Business

DUBAI — Royal Dutch Shell is ending investments in a gas development project in Saudi Arabia, complicating the top oil exporter’s efforts to exploit its huge gas reserves.

The search for gas has been a priority for Saudi Arabia as it struggles to keep pace with rapidly rising domestic demand.

But the emergence of the shale gas industry has opened up more lucrative opportunities for energy companies elsewhere.

“Shell has decided to end further investment in the Kidan development,” it said in an e-mailed statement. “This was a difficult decision but Shell remains committed to the kingdom and we are keen to grow our investments, both in upstream and downstream.”

Shell did not give a reason for the decision to shelve the joint venture in the Kidan area of the Empty Quarter, the sea of sand dunes that cover southeast Saudi Arabia.

Last year, industry sources said the company was set to end investments in the venture due to disagreements with the government over terms.

At least three foreign firms — Italy’s ENI, Spain’s Repsol and France’s Total — have already abandoned the search for commercially viable gas deposits in that part of Saudi Arabia.

Shell has stuck it out longer in its South Rub Al Khali Co. (SRAK) project with state-run Saudi Aramco after finding small quantities of gas.

Kidan is rich in sour gas and is near the 750,000 barrels per day (bpd) Shaybah oil field, one of the biggest in the country. Sour gas has high levels of potentially deadly hydrogen sulphide and therefore is tougher to produce than conventional gas reserves.

The relatively high cost of developing challenging deposits in a country where gas sales prices are fixed at a fraction of probable production costs were possible reasons to discourage Shell too, industry sources familiar with the matter told Reuters last year.

Saudi Arabia, which holds the world’s fifth largest proven reserves of gas, expects domestic demand for natural gas — which it uses mainly for power generation — to almost double by 2030 from 2011 levels of 3.5 trillion cubic feet per year.

Saudi Oil Minister Ali Al Naimi had estimated the country’s unconventional gas reserves — those held in reservoirs that have not been traditionally exploited — as at over 600 trillion cubic feet, more than double its proven conventional reserves.

Saudi wants natural gas to help it cover demand for subsidised domestic power so it can save its oil for more lucrative exports. 

CAIRO — Egypt raised the sales tax on cigarettes by up to 120 per cent on Sunday and doubled the tax on alcohol as part of a series of measures to curb the budget deficit and reform the economy.

The decisions were taken by President Abdel Fattah Al Sisi and published in the state’s official gazette, a day after a subsidy cut that increased the price of fuel and natural gas by over 70 per cent, angering drivers.

Egypt is trying to reduce its deficit to 10 per cent of the gross domestic product (GDP) in the next fiscal year, from an expected shortfall of 12 per cent in 2013/14.

Sisi, who took office last month, has already raised the price of electricity and imposed a 10 per cent tax on stock market gains. 

Prime Minister Ibrahim Mehleb pointed out that the electricity move and the new cuts in fuel subsidies would save the government around 51 billion Egyptian pounds ($7.13 billion) this year. 

In a meeting with newspaper editors and television channel representatives, Sisi said the decision had to be taken because of the country’s debts, the state-run Al Ahram newspaper’s website reported.

With the economy battered by three years of unrest, successive governments have said subsidies — that meant petrol in Egypt was among the world’s cheapest — must be lifted.

The ex-army chief, who toppled Islamist president Mohammed Morsi in July 2013 before being elected president by a landslide in May, has repeatedly advocated austerity to narrow the budget deficit.

“Whether we wanted to or not, these decisions had to be taken, now or later,” Al Ahram quoted Sisi as saying. “It’s better to face [the situation] instead of letting the country drown.”

The state spends more than 30 per cent of its budget on fuel and food subsidies, in a country were nearly 40 per cent of the population of 86 million hover around the poverty line.

With many fearing that the fuel price rises will impact other prices, Sisi acknowledged that Egypt currently lacked any market controls, but said such mechanisms should be fully operating within six months, the state news agency MENA said.

Cairo bus driver Mohamed Salame who voted for Sisi in the hope he would fix Egypt’s manifold problems, now curses the new president for making life harder by hiking the price of the state-subsidised fuel vital to his livelihood.

With the economy reeling from more than three years of political turmoil, Salame says the reform couldn’t have come at a worse time. It cost him 80 Egyptian pounds ($11.19), double the usual amount, to run his 12-seater microbus on Saturday when the price rise was introduced.

