Muscat has kept a low profile as the Middle East's political temperature has risen over the last 18 months, in keeping with the sultanate's policy of emphasising its stability. The government has been able to concentrate on progressing its economic reform programme and ensuring its centrepiece industrial projects stay on track.
Oman's ability to distance itself from unfavourable regional political currents has had positive spin-offs for its showpiece port development at Salalah, situated on the southern coast. With transshipment business at Yemen's Aden Container Terminal (ACT) suffering the effects of that country's high political risk profile--triggered by the early October terrorist attack on the French supertanker the Limburg--Salalah looks set to lure an increasing number of lines to relocate to its more calm environs. Singapore-registered APL, the world's fifth largest container line, swiftly moved its business eastwards to Salalah following the attack. APL mainline vessels are now averaging five calls a week at Salalah, largely due to the sharp rise in insurance costs on lines operating near the Red Sea area. According to one estimate, insurance costs have jumped 300% for vessels transversing the Red Sea channel.
Salalah's current throughput is estimated at 1.2m TEUs (20-foot equivalent units) against the Yemeni port's 300,000 TEUs. Having established a firm lead over ACT, Oman's sights are now set on winning more business from its major rival in the region, Dubai's Jebel Ali free port.
However, the Omani port is also finding that political risk considerations are threatening to undermine its plans to snare more regional transhipment business. Its plan to set up a 6,000-acre free trade zone (FTZ) at Salalah port hit a major snag late last year, when the major investor, the US's Hillwood Strategic Services, withdrew from the venture on the eve of signing an agreement with the government.
The pullout came before the Limburg incident. Yet Hillwood alluded to political risk contributors as the deciding factor in its decision not to proceed on the project, in which it was to have taken a 40% equity interest. Although Oman is clearly well off the US' orbit in the firmament of rogue Arab states, in reality the sultanate is not immune to heightened regional political risk. In this case, it was Oman's proximity to, and strong trading links with, India that prompted Hillwood's rethink. For much of last year, the sub-continent was engaged in a...