A peaceful Middle East translates into a greater role for economics and a reduced role for non-economic allocation of natural resources. In principle, this means that normal commercial transactions—sales and purchases, with prices arrived at by negotiation, and with enforceable contracts—replace political allocations, including embargoes, boycotts, and worse.
Contrary to conventional thinking, oil will not be a problem; even without a general Middle East peace, energy is already a commercial commodity. Oil is completely fungible, and natural gas is becoming so as pipelines proliferate in the Middle East. Minerals have never been a prob-lem—and in any case, unlike energy, play only a minor role in a national economy.
Water poses the greatest challenge to privatization since it has tra-ditionally been considered a "free" good. The task is to construct a mar-ket for water that is fair and equitable, enhances conservation, promotes reuse, minimizes uneconomic capital investments, and is politically acceptable—not only between nations but also within nations. It is a daunting task, even in the absence of security problems; witness for example, the problems between Canada and the U.S. on boundary waters, regional air pollution, and fisheries.
The paper will discuss various suggestions for handling ownership problems and for pricing of water coming from different sources and for different uses. The principles discussed here have relevance to the ongo-ing peace negotiations between Israel and the Palestinian Authority and prospective negotiations with Syria.
General Principles: Why water is not oil
One of the many benefits of a peaceful Middle East will be the substi-tution of normal commercial relations for warfare. Trade of goods and services includes trade in natural resources. For example, the Egypt-Israel peace treaty was followed by commercial contracts for the sale of Egyptian oil to Israel, with natural gas sales not far behind.1
Trade in hydrocarbons and minerals does not present real prob-lems. The main reason is that ownership of the resource is clearly established so that there is little dispute about who can sell the resource or rights to it and receive the proceeds of the sale.2 Another, less obvious reason is the fact that transport costs are low in relation to the price of the resource.3 This condition allows the establishment of a world market —with a nearly uniform price for all crude oil for a given quality.
Neither of these two conditions holds for water. Not only are owner-ship rights hotly disputed in almost all countries,4 but transport costs are high compared to price. This means that there cannot be a world market for water; it does not pay to transport water from the Amazon to the Middle East.5,6
Who owns the water?
Water rights—ownership of water—are generally assigned simply on a historic basis; the traditional user of the water resource is the owner. This can lead to disputes that have to be settled by negotiation. It makes sense therefore to start immediately with negotiations using accepted principles:
1. Normally, the owner of the land also owns the water rights under his land and the riparian rights of streams passing through his land. In the context of the Middle East, however, the state owns the water rights.
2. But since surface water in streams can flow through different national sovereignties (and ground water flows in geological aquifers—although more slowly), negotiation is necessary in deciding how to apportion the resource.
3. In some cases, ownership is less controversial: for example, lakes contained within one nation; sweet water created by desalination; imported water that’s been paid for; additional water created by rainmaking.
Making a market for water
Once ownership is settled, the rights can be sold in a competitive market. Here, too, certain well-established principles apply:
1. Each national water authority (NWA) must sell to all comers willing to pay the price, without discrimination against foreign buyers and without favoring either agriculture or industry. As a practical mat-ter, closer users will be able to pay more since their transport cost will be lower. Farmers growing specialty crops will outbid those growing field crops. Irrigators and industry will be forced into water conservation.
2. Each NWA may have available water of different quality (for exam-ple, sweet and brackish water), which will command different prices—depending on the cost of reducing salinity or on the intended use.7
3. Each NWA has the right to store water, in expectation of future price increases. At the same time, the NWA can sell future water rights which can be traded like other commodity futures. An option market may develop.
4. Each NWA will have the right to import or to create water (e.g., by desalination), and make the necessary capital investments to be recovered from the later sale of the water.
5. Once the water right has been sold—either on a one-shot basis or on an annual basis for a certain number of years—the new owner can use, resell, or store for future use or sale. He also owns the effluent from his use which he can sell back to the NWA.8
Conclusion
As should be apparent, the best type of water authority may be one that's completely privatized and owned by shareholders who may or may not be from the Middle East. Privatization not only assures a businesslike oper-ation with less political graft and therefore cheaper water to users but should help avoid national conflicts over water resources.
References:
(1) Following the treaty with Jordan there is activity for sale of gas from Arab producers in the Gulf, with a pipeline from Qatar being discussed.
(2) Disputes do exist in the case of offshore oil and seabed minerals.
(3) In the case of crude oil, the cost of transport from well to refinery sel-dom exceeds $1 to $2, in relation to a price that has moved between $15 to $20 a barrel.
(4) In fact, in most countries water is considered a "free good."
(5) From time to time, one hears about a scheme to transport icebergs form the Antarctic to the Persian Gulf.
(6) One barrel is 0.159 cu-meter. The price for drinking water charged by Mekorot (Israel) is currently $).22 per cu.m., about one-fifth the cost of desalted sea water or a typical cost of transport.
(7) Such price differentials will spur the development of cheaper desalinization technologies or of crops that can tolerate higher salinities.
(8) In the household, the initial "white" water is used for drinking, cooking, and bathing; the resulting "grey" water can then be used for cleaning, for gardens, or for flushing toilets. The final "black" water can be sold for agriculture after primary sewage treatment.