“I have five kids, God only knows how I can pay my rent this month,” said Salame, 44, furious over the move which raised the price of gasoline, diesel and natural gas by up to 78 per cent.

The government’s decision to slash energy subsidies is being applauded by economists who say it is an unavoidable step towards curbing state spending in the country where the deficit is running at 12 per cent of GDP.

But big industrial companies warn the price hikes will erode their competitive advantage.

And on the streets of Cairo, the economic logic is lost on taxi and bus drivers whose anger points to the political risk.

They are already hiking fares, some are charging double for a short ride, underlining the inflationary impact of a decision that seems likely to drive up prices in an economy where cheap fuel helps to suppress prices of almost everything.

Passengers used to paying 2 pounds per bus ride are resisting demands for higher fares, triggering rows in Cairo’s heavily congested streets where tempers already snap easily.

“I was wrong when I voted for Sisi. We are the poor of this country and the decision makers are putting a sword’s blade to our throats,” said Salame.

Sisi, the former army chief who deposed Mohamed Morsi of the Muslim Brotherhood last year, has been signalling the need for austerity. A fifth of the state budget goes on subsidising fuel.

Mehleb sought to justify the cuts in a televised news conference on Saturday, saying they were needed to fix the economy. Some of the money saved would be spent improving education and health services, he said.

“How can I achieve social justice while I am subsidising the rich at the expense of the poor?,” he said, echoing a view that the wealthier Egyptians benefit most from state-subsidised fuel.

Despite the fuel price rise, the government will still be spending a hefty amount subsidising fuel and electricity. The budget for the coming 12 months sees 16 per cent of state spending going on energy subsidies.

Sisi said the price increases were needed to keep the country’s debt crisis from getting worse.

“[The decisions] needed to be taken now or later, so it is better to confront [the problem] rather than leave the country to drown if we delayed longer than this,” he said in comments to a state-run newspaper.

‘Economic war’

The higher prices mean industries that have benefited from cheap fuel will have to pay prices closer to world rates.

The fuel used by cement factories, for example, is now going to cost a third more, industry sources said.

Ahmed Abou Hashima, chief executive of Egyptian Steel, said the step would strip Egyptian industry of a competitive advantage.

“I ask the government... to look at how they can protect local industry, for example by anti-dumping tariffs,” he added.

Some Egyptians, often those who can afford to absorb higher prices, are sympathetic to the government’s move.

Overhearing one driver complaining about the hike, a young man lent through the window of the parked vehicle to defend Sisi. 

“We are in an economic war,” he said.

But that logic holds little sway for many in a country hooked on subsidies for decades. Taxi drivers held protests in the cities of Suez and Ismailia on Saturday.

Sayyed Abdullah, a 40-year-old taxi driver, said he became embroiled in a physical fight with one passenger in Cairo who refused to pay the amount he had asked for his ride.

“At first I was optimistic when Sisi won. I hoped there would be security and that we will have work,” he said. “Now I see that the country heading in an unknown direction.”

DUBAI — Dubai is planning to build a temperature-controlled city featuring the world’s largest mall and an indoor park, as well as hotels, health resorts and theatres, the developer said.

Already home to one of the globe’s biggest indoor shopping complexes, Dubai Mall, the glitzy emirate known for its love of grandiose projects said it is now planning to build the “Mall of the World”.

The all-pedestrian complex would occupy a total area of 4.45 million square metres, said Dubai Holding, the developer owned by Dubai ruler Mohammed Bin Rashid Al Maktoum.

The project “will comprise the largest indoor theme park in the world” under a glass dome that would be opened during winter, it added in a statement.

The seven-kilometre long promenades connecting the facilities would also be covered and air-conditioned during summer, it continued.

“Our ambitions are higher than having seasonal tourism. Tourism is key driver of our economy and we aim to make the United Arab Emirates an attractive destination all year long,” said Sheikh Mohammed.

“This is why we will start working on providing pleasant temperature-controlled environments during the summer months,” he added.

The statement issued late on Saturday did not say when construction would begin, nor did it reveal the cost of the project.

