Ratings cut was not a surprise trade we spoke to the global head of the Rating Agency. Here is what he said. Primary reason is the impact on public finances, even though oil prices have started to come up again. When we look at a fiscal balance of last year there was a deficit. An enormous fiscal challenge in dealing with lower oil prices. The government has a plan to address that, we think the deficit will be lower this year, less than 10 of gdp. This used to be a country with a government that of zero, now it is rising with the deterioration of oil prices. The eloquent from stable from to negative, right . Now it is stabilized. To discuss downslope on the reform agenda you are talking about, cutting state subsidies, state spending, or does it, does that plan help approve longterm ratings . If the plan were implemented in full, saudi arabia would be transformed considerably. There we think there will be difficulty implementing them in full. There will be an improvement in public fan x finances, there will be a restructuring of the economy, not to the degree that the government would like. Ery ambitious agenda it is a longterm agenda, not something that can be fixed in a year. It is a tenyear agenda that the government has has to transform the economy, reduce dependence on oil. Is the fundamental still in place . I know youre ratings are a couple of steps above. We still think it is a single a credit. The Government Debt is still less than 20 of gdp. Compare that to some countries with similar ratings and get western europe, debts are very high. There is some room there for the saudi authorities to incur more debt. We think they will do that. That underpins the rating itself. This reform agenda which saudi aramco into an ipo, creating this giant, the Worlds Largest fund, is that something that improves the outlook down the road . Raisenk the agenda is to the profile of the private sector. That is part of the privatization. There is an initiative to encourage private sector employment. That is critical, because there are demographic issues and saudi arabia. It is a young population, a large number of people entering the labor force. The government is no longer capable of providing all of those jobs. There need to be alternative sources of growth. We presume we can provide that better than the public sector. Does a file touch Higher Oil Price, does a Higher Oil Price improve it . External finances immediately. We expect to see a deficit, 8 of gdp this year. Stay with saudi. The countrys Energy Minister says, ill supply cuts may be extended if necessary. To let out fully told kathleen hays, curbs will need to be sustained to remain above the fiveyear average. He thinks markets are not that confident. Take a listen. It is our objective, and doing what we do, the fundamental. Saudi arabia is driven by supply demand balance. Flows,ging investment making sure that global inventories are back to where they should be. In terms of longterm averages. Thats where i have my eyes focused on. Of course those factors are not ones that can be easily managed. We have to monitor, there are too many variables at play. We are on course, the fundamentals have significantly improved over the last few months. Fluctuate up and down. There are other factors like speculators and financial investors. Take a long and short. The currency also. Think looking at the fundamentals, i am satisfied that we are moving in the right direction. Also my colleagues from other producing nations have been cooperating with us quite nicely. I think we are on track. Or weekly, fluctuations in price do not get my eye off the board as far as looking at fundamentals. Have true that inventories not come down as much as saudi arabia expected . What would be the trigger for you and fail fellow oilproducing nations to say, we should cut more . We are looking at global inventories. Those inventories, the data, prosperity is not perfect. Demand in the First Quarter is not the highest. It has taken time for some of the data to show. We believe we are on the right track. Midyear, wetimes by will look at where we are. It is premature for us in the much to be making a determination of what to do. This sixmonth program will take its course. My colleagues from other countries are equally committed. Think late in the Second Quarter we will be looking at what needs to be done to ensure the fundamental factors are achieved. In terms of extending production cuts or not, youll at the sixmonth mark is it possible then that he would sit down with your fellow Oil Producers and extend the cut . If it is needed yes. Sign . Be that side if inventories are still over the ever under the average, if we do not see companies and investors feeling good about the of the global oil industry. Want to signal to them that we are going to do what it takes to aing the industry back to healthy situation. Israels minister gave an update on a national a pipeline to turkey. Catch our interview. This is bloomberg. Mr. Bloomberg markets middle east. Israels Energy Minister is confident that a National Gas Pipeline with turkey would conclude by this summer. Speaking on tuesday, he said guest should start slowing north as soon as three years from now. Started their half a year ago several rounds of talks conducted with the turkish Energy Minister and government. The purpose is to conclude this summer, a government to government agreement understanding of the gas pipeline. In order to be able to exporting natural gas from israel from the vicinity to turkey. Nowher direction that is under discussion is much longer. The gas pipeline stretching from israel through the mediterranean to italy would enable us to ort this really and gets gas to italy and greece in the near future. You are making progress then when