Dow Chemical Sees Kuwaiti Deal Collapse — Blame Low Oil


Industrial and infrastructure spending may rise here as Obama opens the federal faucet, but the opposite is happening in cash-starved oil countries. Shares of Dow Chemical (DOW) are getting kicked in the gut this morning, after it announced that the Kuwaiti government has cancelled a massive $17.4 billion petrochemical JV in the country.

MarketWatch: Forming K-Dow was a key part of Chief Executive Officer Andrew Liveris’ plan to reduce Dow’s reliance on commodity products and gain access to lower-cost petroleum, used to make chemicals, according to a Bloomberg News report. “Dow is extremely disappointed with the decision by the Kuwait Government, and is in the process of evaluating its options pursuant to the Joint Venture Formation Agreement,” the Midland, Mich., company said in a statement. “While disappointed in this outcome, Dow remains committed to its Middle East Strategy.”

The cancellation followed sharp criticism by Kuwaiti lawmakers, especially after disclosures that commissions worth $850 million were assigned to certain groups that supported the deal, according to an article in the Kuwait Times published Sunday prior to the council’s decision. Officials said they expected senior members of the Ministry of Oil to be referred to prosecutors if the deal was approved, the Kuwait Times said.

The Bloomberg report said some Kuwaiti members of parliament also considered the investment to be too large at a time of falling oil prices and saw the plan as “overpriced.” Kuwait’s state-run Petrochemical Industries Co. signed the K-Dow deal last month, agreeing to pay $7.5 billion to form the joint venture. If Kuwait had canceled the agreement after the start of the New Year, it would have been liable to pay a penalty of up to $2.5 billion, according to a Reuters report.

The sharp run up in oil allowed mideast countries to spend a lot of money on what one analyst we followed called (big) “Toys for the boys”. So petrochemical plants, water desalination, arms, etc. Now the belt tightening is starting to arrive.