“The project will be built in phases in alignment with the gradual growth of family tourism in Dubai,” said Mohammed Abdullah Al Gergawi, chairman of Dubai Holding, which is Sheikh Mohammed’s personal investment vehicle and will develop the project.

Dubai hopes the “Mall of the World” can attract more than 180 million visitors each year.

The emirate is known for its numerous malls and many hotels, including the Dubai Mall, touted as the world’s largest shopping, leisure and entertainment destination. It is also home to the world’s tallest tower, Burj Khalifa.

Dubai has established itself as a global hub for air transport and transit trade, as well as a regional financial centre.

And it beat off opposition from Brazil, Russia and Turkey in November to win the right to host the World Expo trade fair in 2020.

The emirate’s economy was hit in 2009 by the global financial crisis, but it has since made a strong comeback, thanks to growth in the trade, transport and tourism sectors.

Separately, the International Monetary Fund (IMF) recently called on Dubai to take “stronger measures” to avert another property bubble, after prices rocketed at a rate reminiscent of the 2009 crisis.

Authorities in the Gulf emirate have already doubled sales duties to 4 per cent, and the central bank of the United Arab Emirates has tightened lending facilities.

“These measures are good,” said IMF Regional Director Masood Ahmed, adding, however, that there was a need for even tougher steps.

“It is time to consider stronger measures particularly in ways to discourage a quick turnaround,” Ahmed told a forum in Dubai, warning of renewed market activity aimed at fast profits.

He suggested increasing sales duties substantially to prevent such activity, citing Singapore’s 30 per cent tax on sales made within a year of purchase as an example.

“I think it is time to consider some stronger measures to try dampen what could possibly be speculative transactions in real estate,” he said.

The market remains “mostly a cash market” for the moment, he added, warning that if lending to the sector sees a big increase, tightening measures would be needed.

Dubai’s property sector expanded at breakneck-speed for years, driven by foreign investments, before the global financial crisis pushed it into free fall, shedding half of its 2008 records.

But the market has recently made a strong comeback as investors flocked back into the emirate that is seen as a safe haven at a time of regional turmoil.

Contrary to most Gulf monarchies, the sheikhdom has sizeable property zones that have been opened to foreign buyers.

The real estate sector has been recovering as Dubai’s trade, tourism and transport have continued to grow, banking on large investments in the past few years.

LONDON — Europe's top banking regulator on Friday called on the region's banks not to deal in virtual currencies such as bitcoin until rules are developed to stop them being abused.

The European Banking Authority (EBA) said it had identified more than 70 risks related to trading in virtual currencies, including their vulnerability to crime and money laundering.

The London-based body in a statement advised European financial institutions against "buying, holding or selling virtual currencies while no regulatory regime is in place".

"A regulatory approach to address these risks would require a substantial body of regulation, some components of which would need to be developed in more detail," it added.

Virtual currencies, most famously bitcoin, have come under increasing scrutiny by financial regulators as their popularity has grown.

Launched in 2009 by a mysterious computer guru, bitcoin is a form of cryptography-based e-money that offers a largely anonymous payment system and can be stored either virtually or on a user's hard drive.

Backers say virtual currencies allow for an efficient and anonymous way to store and transfer funds online.

But regulators argue the lack of legal framework governing the currency, the opaque way it is traded and its volatility make it dangerous.

Mt. Gox, once the world's biggest Bitcoin exchange, filed for bankruptcy in Japan this year and at least 11 banks in its key market of China have stopped handling the currency.

Bitcoin's reputation was also damaged when US authorities seized tens of thousands as part of an investigation into dark Web bazaar Silk Road.

"We want investors to understand fully the magnitude of the risks attached to this currency," said Olivier Vigna, chief economist of France's market watchdog AMF.

Bitcoin prices surged to $1,240 in November last year before they crashed following moves by exchanges, financial institutions and the government to rein in the virtual currency.

They currently trade at more than $600 a bitcoin.

The EBA said that the risks of virtual currencies "outweigh the benefits", such as faster and cheaper transactions, "which in the European Union remain less pronounced".

The authority added it was also concerned that "anyone with a sufficient share of computational power" could exploit flaws in a virtual currency.

Separately, Russia's central bank said last week that virtual currencies such as bitcoin could have a future but warned that it could move to regulate their use in Russia.

