The analysis of water trade in Persian Gulf Countries

1. Introduction

The water shortage crisis in Iran has created essential problems concerning water provision (particularly in agriculture sector) despite of the subsequent droughts. Under such circumstances, paying attention to the management of water supplies and taking new and efficient strategies such as concept of virtual water trade will be especially important in this regard. The water that is consumed within different phases of producing a commodity is called virtual water stored in the given goods and world trade of commodities creates an international stream of virtual water (Rahmani, 2009). The net exportation of virtual water to regions with lesser water supplies may reduce the stress exerted on water supplies in these countries. Thus, virtual water is assumed as alternative of water supply in the importing countries. As a result, exchange of virtual water is suggested as a strategy to manage water supplies in arid and the semi-arid countries (Hoekstra & Hung, 2002). The exportation of water physically to arid countries with lesser water supplies will be accompanied with a lot of problems ad bottlenecks due to financial problems caused by great volume and heavy weight of these commodities; therefore, the subject of virtual water trade is suggested as one of the practical solutions.

Iran has been situated in a region where several other countries also encounter the problem of water shortage. The choice of the Persian Gulf countries has been based on this logic that all of them are seriously faced with the problem of water scarcity. One of the objectives of this paper is to compare the strategies used in these countries despite the differences in climate and economic conditions. Hence, the comparison of the strategies taken by littoral states in Persian Gulf regarding virtual water trade may propose some strategies to improve the management of water supplies in Iran. Thus, the present study is mainly aimed at comparing virtual water trade strategy in Iran with littoral states of Persian Gulf. In this regard, the rate of hidden water in the import and export of virtual water is compared in the aforesaid countries and finally by means of the index of ratio of imported virtual water to exported virtual water, strategy of Iran about using the concept of virtual water trade is characterized. The present article is an innovation in calculating virtual water values by 6-digit SITC codes for all sectors of the economy in the selected countries (Persian Gulf countries)

Accordingly, this article is provided in 7 sections. The concept of virtual water is discussed in Section 2. Section 3 is devoted to the review of literature regarding virtual water. The research methodology is presented in Section 4. Indicators for virtual water import and export are calculated in Section 5. In Section 6, based on the calculations carried out in the previous section, the results are analyzed using the Heckscher– Ohlin (H- O) Theory. Section 7 is also dedicated to the conclusion.

1. The Concept of Virtual Water Trade

The virtual water trade is defined as an essential tool in the computation of water real consumption in a country. This concept was defined for the first time by Tony Allan as the water that is included in commodities or products (Allan, 1998). Such a definition of virtual water refers to the water, which is consumed for a commodity or services during production process until it is completed and the quantity of this water is equal to sum of the consumed water in different phases of the production cycle from the beginning to the end. Simply, the virtual water may be defined as the amount of water that is needed for the production of a commodity (Ehsani et al, 2008). The virtual water content for any product directly depends on ambient and atmospheric conditions at its production place. Accordingly, Hoekstra (2003) proposed more perfect definition about virtual water. In this definition, virtual water is the sum of the water needed to produce certain amount of a product (commodity) with respect to climatic, spatial, and temporal conditions of production and efficiency (Hoekstra, 2003).

Since Allan introduced the virtual debate, it took nearly 10 years to reach the scientific community. The first international conference about this subject was held in Delft (Netherland) on December 2002. But given that the virtual water will not remain as a product with the fixed quantity and this rate highly varies depending on the region where it is produced; therefore, the presentation of this definition will be also followed by the concept of virtual water trade. As a result, different quantity of virtual water of a certain product in different zones may form this idea that if the rate of virtual water in Zone-1 for a product is lesser than virtual water of the same product in Zone-2, production of that product in Zone-1 and its exportation to Zone-2 may be followed with less amount of consumed water. As a result, virtual water input and output streams along with importation and exportation of various commodities and services will form in any country. These streams have been known as virtual water trade and over the time different countries (especially countries located in arid zones with water shortage) considered certain strategies for their own concerning virtual water trade. 