it comes to talks with turkey. The other front has been with egypt, impeding your ability to export gas to egypt at the moment. How much progress have you made re . R question mar we wont elaborate on some discussions about the egyptian government. Maybe make some reference to the general id, very clear. Economicmediterranean will israel and egypt, maybe also lebanon in the future put will be some kind of. Eplacement we get gas from two main sources, from the east of russia and from the northern sea. The Northern City of belgium the potential for the mediterranean is very big. This foris to build these mediterranean to replace the east mediterranean to replace the northern sea. One guest to the european union. Pipelinelk about this to greece and italy. Who is paying for that . I cannot hear the entire but there has artie been a feasibility study. Theough this is going to be longest gas pipeline in the world, and deepest, stretching from israel through greece and cyprus directly to italy, we have found that this is economically feasible and technologically possible. Of april, theng. Inisters coming to israel weve already conducted several rounds of talks with the Energy Minister. Conclude frameworks, israel, cyprus, greece, italy, framework. This would be to pay as the way for the east coast mediterranean. As pipeline my vision is that three years from now, we will be able to export natural gas to turkey and six years from now we will complete this pipeline, to supply gas from the eastern mediterranean. To greece and italy. And comes to the pipeline, do have a plan on where the money will come from . Privatebly it will be a sector project. It is commercially feasible we are to have some ideas. That we have to conclude in the next few months some kind of gtwog. The spending between the four ,ountries, governments involved the system has some kind of general understandings between the currently israel and cyprus, and the consumers currently the main consumer would be italy. In italy, such natural gas replace somealso of the supplies coming from north africa. The energy story aside for a second. Talk a little bit about the political situation in israel. Benjamin death knell has threatened to go to elections. Do you support them on that front . That this crisis in israel we are running a very vibrant parliamentary democracy. We need to have a coalition. Sometimes such coalition with many different parties, there are and crisis. I hope this current dispute will bethese parties over. Will besuch crisis resolved in few weeks time. Stabilityrael needs and i hope and think most people in israel to hope and believe that this Current Crisis or dispute will be over in a few weeks time. So youre saying that you do not support them, and not think it will happen . No. I think the Prime Ministers is a very good voice. Elaborate tooo much about the public media in israel. This little dispute between the resolved. Ster can be it is not a big dispute. Will speak athat few weeks from now, we might forget hopefully that there was such a dispute or such a crisis. Speaking, the coalition is quite stable. This dispute might be over before. Hopefully. Thehe relationship between Trump Administration and prime was worseetanyahu than initially forecast. Is this a problem . Think relations are good and going to be very good. Primethe meeting between minister netanyahu and President Trump was very good and friendly meeting. Actually, they know each other for a think, already two decades now. I myself visited washington last ,eek and met with a colleague the new secretary of energy, rick perry. T was a very friendly meeting we discussed how to collaborate between the United States and israel and cybersecurity. Cybersecurity for the energy sector, power stations, the gas,ric grid, for natural supply chain. This is going to be a very big issue. We also discussed the ways and to encourage american companies, energy companies, to get involved in the new explanation phase. Seems most of the big natural gas is it to be exploded in our neck economic water. Got me jump in here very briefly, minister. We are seeing increased tensions between israel and syria. How likely is it that this might escalate into a war . Our policy was very clear so far. Despite this horrible brutal civil war we have seen unfortunately, we so many casualties, we decided not to enter unless for direct interests are under threat. What is forthcoming in syria is attempts to transform syria the end of the civil war into some kind of extension of a ram, to make serious some kind of iranian goal. This is a dire threat to israel, but not just israel, think to all of the arab world, saudi , dear peninsula will be inserted by randy and stash iranians in syria, so, and yemen. This is of course something that the International Community and the leadership of the United States and russia to prevent syria should not become extension of a ram. Up next, iranian americans shelled plans to invest in iran, trumps policies. More on that story ahead, this is bloomberg. Welcome back to the best of Bloomberg Markets middle east. Sanctions on iran were relaxed last year. Iranian americans look to invest in their homeland. The election of President Trump is prompting many to think again. We know 70 million arounds live abroad. The government estimatess assets they manage is equal to about 2 trillion. Itis a community that, counts the market, especially in the u. S. Permanent americans from iranian descent, we can think of the founder of ebay, the chairman of twitter. If there are a number of companies that have been with iranian americans behind some in silicon valley. Iran is mindful of the fact that it could benefit from this community. The iranian president , his first trip to the u. S. General assembly