"One shouldn't reject these instruments, perhaps they really have a future, but in our country the criminal world immediately starts to use everything new," said Georgy Luntovsky, the central bank's first deputy chairman.

"Perhaps after a certain time we will make a decision about some legislative regulation of this issue," Luntovsky told journalists at a banking conference in St. Petersburg, adding that the central bank and government were discussing the matter.

The central bank had already warned Russians in January that transactions involving bitcoin were highly speculative and that the unit carried a large risk of losing its value.

Russians prosecutors subsequently issued a statement saying the ruble was the sole official Russian currency and that bitcoin could be used for illegal activities such as money laundering and financing terrorism.

CAIRO — Egypt's prime minister has sought to justify politically sensitive subsidy cuts on fuel and natural gas which took effect on Saturday, saying they were a necessary part of fixing an economy hammered by three years of turmoil.

Egypt had overnight on Friday slashed its subsidies for car fuel and natural gas, increasing their prices by more than 70 per cent.

The move prompted scattered protests, with several minibus drivers for instance protesting in the cities of Suez and Ismailiya and demanding a rise in fares to compensate for increased fuel costs. Police fired tear gas to disperse them.

However the move, taken during the Islamic holy month of Ramadan, when inflation is usually high due to increased food consumption, showed the government's determination to reduce the subsidies which eat up to a fifth of its annual budget.

"The decisions were taken after delicate studies," Prime Minister Ibrahim Mehleb told at a press conference on Saturday. "How can I achieve social justice while I am subsidising for the rich on the expense of the poor?”

"We are at war, we are fighting poverty and ignorance," Mehleb said, adding that money saved from the subsidy cuts would go into the education and health sectors.

Mehleb's Cabinet was appointed last month by newly elected President Abdel Fattah Al Sisi, who also issued a 10 per cent tax on stock market gains and increased the price of electricity.

The economic austerity measures are part of Egypt's attempts to reduce its deficit to 10 per cent of the gross domestic product in the next fiscal year, from an expected shortfall of 12 per cent in 2013/14.

Such efforts, particularly those applying to basic items such as fuel, could trigger a backlash from many of Egypt's 86 million people, of whom half are poor and illiterate.

But some analysts welcomed the subsidy reductions.

"It's a very positive first step and clear statement of intent. These moves have been talked about for a decade," said Simon Williams, Middle East chief economist at HSBC.

"They won't resolve the budget imbalances on their own, but it's encouraging to see a new regime finally putting them into practice," Williams added.

Some car drivers and users of public transportation in Cairo complained about the rise in fuel prices and many gas stations were deserted. 

"This is unfair, already the prices of everything is increasing, so why does the government do that and increase fuel prices now?" said Ibrahim Ali, a public sector employee and owner of a car.

"The people won't like that, this could turn the people angry and against the state," he added.

Egypt's government drastically raised fuel prices late Friday to tackle a bloated subsidy system, in a potentially unpopular move that might blow back on newly elected President Abdel Fattah Al Sisi.

The government raised the price of 92 octane gasoline, which sold at 1.85 pounds ($0.36) a litre, to 2.6 pounds, and 80 octane gas from 0.9 pounds to 1.6 pounds a litre, the official MENA news agency reported.

The price of diesel was raised from 1.1 pounds to 1.8 per litre, the agency reported.

The state spends more than 30 per cent of its budget on fuel and food subsidies, in a country were nearly 40 per cent of the population — some 34 million people — hover around the poverty line.

Mehleb said the increase would not affect food prices, Al Ahram newspaper reported.

He called on "Egyptians to come together and understand the challenges of this period, and to stand with the government," the newspaper said.

Sisi preaches a message of austerity and self sacrifice to restore the economy and he has launched a donation drive and announced he would give away part of his salary and personal wealth, while urging Egyptians to bike and walk more to save on gas.

The economy has been propped up by billions of dollars in Gulf Arab state aid after the overthrow of the Morsi, whom regional powerhouses such as Saudi Arabia and the United Arab Emirates viewed with suspicion.

Morsi's Muslim Brotherhood movement, still holds near daily protests it hopes will grow with increasing economic discontent.

An early 2011 uprising that ousted veteran dictator Hosni Mubarak sent the economy into a downward spiral.