1. The literature of Virtual Water

Based on the main object in the present paper, virtual water trade and strategies of different countries about this topic are explored. Many studies have been carried out among scientific sources regarding virtual water trade. Inter alia, many researchers have mentioned the concept of virtual water trade as a strategy to manage water supplies. Of this group, one can refer to Chapagain and Hoekstra (2003), Renault (2003), and De Fraiture (2004).

In their study, Dehghanpour ad Bakhshoodeh (2008) showed that virtual water trade was considered as a basic criterion and tool for the calculation of real rate of water consumption in a country. During recent 40 years, virtual water trade has been increased permanently. About 15% of consuming water in the world is exported as virtual water. Thus, trade of agricultural crops is considered as the main component of virtual water trade. 67% of virtual water trade in the world is related to world trade of farming crops and 23% of their trade is attributed to livestock products and the related commodities while only 10% of them is related to industrial products. During years (1995-1999), wheat product has exclusively devoted 30% of volume of virtual water trade among the countries of the world and it was followed by soybean and rice, which are ranked later with higher than 17% and 15% of this rate, respectively. In this investigation, they have implied that the negative consequences and positive outcomes of virtual water exchange should be measured in which one of these consequences is the cost of opportunity for the consumed water.

In their survey, Moosavi et al (2009) express that with respect to the exacerbation of water shortage crisis in different countries in the world, the subject of virtual water will be crucially important due to the depth of this concept in planning and policymaking for water at macro level in the future. At present, also with the exportation and importation of goods and products between various countries of the world, some calculations are also implemented about the amount of imported or exported water as virtual water. Accordingly, the given study estimates the amount of virtual water for producing certain quantity of some products in Iran. Eventually, this study implies that, with respect to the restriction of water supplies, humans have noticed the choice of unconventional waters including treated wastewaters, water drainage zones, and desalination from sea water etc. The other alternative that has been discussed today to provide and store water, especially in arid and semi-arid countries in the world is water trade that is called virtual water trade.

In their investigation, Razavi and Davari (2013) implied that with respect to the existing sources and current demand, the existing water supplies will not be responsive to the next generation for water provision. Thus, considering modern techniques for water supply is very essential. One of the prevalent techniques in the world is to notice virtual water and water-bearing canal of products, and virtual water trade. They mention the concept of reversible water and its proper consumption as the strategy for the management of the given supplies since under current conditions the role of virtual water trade is unique in reduction of stress on water supplies. They assume the absence of the needed statistics and information about virtual water trade as one of the problems they encounter in this path. In their study, Dehghan Manshadi et al. (2013) have suggested a structure for the analysis of the potential for the use of virtual water in the destinations field in water transfer projects. They imply in this investigation that what it has occurred in some zones of the countries during recent years and caused drought and reduction of water supplies in rivers and springs have been due to overlooking the climatic assets in any zone and mismanagement of water supplies. The results of this study about project of water transfer from Soolgan to Rafsanjan indicate that rather than reducing of costs for transferring and hazardous consequences of water transfer for this region, using of virtual water concept will be also followed by lots of profits for cultivation and Khuzestan industry.

In their research titled ‘virtual water exchange in order to improve productivity in water consumption (case study: Kerman Province)’, Abolhassani et al (2014) have calculated the virtual water exchanges volume in this province. The results came from this study showed that Kerman Province was a virtual water-exporter and the size of exportation of virtual water has been estimated more than 64.2billion m³. This study indicates that pistachio and date are deemed as extravagant water-consuming crops and on the other hand other crops such as grains, fruits, and cucurbits are assumed as less water-consuming crops. With lower yield, pistachio includes higher rate of virtual water but date is place at lower rank with more suitable yield while both crops include higher rate of virtual water content than the standard level.

In addition to the analysis of international stream of virtual water trade their study, Hoekstra and Hung (2002) imply that if water is considered as an economic commodity, the problems of water shortage and surplus as well as reduced quality of water will be resolved in different parts of the world since the exportations and importations of crops in the countries may create an exchange of virtual water between countries. In this study, total extracted water in Iran has been mentioned as 72.6 billion m³ per year, available water as 137.5 billion m³; the net importation of virtual water was estimated 5.8 billion m³ with respect to farming plants and 1.02 billion m³ given the livestock crops and the related products.

