Comparative Investment Opportunities in the Middle East: Risk/Reward Analysis

An openness to foreign investment has allowed the UAE and Israel to maintain their top scores in our overall Middle East Oil and Gas Risk/Reward Ratings, despite much stronger oil and gas production in OPEC heavyweights, such as Saudi Arabia and Iraq. In our upstream ranking, while Iraq has maintained the top spot given an openness to foreign investment and a strong outlook for production growth, we highlight that downside risks make the country's position at the top of our ranking tenuous. In our downstream ranking, we forecast refinery expansion in Kuwait and Saudi Arabia but highlight big plans for investment in Iraq that although uncertain, hold the potential for movement in our rankings.

The main conclusions from our Middle East Risk/Reward Ratings are:

• Continued steady increase in production from key established producers, such as Saudi Arabia, Kuwait and the UAE.

• Strong production growth in Iraq and slow increases in production elsewhere in the region shave allowed Iraq to maintain a small lead in our upstream rankings. However, high upstream risk scores underscore the challenges the energy sector will continue to face, making Iraq's position tenuous; Also notable in our upstream rankings are the gains made by the region's other rising producer, Israel, which is set to become a net exporter of natural gas from 2017 according to our current forecasts.

• We are also on watch for stronger downstream performance in Iraq, the market has sizable upside potential with a number of proposed projects that could move allow for a significant increase in downstream capacity. Yet, Iraq's past difficulty in attracting investment supports a conservative approach notwithstanding potential gains.

• While the leaders in our downstream Risk/Reward Ratings have held their places, there has been a shift among the lower ranked players, with Kuwait notably falling to the bottom and Qatar moving upwards.

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