AMMAN — Prime Minister Abdullah Ensour checked on the progress of work at the Aqaba Container Terminal during a meeting on Thursday with Kim Fejfer, chief executive officer of APM Terminals which forms a joint project the Aqaba Development Corporation (ADC).  During the meeting that was attended by Transport Minister Lina Shbeeb and Aqaba Special Economic Zone Authority Chief Commissioner Kamel Mahadin, Fejfer indicated that around $300 million have been invested in Aqaba terminal expansion and development, enabling it to deal with one million containers a year from only 200,000 several years ago. The premier valued the partnership between APM and ADC, noting that he directed concerned institutions to cooperate further and streamline operational measures at the terminal, according to the Jordan News Agency, Petra. APM Terminals is an international container terminal operating company, and is one of the world’s largest port and terminal operators, and cargo support providers, according to its website.

TRIPOLI — Libya’s acting Prime Minister Abdullah Al Thinni said the government had reached a deal with a rebel leader controlling oil ports to hand over the last two terminals and end a blockade that crippled the nation’s petroleum industry.

“We have successfully reached an agreement to solve the oil crisis. We have received today Ras Lanuf and Es Sider Oil Ports thankfully without the use of force,” Thinni said at Ras Lanuf Terminal in eastern Libya. “I officially declare this is the end of the oil crisis.”

Thinni said the ports had been reclaimed after an agreement with Ibrahim Jathran, whose fighters had seized the terminals almost a year ago to demand more regional autonomy.

Jathran told reporters that he had handed over the ports as a “goodwill gesture” to the new parliament, which was elected last month.

Taking back the two major eastern oil terminals could make around 500,000 more barrels per day (bpd) of crude available for export, a major breakthrough for the North African state which is a member of the Organisation of Petroleum Exporting Countries (OPEC)and whose coffers have been hit hard by oil revenue losses.

The end of the blockade would also see a final chapter of a crisis that included failed negotiations, threats to bombard rebels and even an attempt by Jathran to dispatch an oil tanker that was later boarded on the high seas by US commandos.

Disputes over Libya’s vast oil resources have been among the many triggers for conflict between rival brigades of former rebels and allied political factions since civil war ended four decades of Muammar Qadhafi’s one-man rule in 2011.

The announcement by Thinni and Jathran appeared to show a more solid agreement to end the oil standoff, but shipments may still face technical delays and past negotiations have been slowed by subsequent political disagreements.

Libya produced around 1.4 million bpd before a wave of protests, strikes and blockades reduced the output to as low as 150,000 bpd. As of Tuesday, national crude output stood at 321,000 bpd.

Jathran’s rebels and their allies, who were all former state oil protection guards before their mutiny, had agreed in April to reopen the two smaller ports, Zueitina and Hariga, and then gradually free up Es Sider and Ras Lanuf.

After that deal, shipments from Zueitina were delayed because of technical damage from the blockade, while Hariga terminal loaded a tanker of crude at the end of last month.

Storage tanks at seized ports are likely full, and loading initial crude will be straightforward, but getting re-supplies from oil fields may be complicated.

Separate protests have also curtailed production at some oilfields, and other groups may still target pipelines and oil facilities to make political or financial demands on a government that struggles to control many parts of the country.

Political steps

Three years after the fall of Qadhafi in the NATO-backed war on his regime, Libya is far from stable, with brigades of former rebels allied with competing political factions still powerbrokers in the face of a weak state.

Over the last two years, heavily armed militias have seized ministries, attacked the congress, kidnapped diplomats and even briefly abducted a prime minister from his hotel room to pressure the government to meet their demands.

Many of those former rebels are on the government payroll to co-opt them. Often though, their loyalties are stronger to tribe, political faction, region or rebel commander than to the nascent Libyan state.

Jathran’s seizure of three major ports and the taking of a fourth by his allies since last summer clearly illustrated Libya’s fragile democracy and cost Libya billions of dollars in petroleum revenue.

On Wednesday, the rebel leader blamed the former parliament, which was known as the General National Congress or GNC, for delays in handing over the oil ports.

The GNC was paralysed by infighting among Islamist factions including a Muslim Brotherhood-linked Justice and Construction Party, a more liberal-leaning National Forces Alliance movement and scores of independents.

AMMAN — Jordan’s exports of agricultural and food products increased by 21 per cent during the first four months of 2014 to JD329 million from JD271.4 million in the same period of 2013. 