Verma et al (2008) have examined the virtual water stream caused by exchanges of crops within different states of India during period 1997-2001. The results of this study showed that the virtual water stream in India included more than 106 billion m³ and or 13% of total volume of consuming water in this country.

Delbourg and Shlomi (2014) have explored the effect of water demand and its efficiency on rate of virtual water trade at world scale. This investigation has been carried out about all the related activities to agriculture sector during period 1994-2007. It is shown in this study that the countries with shortage of water supplies trade the nutrients and food products to compensate for their water supplies shortage.

In their survey titled ‘the virtual water trade as a strategy for management of water supplies in Iran’, Mohammadi et al (2014) have explored the relationship between exportations of virtual water with the scarcity of water supplies in Iran. The results of this study show that during the period 2001-2008, Iran was dependent purely on water imports and the net rate of virtual water imports of Iran is averagely about 12.7 billion m³ every year. Similarly, the calculation of virtual water rate in the given products indicates that the exported products need more water demand than imported products.

Analysis of these studies shows that the specific strategy of any country in using virtual water trade concept may play an essential role in the management of water supplies in that country so that the role of water has been always emphasized and suggested as one of the key factors in producing extravagant water- consuming crops and products where the virtual water trade is employed as a strategy to provide water supplies in arid area with water shortage. Hence, the application of virtual water trade concept in Iran may also be efficient in the management of water supplies. Accordingly, in the following theoretical bases and method of estimation of virtual water trade is presented in this study and the by means of the given estimations, virtual water trade strategy in Iran is compared with littoral states in Persian Gulf region.

1. Methodology

The concept of virtual water can be used as a useful tool in calculating the actual amount of water consumed in the country. If international water exchanges are to be considered, it can be used to determine the real demand for water in the country due to the pattern of people's consumption of global water resources. On this basis, it can be shown whether the domestic water resources in each country will provide water for the current or future population of that country. It can also show how much a country relies on the country's water resources.

By definition, water productivity and virtual water are related inversely. Water productivity includes the quantity of commodity that is produced from unit of volume of water (How much product is produced from one cubic meter of water) and its unit may be usually defined as ton per cubic meter. But, virtual water consists of the consumed water for the production of certain quantity of a product and its unit is liter per ton (cubic meter per ton). In other words, in productivity concept, it is emphasized on the amount of production from water so that as the amount of production from water is increased further, the productivity of the given product will be higher. But, regarding the concept of virtual water, it is focused on the amount of the consumed water in producing one unit of that product. Therefore, with improving water productivity, the quantity of virtual water will be reduced in the given product or commodities and reverse reduction in rate of the virtual water consumed for one unit of product denotes rising water productivity in that product. Thus, rate of virtual water for any product may be derived from the following formula (Ehsani et al, 2008):

Where:

VW_kj denotes the amount of virtual water per unit of k^th product in j^th country.       

W_kj is the total volume of the water needed in the process of producing of k^th product in j^th country.

P_kj is the total production of k^th product in j^th country.

To compute the rate of virtual water trade in different zones, initially the orientation of virtual water streams should be identified. As it mentioned, the exchange of commodities between different countries may be also led invisibly to the exchange of the existing virtual water in those goods. Thus, the rate of virtual water exchange should be separately calculated both in exportation and importation side for goods and services. These two sides are separated because the amount of virtual water in any commodity will be different with respect to climatic, spatial, and temporal conditions of production and similar factors in any region according to the definition of virtual water. Therefore, even though a country imports and exports of the given products along with the rate of virtual water per unit of the exported goods (with respect to climatic conditions of the exporting country) will be different from the amount of virtual water for a unit of the imported goods (with respect to climatic conditions of country of origin) at the same time. As a result, the amount of hidden virtual water in the exportation of any product should be computed with respect to climatic conditions of the exporting country of the given product. Consequently, the rate of hidden virtual water in exportation of j^th country to i^th country is derived from the product of the multiplication of the quantitative amount of exportations of j^th country to i^th country of each of these commodities to the amount of virtual water in that commodity (with respect to climatic and cultural conditions etc in j^th country).

