that this could lead to the price of oil rocketing to $150 per barrel. Oil prices did initially surge to $70 per barrel but have since stabilised and a range of analysts predict that oil will average around $64 per barrel this year. 

Unsurprisingly, Israel was very keen to point out that it had no knowledge of the drone attack on Soleimani. Israeli Prime Minister Benjamin Netanyahu told a meeting of his security cabinet: “The assassination of Soleimani isn’t an Israeli event but an American event. We were not involved and should not be dragged into it.” However, it is very hard to imagine that certain groups - such as the Israeli secret service Mossad – were not pre-warned by Washington. 

Elsewhere, Nato secretary general Jens Stoltenberg said: “This is a US decision, it is not a decision taken by either the global coalition or Nato, but all allies are concerned about Iran’s destabilising activities in the region, Iran’s support to different terrorist groups.”

In other events, Iran has retaliated in a failed missile attack into a US base in Iraq – and indications are that it was a deliberate failure in order not to further inflame the extremely tense situation. Inside Iran that attack was reported as being successful of course. On 10 January the US introduced even more sanctions on Iran further pushing its all-out economic war on the country. More than 40 people were killed in Iran as people were crushed in the funeral cortege for Soleimani. And, in all the panic and madness an Iranian air defence person accidentally shot down a Ukrainian civil passenger aircraft killing all on board. Iran, which has had a lot of public unrest largely due to recent gasoline fuel price increases, now has a lot more unrest and there are reports of people being shot by the police/army.

The drone attack authorised by Trump can be seen as something that will go down well with many of his supporters in the US, and with his sights very much on the presidential election in November this year he will no doubt be hoping that his additional threats of attacking Iranian cultural centres will be enough to keep any big  retaliatory action at bay. A lot of damage has been done. Couple this with Trump’s decision in October to pull US troops out of Syria and allow Turkish forces to attack the Kurds – who have for years been the West’s ally fighting and defeating Islamic State (Isis or Daesh), and there is the now much more distrust for the US in the region. Beyond this, big questions are now being asked about US foreign policy and what the word ‘trust’ actually means.

Back on the business front, what does it all mean for US capital equipment exporters and US Exim? Following the attack, Iraq immediately called for the withdrawal of US and UK troops from the country. This has not happened as yet and is something that would be disastrous for any existing plants and projects taking place in the country. 

Beyond that, in October 2019 Exim signed an MoU with the Iraqi Ministry of Finance replacing the previous agreement signed in February 2018 and increasing the total amount of Exim financing potentially available under the agreement from $3 billion up to a total of $5 billion. At the time, chairman Reed said: “We anticipate that the Exim-backed financing to follow from this agreement will support exporter and supply-chain jobs in multiple industries across the United States and also foster job creation in Iraq. Iraq is an important partner to the United States, and we look forward to working together to strengthen the relationship between our two countries.”

Under the agreement, Exim and the Iraqi ministry agreed to identify potential projects in Iraq for procurement of US-produced goods and services. Exim agreed to explore options for providing the agency’s medium- and long-term loans, guarantees, and export credit insurance to support US exports to Iraq. This was then followed up in November 2019 with the preliminary commitment for $452 million Exim support for the export of US power-related manufactured goods and services for the retrofitting of a fleet of gas turbines in existing Iraqi power plants. The project will install energy-efficient technology that will alleviate the need to build additional power plants. The equipment would be supplied by Stellar Energy Americas in Florida and would support 1,800 US jobs.

Chairman Reed added: “Exim’s preliminary commitment to support US exports and jobs to this important power project will enable an American company to be competitive in securing this contract over foreign competitors and potentially could open the door to extensive additional business for the US power industry in Iraq. It would also be among the first of what we hope will be many transactions under Exim’s $5 billion MoU with Iraq.”

But just how secure any such business in Iraq is going to be in the short term will be very difficult to gauge. For now, one can assume that any such deals in Iraq will be frozen. Elsewhere in the region, US defence sales will quite likely get a boost – particularly with Saudi Arabia and certain Gulf states, who will be concerned and jittery over the recent US military action and any activity by proxies of Iran.

Another big market in the Middle East region for US exporters is Egypt, and here US Exim is also looking to up its support quite considerably. In early December 2019 Exim indicated that it was hoping to double or even triple its pipeline of projects in the country to $6 billion in the coming years. Exim member of the board, Judith Pryor, recently said that the agency is interested in supporting several economic sectors in Egypt including aviation, agriculture, information and communication technology, as well as infrastructure, agribusiness, and women in businesses. Financing would be available for US exports to state-owned enterprises as well as the private sector. 

For now, the political risk bottle has been turned upside down in the region, but let us hope that fallout from the recent terrible events in Iraq/Iran and the continued economic problems and hardships in Iran do not spill into other regional markets and that ultimately business and vital projects can move forward.

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