FRANKFURT — German drugmaker Bayer said it would keep the Dr. Scholl's and Coppertone brands it bagged as part of a $14 billion buy from US Merck, despite overtures from companies keen to grab them, widening its healthcare line to include consumer goods.

Just weeks after clinching the deal to buy Merck 's non-prescription drugs business, Bayer — best known as a life sciences company which makes cancer drugs — is being courted by rivals keen to acquire the foot care and sunscreen brands, several people with knowledge of the approaches told Reuters.

But when asked about the expressions of interest for Dr. Scholl's and Coppertone — each worth more than $1 billion — Bayer said it was not planning to untie the Merck bundle it secured in May in a competitive bidding tussle with Reckitt Benckiser, Procter & Gamble Co and Novartis .

"We intend to keep the portfolio acquired from Merck & Co. as a core business," Bayer said in a written statement.

The German company, which makes contraceptives as well as prescription drugs against cancer, heart disease and multiple sclerosis, said when it bought the Merck business that its aim was to become global leader in over-the-counter (OTC) medicines.

On Tuesday, Bayer said that the US Federal Trade Commission had approved the Merck deal, which was the largest in the German healthcare sector since Bayer bought rival Schering for 17 billion euros ($24 billion) in 2006. Antitrust clearance in some other markets remains outstanding.

But with Bayer's existing OTC medicines business listing products like aspirin and Canesten antifungal creams, some are questioning the logic of it wanting to keep everyday products like sunscreen.

"They aren't really part of the core business and don't have much to do with medicines in the strict sense," said Warburg Research analyst Ulrich Huwald.

Offloading Dr. Scholl's foot care and Coppertone, which account for 27 per cent of the Merck bundle's combined annual sales, would allow Bayer to focus on Merck's core healthcare products such as allergy remedy Claritin and MiraLAX laxative, analysts say, and give it the resources to make the most of those brands.

Repeated comments by Chief Executive Marijn Dekkers in the past that Bayer — the inventor of aspirin — is mainly about life sciences and molecular research, seem to have given hope to consumer goods companies that he might yet have wanted to part with brands that have little to do with healthcare.

Reckitt Benckiser, which owns the Scholl foot care brand outside the United States, as well as Beiersdorf and L'Oreal were seen as potential acquirers. Officials at the three companies declined to comment.

Going for shelf space?

There are however sound reasons for Bayer to retain Coppertone and Dr. Scholl's despite the products being so different to much of its other business: Big US drug store chains such as Walgreen Co and CVS Caremark  prefer dealing with suppliers that can fill large amounts of shelf space, and the two big consumer brands would add to Bayer's bargaining power.

Bayer has also said that the Merck deal, which is expected to close in the second half of the year, should allow it to make better use of its distribution network and sales force, and give it more clout when dealing with retailers.

There may however be another reason Bayer is reluctant to sell. Having bought Merck's unit for more than twice the core earnings multiple at which Johnson & Johnson, the world's largest consumer care company, is trading, any spin-off sales might reveal it to have overpaid.

One source said Coppertone and Dr. Scholl's, with $275 million and $309 million in 2013 sales, respectively, could be worth as much as $4 billion between them, reflecting the sales multiple of about 6.5 that Bayer paid for the entire Merck consumer bundle.

But another person said that Dr. Scholl's was more likely to fetch $1 billion to $1.5 billion and Coppertone about $1 billion, because personal care products change hands for lower multiples than the medicines included in last month's deal.

Selling on some consumer brands for a lower earnings multiple than what was agreed for the entire Merck portfolio would exposed the high price paid for the remaining OTC drugs — and might not go down well with Bayer investors.

"Shareholders would start to do the maths," the source said.

HAIFA, Israel — The hydraulic ramp of a Turkish freighter taps down on the eastern Mediterranean port of Haifa and, under a full moon, 37 trucks roll off onto an otherwise empty pier.

In a convoy that stretches hundreds of metres, the trucks travel east across northern Israel, bringing goods from Europe to customers in Jordan and beyond.

Until three years ago, the cargo these trucks carry — fruits, cheese, raw material for the textile industry, spare parts, and second-hand trucks — would have come through Syria. But civil war has made that journey too perilous.

