Preliminary assessment of Arab Spring's impact on oil and gas in Egypt, Libya

Jan. 9, 2012
Popular movements toppled the leaders of Tunisia, Egypt, and Libya in 2011, and these uprisings are likely to have short and long-term impact on these societies with global ramifications.

Gawdat Bahgat
National Defense University
Washington, DC

Popular movements toppled the leaders of Tunisia, Egypt, and Libya in 2011, and these uprisings are likely to have short and long-term impact on these societies with global ramifications.

This study focuses on Egypt and Libya and highlights how the oil and gas industry in these two North African countries has been impacted by political upheavals. Specifically, I examine the impact on production, consumption, shipping, and investment.

Objects of the tumult

The year 2011 was, by all accounts, a turning point in North Africa and the broader Arab world.

Popular movements toppled three dictators—Zine al-Abidine Ben Ali in Tunisia, Hosni Mubarak in Egypt, and Moammar Gaddafi in Libya. The echoes of these uprisings can be seen and heard in other Arab countries, particularly Yemen, Syria, and Bahrain, among others.

The new leaders are trying to establish new institutions and articulate new strategies. It is uncertain whether they will succeed. What is certain, however, is that these uprisings have fundamentally impacted the socioeconomic and political structures.

The oil and gas industry is the dominant sector in several Arab countries.

Revenues from oil and gas exports provide the largest share of national income in producing countries. Less-fortunate countries depend heavily on remittances sent by their labors. Indeed, it can be argued that the economies in the entire region are driven by oil, though in different forms and at different degrees.

Equally important, the global economy depends heavily on oil and gas supplies from the Middle East. This means that stability in the region is crucial to the global economic prosperity. In short, the upheavals that have strongly shaken Arab regimes are likely to have great impact on the management of the most important industry—oil and gas—with strong regional and international implications.

Two areas are likely to be negatively affected by the Arab Spring: domestic consumption and foreign investment.

Domestic consumption

The Arab world holds 49.6% of the world's proved oil reserves and 29.1% of natural gas.1 These massive reserves have shaped public perception.

In the land of oil and gas many people believe it is their birthright to consume as much of their hydrocarbon wealth at low price. No wonder fossil fuel consumption per capita in the Arab world is among the highest in the world.

This high level of consumption is fueled by generous state subsidies. All over the Middle East, prices of petroleum and petroleum products are very low and do not reflect the market value. This uncontrolled high and growing consumption also means that these major oil exporters will have less oil available for export in the near future.

Many Arab governments have recently thought to reduce consumption by cutting off subsidies. The challenge was (and still is) how to deal with the certain resistance by the majority of their populations.

In order to restrain public rage and diffuse tension, Arab countries in the Gulf have substantially increased public spending.

Popular protests did erupt in Algeria at precisely the same time as they were enveloping neighboring Tunisia and Egypt, but the demands of the protesters never formed a unified movement calling for the toppling of Pres. Abdelaziz Bouteflika (in power since 1999).

The Algerian authority took these demonstrations seriously and responded by repealing the emergency laws that had been in place for 19 years2 and by increasing public spending and promising more social housing, higher public-sector salaries, increased subsidies for basic food products, and easier access to credit for young people.3

The less affluent countries in North Africa cannot match the packages offered by the Gulf States and Algeria but are not likely to reduce subsidies. In short, the hesitant attempts to reform energy prices and bring them closer to market values have been put on the back burners in most Arab countries.

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