The tensions in North Africa and the Middle East continue unabated, what the future holds for the region and the stability of its oil and gas producing capabilities is anyone’s guess.
The current political unrest sweeping North Africa and now more increasingly the greater Middle East caught many observers – casual and expert alike – by surprise and definitely made a lot of them sit up and pay attention.
The protests that started in Tunisia with the overthrow of President Zine El Abidine Ben Ali, inspired the region’s public to follow suit.
Whilst the populist groundswell is largely applauded by the West, there does seem to be a deafening silence on the part of the rest of region barring a few notable countries, namely Bahrain and Yemen which have seen organised and somewhat impulsive protests respectively in the past few weeks.
The attack on the pipeline supplying Jordan with Egyptian gas in early February – mistaken by saboteurs for a similar pipeline supplying Israel – although not linked to Egypt’s current unrest, certainly adds to overall regional jitters.
O&G production
It seems that the die has been cast for the region as a whole in terms of the direction the winds of change could blow. To discuss further and what it could mean for the region’s oil and gas sector, Middle East Oil & Gas sat down with Julien Barnes-Dacey, Middle East analyst at London based security consultancy Control Risks a few days prior to the pipeline attack.
“The impact will be relatively slim, I think the direct knock-on effects of the situation in Tunisia and Egypt doesn’t have a direct linkage with oil production. Of course you are going to get some increases in price due to a greater geopolitical instability but I don’t think there is any direct implication on production itself,” he said.
Barnes-Dacey explained that the notion that there could be a spillover of the North African tensions eastward into the oil-rich nations of the Middle East, is quite distant.
“I don’t think you are very likely to see many similar events in oil producing countries, I think for the most part the oil-rich countries have enough of a financial safety buffer to be able to stem the socio-economic and political unrest which provoked the situation in Egypt and Tunisia.”
But he warned that unlike outside observers of the region’s current turmoil, these Arab nations should take note. He believes that there is likely to be a growing awareness by regional governments to ensure that the local population does feel that they are sharing in the local wealth.
He stresses that that there are long-term challenges of industrial diversification and provision of sufficient jobs that must confronted.
“I don’t think you are going to have the same burning issues in these countries that you had in Tunisia and Egypt where the issues are really quite raw and really do cut quite deeply and the implications do run so deep in a manner which is incomparable in the oil producing countries,” he explained.
Barnes-Darcey observed that a key reason why the major oil and gas producing countries of the region have thus far avoided the tensions of Tunisia and Egypt is due to the physical locations of their production and refining assets.
“I don’t think we see any real correlation between what’s going on in North Africa and production risk, I think in most of the region oil production is fairly isolated from the centres of urbanisation which are really the key hotspots for developing turmoil,” he said.
Operating in Iraq
Speaking on the implications for foreign oil and gas firms in Iraq or those looking to enter the country, Barnes-Dacey believes that they are largely shielded from the political problems the country is currently going through.
There appears to be quite broad support across the political spectrum for increasing oil production and for encouraging greater foreign oil investment.
“Most of the political parties generally support foreign investment in the oil sector, sure there’s talk of perhaps renegotiating certain terms but it’s not really a sense of political parties coming in and saying “hang on a second, let’s nationalise this or lets redo these contracts entirely”, so I don’t think the political risk is dramatic, I don’t think you’re really facing a situation any longer of political collapse or a return to widespread violence or systemic collapse.”
Some of the key issues in Iraq today, Barnes-Darcey points out are to do with day-to-day activities rather than from a greater sense of ideology, bringing the grievances of the people of the war-torn country more in line with those of Egypt and Tunisia and other traditionally stable Arab states.
“One the of the key issues is the growing popular discontent with the lack of progress in terms of development, in terms of the lack of electricity, in terms of the lack of water.
I think populist pressures targeting the government are growing and we saw that last summer in terms of rioting and protests against the government’s failure to improve basic services, I think the oil companies going in need to be careful. They are going to be working within an environment which could grow increasingly tense from that perspective,” explained the analyst.
He added that that foreign oil companies operating in Iraq could effectively get caught in the middle between populations that want to see things moving more rapidly and governments – both central and local that do not seem to be meeting local demands for rapid improvement in local conditions.
“Oil firms are often seen as the vehicles for that rapid improvement in the sense of accelerating production efforts,” he said.
“I don’t think oil companies are going to be held to blame for a lack of progress but of course oil companies need to be ensuring that they remain neutral between the various power brokers and ensuring that they maintain a good dialogue with local communities, to ensure that they are explaining things like job opportunities and the speed and pace of development and their own role in that viz-a-viz the government,” Barnes-Dacey concluded.