"Too much problems, too much guns, too much fighting," said Ismail Hamad, a 58-year-old Romanian driver. Hamad has driven through Syria for three decades, he said; now, only Israel.

Three years after Syria plunged into violence, Israel is reaping an unlikely economic benefit. The number of trucks crossing between Israel and Jordan has jumped some 300 per cent since 2011, to 10,589 trucks a year, according to the Israel Airports Authority. 

In particular, exports from Turkey — food, steel, machinery and medicine — have begun to flow through Israel and across the Sheikh Hussein Bridge to Jordan and a few Arab neighbours. 

Turkey's Directorate General of Merchant Marine, part of that country's transport ministry, pointed out that transit containers shipped to Israel for passage on to other countries increased to 77,337 tonnes in 2013 from 17,882 tonnes in 2010.

The trade, though still small,is growing enough to encourage long-held Israeli hopes that the country can become a commercial gateway to the Arab world. Israel plans to invest at least 6 billion shekels ($1.7 billion) in infrastructure over the next six years to improve the trade route. 

In the past, some Israeli businessmen and diplomats have lamented the way politics have hurt economic opportunities; others have kept any trade with their Arab neighbours quiet so as not to upset them. Now they see a chance to boost economic and political relations.

"Israel is returning to its historic role, as a transit country, as a bridge between continents, where historic trade routes passed through," said Yael Ravia-Zadok, head of the Middle Eastern Economic Affairs Bureau in Israel's foreign ministry. 

She leads a group of Israeli government and security officials trying to figure out how best to encourage trade.

The logic is simple: Goods from Europe and elsewhere destined for the wider Middle East are usually unloaded in Egypt before they make the several-hour drive to a Red Sea port, where they are loaded onto new vessels and shipped to their final destination. 

The routes from Haifa in Israel to Jordan, Iraq and even Saudi Arabia — used by the Ottoman and British empires up until Israel's founding — are potentially much quicker and cheaper, shaving days, if not more, off a trip between Turkey and Baghdad, for instance. Costs could be cut in half.

But opening up routes will not be easy. Politics and generations of enmity are difficult to overcome. Iraq itself is on the brink of civil war. 

Jordanian trade figures show a sharp rise in trans-shipments through Israel in 2012, but a fall in 2013. Jordanian officials say that Israel is overstating its role in the trade and point out that the vast bulk of re-directed goods still goes via Egypt.

But Israel's gain, small though it may be, is far more surprising because countries such as Saudi Arabia and Iraq spurn official relations with Israel.

"A lot of secrecy still surrounds the topic and it is probably premature to speak of a blossoming and fast-growing trade route," said Coline Schep, Middle East analyst with consultancy Control Risks. 

She nevertheless described the traffic through the Haifa-Jordan River Crossing trade corridor over the past two years as "almost unprecedented".

Safe passageway

David Behrisch, managing partner at Tiran Shipping, an Israeli shipping agency, says business sprang to life in 2011 when organisers of the Jordan Rally found they couldn't bring race cars in from Italy through Syria.

"Somehow we put our hands on [them]," he says. "We handled 37 trucks we had to move to Jordan and then back." Behrisch would not go into details. "Somehow, somebody connected us. You know how things happen."

As the number of motor vehicles crossing from Turkey into Syria plummeted — by close to 50 per cent, from 106,750 in 2010 to 55,701 in 2013, according to Turkey's International Transporters Association — most of the trade was diverted to Egypt. But thanks to a new Turkish route by sea to Haifa, some shipments also began crossing through Israel.

"The reason this Haifa route has opened is entirely due to the war in Syria," said an official at the Turkish company UN Ro-Ro that runs the new line.

Tiran Shipping now runs 40-50 trucks a week to Jordan and moves 2,500 containers, or roughly 37,000 tonnes.

Though the amount Tiran carries is only a tiny sliver of the $35.6 billion worth of goods Turkey exported to the region in 2013, it is up from zero a few years ago.

Israel has "not even begun to scratch at the potential", Ravia-Zadok told a recent economic conference.

Hurdles

Plenty of political and practical obstacles remain.

The port in Haifa is state-owned and has limited capacity, a history of labour unrest and cumbersome security.

Freighters in Haifa bay are typically forced to wait hours to dock. Trucks and containers have to pass through Israel's lengthy security checks and scanners. The drivers, carrying international permits, meet passport agents onboard. Only after that can they take to the roads.

