Mixed outlook for MENA

May 7, 2012
Changing circumstances in the Middle East and North Africa (MENA) are altering perceptions of potential developments in Libya and Iran.

Changing circumstances in the Middle East and North Africa (MENA) are altering perceptions of potential developments in Libya and Iran.

Since the end of the Muammar Gaddafi regime, observers have predicted quick restoration of Libya's oil production to prewar levels. Libya's oil minister reported crude production at 1.5 million b/d in late April and expected to increase to 1.6 million b/d by midyear. But some now are wondering if Libya's rebound can be sustained amid increased disputes among tribal and militia leaders that could disrupt elections of the constitutional assembly scheduled June 19. "A rigorous debate is unfolding about the role of the central government in post-Gaddafi Libya, especially in the oil-rich east," said analysts with Barclays Capital Commodities Research. "In early March, around 3,000 political, militia, and tribal leaders gathered in Benghazi and called for the establishment of a semiautonomous eastern regional government. Many were injured in subsequent clashes between supporters and opponents of federalism."

Well-armed militias may be the most immediate threat to the Libyan government's security. "Ali Tarhouni, the former interim oil minister and deputy prime minister, has warned that Libya could resemble Lebanon if the militias are not quickly brought under control. According to the International Crisis Group, Libya's rival militias do not see themselves as serving a central authority and have repeatedly clashed," Barclays Capital analysts said. They reported the interim National Transitional Council has been making cash payments to militiamen to keep them quiescent. Nonetheless, they said, the government could face rising discontent and social unrest if it can't find a way to control the armed and often unemployed men serving in militias.

"The security issue poses one of the greatest challenges for Libya, especially as international oil companies have been reluctant to return to onshore facilities (home to over 90% of Libya's oil production) and start exploration drilling," said the analysts. Without foreign companies, they said, "Libyan oil production may well stagnate just below pre-crisis levels; worse, it risks slipping backward. Libya's own companies are hampered by a lack of exploration drilling as tenders cannot be awarded until the [national] company's 2012 budget is approved. With the transitional government only managing to sanction emergency spending, the national oil company has failed to secure enough funds for new drilling."

Since 40% of Libya's oil installations were damaged during the civil war, they said, "The maintenance currently required goes far beyond the routine. Temporary fixes have allowed Libyan output to resume swiftly, but we believe current production levels are simply not sustainable. Add to that the security challenges and budgetary problems, and even if the repercussions may not be evident immediately, the cracks in Libya's production could appear as early as end 2012."


Analysts at KBC Energy Economics, a division of KBC Advanced Technologies PLC, said Iran is now "looking less hawkish." The spring rally in oil prices above $125/bbl was stimulated partly by fears Iran's stubborn pursuit of nuclear capability might provoke a preventive air strike by Israel. In late April, however, Israel's military chief, Lt. Gen. Benny Gantz, recently expressed doubts Iran will produce an atomic bomb. This contradicts Prime Minister Benjamin Netanyahu who has said repeatedly Islamic leaders may use nuclear arms.

"This has got the market wondering whether some form of breakthrough may be about to reached" when Iran next meets with UN Security Council members May 23 in Baghdad, said KBC analysts. "Iran has said it is discussing with Russia a plan to avert the European oil embargo, which goes into effect in July, by halting expansion of its nuclear program and agreeing to an additional protocol to the nuclear Non-Proliferation Treaty that would allow inspectors to visit Iran's nuclear sites unannounced," they reported. Russia's Deputy Foreign Minister Sergei Ryabkov said a proposal was discussed at the Apr. 14 talks in Istanbul for Iran to freeze the number of centrifuges for uranium enrichment at current levels.

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About the Author

Sam Fletcher | Senior Writer

I'm third-generation blue-collar oil field worker, born in the great East Texas Field and completed high school in the Permian Basin of West Texas where I spent a couple of summers hustling jugs and loading shot holes on seismic crews. My family was oil field trash back when it was an insult instead of a brag on a bumper sticker. I enlisted in the US Army in 1961-1964 looking for a way out of a life of stoop-labor in the oil patch. I didn't succeed then, but a few years later when they passed a new GI Bill for Vietnam veterans, they backdated it to cover my period of enlistment and finally gave me the means to attend college. I'd wanted a career in journalism since my junior year in high school when I was editor of the school newspaper. I financed my college education with the GI bill, parttime work, and a few scholarships and earned a bachelor's degree and later a master's degree in mass communication at Texas Tech University. I worked some years on Texas daily newspapers and even taught journalism a couple of semesters at a junior college in San Antonio before joining the metropolitan Houston Post in 1973. In 1977 I became the energy reporter for the paper, primarily because I was the only writer who'd ever broke a sweat in sight of an oil rig. I covered the oil patch through its biggest boom in the 1970s, its worst depression in the 1980s, and its subsequent rise from the ashes as the industry reinvented itself yet again. When the Post folded in 1995, I made the switch to oil industry publications. At the start of the new century, I joined the Oil & Gas Journal, long the "Bible" of the oil industry. I've been writing about the oil and gas industry's successes and setbacks for a long time, and I've loved every minute of it.