has a message for them. He said, we are extending our hand, with a welcoming tone, wanting individuals to come back to the country or invest in their hometown. Where can we expect iran to use this . We have to remember that until sanctions were some key sanctions were lifted last year in january, iran has been for about a decade start up of technology and investment because of those strict sanctions that exist on its economy and energy industry. That means that the money that would come and, iran needs to overhaul its infrastructure, oil toustry, theyre looking expand International ShipsInternational Airport outside of techcrunch. One of the first orders they put after the sanctions were lifted was for some 200 jets from boeing. Best ofxt on the Bloomberg Markets middle east, turkey gets it Credit Outlook downgraded due to Political Uncertainty that shows no signs of dying done. Just ahead. This is bloomberg. This is the best the Bloomberg Markets middle east. Cutey is Credit Outlook was to negative, blaming Political Uncertainty. We spoke to a report about the cuts and heard from turkeys deputy Prime Minister and the head of research at emaar as nbd. We knew the referendum is coming up. Everyone is nervous about it. It is not unexpected. Nothing they said was a surprise. This is what rating agencies do. One thing that one thing that surprises me is that the reaction of the market. If you look at turkish government bronze bond spreads, they have been trending down. We have seen a rally in turkish stocks that are getting close to a record set in 2013. Why is there this discrepancy between the Rating Agency and what investors see . There is a lot of positive sentiments across tm. The dollar has been faltering. Been benefiting from that. There is also the fact that a lot of people have been living with these risks for a long time. None of this is new. People develop thick skin. Turkeys deputy Prime Minister has said that the netherlands actions during a diplomatic dispute quote, to defy logic. Relations have become strained in the last few weeks after turkey arrested a job dutch journalist and then that irelands bard it turkish diplomat coming in. Take a listen to this. Course, is concern of the treatment of the turkish and protesters who were there to welcome the master, certainly doesnt comply with standards code of conduct. The dutch were sparked to Fund Response to five logic. Dont put it this way. Europe is usually open, usually there is freedom of speech, gathering, stuff like that. It was very unfortunate. Theres been words, statements and anger, frustration. It has to be taken with context. Argue forfficult to freedom of speech of you jail a journalist . Im not saying happens in turkey is perfect. What im saying is, turkey has gone through a fairy difficult. Very difficult period. Arkish democracy survived vicious attack in the form of a must we take things within a context, look beyond the surface, we cannot understand each other. With the passage of the referendum, which gives the president more power, help these things, or make them worse . The president himself has preferred to the dutch as not sees, even though the dutch are the victims of nazis. Yes, iink and i do hope, would come for the referendum and it could serve as a catalyst. Turkey Needs Closure to put behind this difficult episode. Problems will not be settled. I do not think the new constitution gives the president more powers the on foot he already has and exercises in the form of government and him as president. What we are doing is this. We are consolidating essentially the powers of Prime Minister entrance in one hand, which would be the executive branch like them branch like everywhere else. The turkish system is no than what the United States has been practicing for 241 years, or what france has been practicing. Turkeys deputy Prime Minister seeking speaking to bloomberg. I want to bring in our guest host for today, she is the head of research for emaars m nbd. We are talking turkey here and we seem to have twin trends at the moment. One is political trauma unfolding with the european union, the other is economic , and particularly sort of interesting way of tightening Monetary Policy that turkey has embarked on. Interesting in the british sense. How do you see those twin developments unfolding . Arem not sure they unrelated. If we look back at turkeys developments over the last decade, up until a couple of the ideat was that the turkish economy is moving towards membership, that was a big driver of business and growth and stabilization of Economic Policy. Is one wonders what the eu would want to see. This move spec with the back with the netherlands. The relationship is moving further apart. That begs the question of whether or not you can whether that is relevant. What will anchor turkeys Economic Policy going forward, are we going to see the same masked friendly reforms . What direction is turkeys Economic Policy going to take . That is the source of uncertainty for investors who are looking at a longerterm investment horizon. We are not talking about portfolios, were talking about Real Investment into what is potentially one of the biggest economies in the region. Whether that is something that is going to be supported or whether investors will step back and say we are not sure about the direction of policy here, and maybe we do not want to be as bullish as we were. Mentioned investors there. Dana made the excellent point earlier that a lot of what has been happening with turkey has been happening more broadly with emerging markets. We have seen a stunning rally over the past week, thanks to be dovish hikes from the fed, a softer dollar rebound in oil prices. How much further could em go here . Further. We have seen the rally stag