An hour later, the freight reaches the Sheikh Hussein Bridge and passes into Jordan. 

Normally, Jordanian law requires containers to be unloaded in the country's Red Sea Port of Aqaba, but that doesn't apply to those passing through Jordan in transit or those that are stripped and moved onto Jordanian trucks at the border.

According to numerous international businessmen who spoke to Reuters on condition of anonymity, goods continue from there into Iraq and Saudi Arabia.

Documentation often shows the origin of goods but not their transit route, so the receiving authorities either don't know about or ignore Israel's role, according to Shlomi Fogel, owner of the Haifa-based Israel Shipyards. 

One example: Steel from Ukraine, which is shipped to Iraq through Israel with Ukrainian documentation.

Return cargoes from the Arab world into Israel are inspected with even greater scrutiny. This is perhaps the weakest link in the trade route. Merchants say they could easily sell more from the Arab world through Israel were it not for Israel's security procedures. 

Only 90 or so trucks from Jordan can cross the Sheikh Hussein Bridge each day and they routinely wait all day while Israeli officials check their contents.

Fogel is working to ease that strain. He wants to expand a free- trade zone called the Jordan Gateway, which sits 6 kilometres south of the Sheikh Hussein Bridge and straddles the Israel-Jordan border.

One afternoon a few months ago, he stood on a hilltop above a rundown Jordanian army barracks and gazed at the 300 acre park. The sluggish Jordan River that marks the border snaked through the green valley below.

"Up here we will build a cafe, and people from around the world will come and do business," he said.

Working with the family of late international financier Bruce Rappaport in Switzerland, and with the wealthy Dajani and Kawar families in Jordan, Fogel wants to create a customs-free zone, where cargo can be dropped off or picked up from either side 24-hours a day, companies can build factories, and everything, including security, is managed privately. 

Already it is one of five such zones in the country from which goods manufactured in collaboration with Israel can be sold to the United States without tariff or quota restrictions.

Seven factories are up and running on the Jordanian side of the zone, an increase from just four factories at the start of this year, the park's Jordanian General Manager Qasem Al Tbaishi said. The planned industrial park will bring a boost to Jordanians nearby who depend on farming and are much poorer than the Israelis across the river.

Israel has given approval and budgeted 60 million shekels ($17 million) to build a bridge directly into the trade zone. The gateway group hopes Jordan will approve the plan within months.

Israel's Zoko Enterprises moved its car filter plant to the Jordanian side of the zone three years ago to save on labour costs and gain access to Arab markets. 

Gilad Hadassi, general manager at Zoko's Israeli subsidiary Gur Filter, says companies from countries like Saudi Arabia and Qatar, which don't have diplomatic relationships with Israel, are willing to buy from a Jordanian company.

"Customers from all over the world, a lot of customers from Iraq and other Middle East countries at exhibitions come to our booths to talk business. They don't care about politics," he indicated.

Future

Israel plans to build two $1 billion ports to be run by foreign operators — one in Haifa, the other 80 kilometres south in Ashdod. The new Haifa port will have a capacity for 1.5 million containers a year, roughly doubling current levels.

A railway from Haifa to Beit Shean, not far from the Jordan border, will be completed this year, and a final leg is being planned, so that by 2017 a steady flow of containers could travel by train all the way to the border.

"We can be an alternative for an individual producer, but for the big picture we won't replace the Suez Canal, which is something huge," said the chief executive officer of the Jordan Gateway, Yuval Yacobi.

The most ambitious plan is a $400 million, 400-megawatt power station run on Israeli natural gas to generate electricity for both countries. 

Spearheading that proposal is Shimon Shapira, a former military secretary to Prime Minister Benjamin Netanyahu who together with Fogel has been meeting Jordanian officials. 

"Jordan today suffers from blackouts and has a big shortage of electricity," Shapira claimed. "They are paying about 12 cents per kilowatt, and we will be able to provide it to them for a lot less."

The developers hope for approval from Amman this year. The project would take up to five years to build. 

Some analysts remain sceptical that Jordan will agree to use Israeli gas. But in February the partners in Israel's huge Tamar field signed a 15-year deal with two Amman-based companies to supply $500 million worth of gas.