Implications of the Arab Spring on the MENA Oil Market

Over three years have passed since popular revolts started throughout MENA (Middle East North Africa) countries – branded as the Arab Spring – that posed economic and political dilemmas for the struggling regimes in the region. Currently, Egypt has seen a resurgence of protests whilst Tunisia, Libya and Yemen are in the process of political challenges of a new pluralism established with the election of new bodies. Algeria managed to survive the Arab Spring to a large extent smoothly compared to its neighbours, despite the attack on the In Amenas gas field in January raising some alarm. In Syria, the civil war has deepened with a growing death toll, and relationships between Syria and its neighbours are deteriorating further, especially Lebanon.  Using Evaluate Energy’s Global database, we can observe how production levels have changed in the region since the crisis began.

Libya’s oil production tripled during 2012 from 478,000 barrels/day in 2011 to 1,509,000 barrels/day. In Yemen, the oil production declined by 21% in both years 2011 and 2012. In Syria, crude/NGL production fell initially by 15% in 2011 and then plummeted by a further 50% in 2012 showing the extent the current political instability and the international sanctions have affected the country. Oil production in Algeria slightly decreased by 1.02% in 2012 and in Tunisia it decreased by 4.70% in 2012. In Egypt, the crude/NGL production increased by 0.17% from 2011 to 2012 whereas during the crisis it fell by 0.73%.

The below graph details the percentage share of the total oil production consumed domestically in each country of our peer group from 2005 to 2012; which provides us with an insight into export capabilities.

Total oil consumption within the peer group was 1,765,000 barrels/day in 2012. The share of total oil production consumed domestically has remained relatively steady for 2005-2010 with the only exception of Tunisia, which shows some degree of fluctuation in 2007. Algeria is the only country that shows consistency throughout 2005-2012, aided by a less volatile environment. Syria shows the most volatile conditions, shifting to a crude/NGL importer in 2012, which can be explained by the high political instability and strict EU sanctions that the country is still facing. Yemen’s figures display a sharp increase (35% more crude/NGL production consumed domestically) from 2011 to 2012 for similar reasons. Syria and Yemen’s escalating problems will no doubt concern Egypt, who may fear a similar impact following the reemergence of protests and unrest in recent days from opponents to the Islamist government. Also, the resurgence of Egyptian’s unrest raises concern of a domino effect in other MENA countries.

On a more positive note, the share of total oil production consumed domestically in Libya has recovered well in 2012, falling to 11.28%, thus improving its export capability levels to even better than pre-Arab Spring levels. The presence of major oil and gas companies (ENI, BP, ConocoPhillips; etc.) in Libya will no doubt have played an important role, due to large vested interests in the quick recovery of oil production. However, concerns do remain about local militias following sporadic attacks at oil installations, especially in the East.

The MENA region has experienced large levels of domestic consumption of oil and gas. This is closely associated to the generous subsidy regimes they have in place. The IEA advocates the inefficiency of the subsidies as it causes overall market distortion, encourages waste and undermines the competitiveness of renewable energy alternatives.  However, reforming subsidy regimes in the MENA region is easier said than done; countries (Egypt, Jordan, Morocco) that have introduced reforms in order to bring the energy prices closer to real market prices have been faced with mass protests.

However, the Arab Spring may have served as the catalyst for economic and political reforms that are, in the IEA’s opinion, long overdue within the region. These reforms and settling political instability are both vital not only on a regional level but also on a global scale. The EU is the most important trading partner for almost all the countries in our peer group (Algeria 49%, Libya 72%, Syria 75% (pre-war levels), Egypt 25%, and Tunisia 75%). Additionally, oil exports from Yemen are sent to Asian markets led mainly by China and India. Despite a few countries showing signs of recovery and will to reform, political and social uncertainties remaining in the region are ultimately feeding across and affecting the global oil market.

To read more on the MENA region, please see Hannah Mumby’s analysis on the potential impacts of the recent Iranian elections here. Further impacts of the Arab Spring can be determined using the data compiled from the BP Statistical Review 2013 and the EIA in Evaluate Energy‘s Global Database, which provides a country by country breakdown of oil & gas performance since 1965.

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