Regarding the calculation of the amount hidden virtual water in the importation of various commodities, this process will be done inversely. Namely, the rate of virtual water of any product in importing country of origin is considered as the criterion for the calculation of virtual water. If this ratio is greater than one (1), it can be said that the amount of hidden water in importations of that country is greater than the hidden water in exportation of the same country and as a result the given country has removed its limitation for water supplies practically by means of using water supplies from other countries. As this ratio is greater for a country, it indicates that the aforesaid country has used virtual water trade in the management of its water supplies. Of course, it should be noted that the greatness of this ratio may be unconscious and only due to the limited availability of water resources in a country and there is no definite strategy in this regard. But, in any case, greater amount of this ratio shows using the limited water supply of a country more appropriately in line with producing less water-consuming products and importation of water-bearing products. 

1. Virtual Water Trade Situation in Iran  and other Persian Gulf Countries

This article is mainly intended to explore virtual water trade strategy in Iran in comparison to littoral states in Persian Gulf region. Then the index of ratio of imported virtual water to the exported water is calculated by means of the extracted information. Using this parameter, the strategy of different countries about application of virtual water trade in management of water supplies may be relatively evaluated. The related statistics about the rate of virtual water for any product code and the relevant standards have been formulated for the assessment of the real volume of the water by Water Track Institute. The rate of hidden water in the exportation and importation of any country has been computed by means of this statistic and separately based on six-digit codes of any commodity.

5-1- Analysis of Importation of virtual water in Persian Gulf region

As it was mentioned in the previous section, the rate of virtual water for any product of importing country of origin is considered as the criterion for the calculation of virtual water regarding computation of the rate of hidden virtual water in the importation of different commodities. Therefore, in order to compute the importation of virtual water in Persian Gulf region, firstly, the rate of stored virtual water in any product should be identified with respect to country of origin and then with respect to size of importation in any country, the amount of hidden water should be determined in importation. Finally, the rate of hidden water in any unit of imported product can be generally calculated by dividing the amount of the virtual water accompanied to the importation to total volume of importation in any country.

Accordingly, the amount of the hidden water in importation of littoral states of Persian Gulf region has been computed for time period 2001-2012 in Table (1). Analysis of this table indicates that the maximum rate of hidden virtual water among countries locating in Persian Gulf in 2001 belongs to Oman, Iraq, and Saudi Arabia. In fact, the maximum rate of virtual water has been consumed per one ton of the imported product by these countries compared to other nations.

Table 1: The Amount of the Hidden Water in Importation of Persian Gulf Countries Region (m³/t)

Source: writer's calculations

This suggests that importation of these countries are more reliant on water-based products, these countries have managed relatively to save in consuming their limited water supplies and used these supplies for producing commodities with higher value.

But in 2012, Iran was included in first three higher ranks in the hidden water in importation. In 2012, the highest amount of hidden virtual water in importation among littoral states of Persian Gulf belonged to Iraq, Saudi Arabia, and Iran, respectively. At this year, Iraq has imported about 918m³ of virtual water per one ton of imports in average. Also, Saudi Arabia and Iran have imported about 800m³ of virtual water per one ton imported products in average in this year. The minimum amount of the hidden water in importation belongs to Bahrain. In 2012, Bahrain has imported only about 173m³ of virtual water per one ton of imported products. In fact, most of the imported commodities by this country included lesser amount of virtual water. As a result, in average the amount of virtual water along with any ton of the imported product is much less than in other countries of Persian Gulf region. This status has been much inappropriate during the period of analysis. As a result, the mean rate of the hidden water in imports is 89m³/ton throughout the studied period. Thus, it may not be implied that this country has taken the strategy for the importation of virtual water to manage its water supplies.

