WATCHING THE WORLD LOST MIDDLE EAST BUSINESS

The long awaited boom in engineering and construction working the Middle East may be further away than big contractors were projecting before the Aug. 2 occupation of Kuwait by Iraq.

Earlier this year, major oil exporters in the area, notably Saudi Arabia and Abu Dhabi, were mulling plans to boost sustainable productive capacity. The aim was to prepare to meet an expected increase in demand for crude oil from members of the Organization of Petroleum Exporting Countries in the mid-1990s. Contractors that had been forced onto the sidelines as megaprojects of the 1970s and early 1980s tailed off into a worldwide crude oil surplus saw the prospect of expanding operations in the Middle East.

Apart from pipeline projects during the long conflict between Iran and Iraq, work on mothballing surplus production facilities, and completion of refinery expansion programs contractors had seen little hope of a sustained upturn in activity for more than half a decade.

Prospects for winning new business in the region are now under detailed examination. All countries on the Persian Gulf except Iraq and Kuwait are producing at maximum capacity. That should give governments and state oil companies an indication of spending that will be needed to sustain greater production volumes into the 1990s.

Governments now have to take into account possible effects of the current round of higher prices on demand for oil during the next 5 years.

Sustained high oil prices could reduce consumption and raise non-OPEC production at the expense of the need for OPEC oil.

THE VIEW IN JAPAN

Japanese contractors, one of the major beneficiaries of previous spending booms in the Persian Gulf region, are taking a pessimistic view of prospects for business in the Middle East.

Japan Economic Journal, Tokyo, said anxiety about the region is growing so acute that engineering and construction contractors are shifting business efforts from the Middle East to other promising areas, including Southeast Asia, China, and the Soviet Union, that could benefit from uncertainty about the future of activity in the gulf.

Earlier in the year, Japanese companies were bullish about the prospects for the Middle East. The Journal said export orders for Japanese plants grew a record 60.4% in the last financial year and for the first time returned to high levels of business seen in the early 1980s.

Contracts from the Middle East accounted for 28.5% of the total last year and were expected to account for nearly 20% of the orders in the current financial year.

Takashi Inomata, general manger of Mitsui & Co.'s energy and chemical machinery division, told the Journal if the Persian Gulf crisis had not come along, Japanese companies could have expected 1 trillion yen ($7.35 billion) from the Middle East during the next few years.

JGC Corp., also of Tokyo, said it recently won a 50 billion yen ($367 million) contract for refinery construction work at Al-Ahmadi, Kuwait. But as JGC Pres. Eiji Watanabe told the Journal, "it means nothing now."