The comparison of the hidden water in importation during the first and final years of the studied period may show that the mean rate of hidden water has been almost increased at final year in all of these countries. With respect to subsequent droughts during recent years, this indicates that the littoral states in Persian Gulf region have inevitably tended to virtual water trade due to lack of possibility for providing the domestic water-bearing products and have tried to provide their domestic needs with importation of water-bearing products.

5-2- Analysis of exportation of virtual water in Persian Gulf region

Table (2) shows the rate of hidden water in the exportation of littoral states in Persian Gulf region for time period 2001-2012. Analysis of this table shows that the maximum rate of hidden virtual water in exportation among Persian Gulf countries during 2001 has belonged to Oman, Iran, and Saudi Arabia, respectively. In fact, compared to other countries, any ton of the exported products by these countries has included the highest rate of virtual water. This issue indicates that exportation of these countries have mainly relied on water-bearing products and these countries have really exited great volume of their limited water supplies virtually with the exportation of water- bearing products.

In this year, Oman has exported virtually about 545m³ of water in average per any ton of exports. Also in this year, Iran has virtually exported about 500m³ of water in average per one ton of exported product.

Table 2: The Amount of the Hidden Water in Exportation of Persian Gulf Countries Region (m³/t)

Source: writer's calculations

Also in 2012, Iran is placed at second rank in terms of the parameter of virtual water in exportation. The maximum rate of hidden virtual water in exportation among countries at Persian Gulf region in 2012 belonged to Saudi Arabia, Iran, and Oman respectively. The least rate of hidden water in exportation is related to Qatar and Bahrain. In 2012, only about 13m³ of virtual water has been exported per one ton of the exported product by Bahrain. In fact, this country has often exported some products, which need to less water consumption. As a result, in average, the rate of virtual water embedded in one ton of the exported product is much less than other countries in Persian Gulf. As a result, exportation has least effect on domestic water supplies in countries of Qatar and Bahrain.

In addition, the comparison of the hidden water in exportation at first and final years of the studied period indicates that the hidden water in exportation has extremely reduced in most of the countries. The subsequent droughts during recent years have caused the given countries to be less able to export the water-bearing products and consequently this index has extremely decreased. In particular, the rate of this index has been further reduced noticeably for the countries such as Oman and Iran where their exportation has been mainly dependent on domestic water supplies. For instance, the rate of hidden water index in Iranian exportation has been extremely reduced from approximately 500m³/ton in 2012 to about 141m³/ton.

At last, the comparison of hidden water indices in importation and exportation may show that the main policy of Iran has been implemented in the course of self-sufficiency in water-bearing products (especially the agricultural crops including wheat). But finally the incremental trend of hidden water index in Iranian importation along with extreme reduction in hidden water index for exportation signifies the instability of aforesaid policy. This strategy is visible in many countries in Persian Gulf region. The main reason for this strategy can be seen in the issues of food security and domestic supply of strategic products (including wheat). But what can provide a more accurate picture of the strategy of different Persian Gulf countries is to calculate the index of ratio of the imported virtual water to exported virtual water. If this ratio is greater than one (1), it can be said that the amount of hidden water in importation of the given country is greater than hidden water in its exportation, and as a result, the aforesaid country has practically removed its limitation for water supplies by means of supplying water from other countries.

5-3- Analysis on ratio of the imported virtual water to exported virtual water

The index of ratio of the imported virtual water to exported virtual water has been computed in Table 3. This parameter is greater than 1 for all of the studied countries. This shows that particularly trade in these countries has been led to One can assume the main reason the importation of virtual water inside them. But as this ratio is greater for a country, it indicates that country is more tended to use the concept of virtual water trade in the management of its water supplies. The comparison of this index among countries in Persian Gulf indicates that during the studied period, Iran has devoted the least index. This issue signifies that, in comparison to other countries in Persian Gulf, the strategy taken by Iran in management of its water supplies has less relied on the concept of virtual water trade.

Table 3: The Ratio of the Imported Virtual Water to Exported Virtual Water of Persian

Gulf Countries Region (m³/t)

Source: writer's calculations