Energy Security Issues in the Middle East
Iraqi invasion of Kuwait and the subsequent Gulf War (1990–1); and the war in Iraq (started in 2003). The region also witnessed several military confrontations between Israel and Hamas in the Gaza Strip and Hezbollah in Lebanon. Finally, a number of Middle Eastern countries have suffered from intense ethnic/sectarian strife (namely Bahrain, Iraq and Lebanon). These wars and domestic conflicts have multiple negative effects on oil and gas production. Oil and gas infrastructures are attacked and domestic financial resources are diverted from updating and modernising these infrastructures to resolving these wars and ethnic/sectarian conflicts. Finally, this instability scares away foreign investment. International energy companies prefer to operate in stable regions.
Terrorism
Like the rest of the world, Middle Eastern states have been subjected to terrorist attacks. In the last few years, oil and gas installations, pipelines and tankers have been subjected to numerous terrorist attacks, mainly in Iraq and, to a lesser extent, in Saudi Arabia and Algeria. Most oil and gas producers have recently spent millions of US dollars on improving the security of their energy installations and infrastructures. The price of oil reflects this perceived threat of terrorism. The so-called ‘fear premium’ refers to the rise in insurance to cover damage from potential terrorist attacks.
Closure of Straits of Hormuz
Most of the oil and natural gas supplies from the Persian Gulf are shipped to global markets via the Straits of Hormuz. During many of the wars that the region has witnessed, threats to close the Straits were made. In any future military confrontation in the region, such threats cannot be ruled out. In reality, however, the risks to maritime flows of oil seem smaller than is commonly assumed. The most notable example comes from the Iran–Iraq War, during which the two countries attacked shipping in the Persian Gulf to weaken each other’s economies. Neither of them was able to succeed. Although commercial shipping in the Gulf initially dropped by about 25 % and the price of crude oil spiked, the so-called ‘tanker war’ did not in the end significantly disrupt oil shipments.
Domestic Instability
Despite attempts to diversify their economies and to create other sources of income besides oil and gas revenues, the Middle Eastern states continue to be heavily dependent on oil as the main source of national income. This dependence contributes to high levels of unemployment and other socioeconomic problems. These problems, and the general lack of political liberalisation, are the main reasons for instability. The wave of popular discontent that toppled the presidents of Tunisia and Egypt in 2011 was echoed all over the Middle East.
It is difficult to envisage a scenario under which an anti-Western regime takes over any of the Middle Eastern states and voluntarily curtails oil exports. Iran is a classic example: despite a violent and far-reaching revolution that saw the substitution of a Western-friendly government
Conclusions – The Way Forwards
Two broad conclusions can be drawn from the above discussion of oil and gas challenges in the Middle East. Firstly, despite efforts to diversify their economies and create viable economic alternatives, Middle Eastern producers remain deeply dependent on oil export revenues. Their economic prosperity and political stability are tied to the steady flow of oil exports and oil revenues. The implication is that they have a great interest in the stability of global energy markets and the international system. Economic and political upheavals have significant ramifications on their stability. In short, they share the same economic and strategic interests as consuming countries.
Secondly, despite recent discoveries and rises in oil and gas production in Africa, the Caspian Sea, Russia and other regions, the Middle East still occupies the driving seat. The region’s substantial geological and geographical advantages suggest that the world is growing more dependent on Middle Eastern suppliers. American, Asian and European economies lack sufficient indigenous resources and they need Middle Eastern oil and gas to sustain their high standard of living. The implication is that calls for reducing dependence on the Middle East are unrealistic and, indeed, misleading.
The growing interdependence between Middle Eastern oil and gas producers and global consumers underscores their mutual interest in economic and political stability. A policy based on improving regional security, containing domestic tension and creating the right environment for investment seems to be the right course. The region needs more co-operation and less confrontation. n
1. International Energy Agency, World Energy Outlook 2005, Paris: OECD Publications, 2005;46. 2. Energy Information Administration, International Energy Outlook 2009, Washington, DC: United States Government Printing Office, 2009;28–38. 3.
Adelman MA, The real oil problem, Regulation, 2004;27(1):16–21.
by an anti-Western regime, oil has continued to flow from Iran to the West and the rest of the world, even at the climax of the Islamic Revolution, although at half-capacity. The reduction in Iran’s oil capacity was the result not of a deliberate policy of restricting oil exports, but of a combination of factors, including the Iran–Iraq War, sanctions and underinvestment due to the unattractive business environment.
Underinvestment
Many oil and gas fields in the Middle East have been producing for decades, some have just come on-stream, and others are being developed. In order to compensate for depletion, maintain the current level of production and add extra capacity, massive capital needs to be invested. According to most sources, the region’s hydrocarbon deposits are not in doubt. The development of these resources, however, would largely depend on the availability of the necessary investment. How much international energy companies are allowed into the region’s oil and gas sectors varies from one country to another. National oil companies dominate the industry in most of the Middle East. The full participation of foreign investment is restrained by geopolitical considerations, including sanctions and national laws and regulations. In recent years, there have been some signs of changing attitudes; however, more is needed to establish a partnership with international energy companies that will bring the required financial resources and advanced technology.
24
EXPLORATION & PRODUCTION – VOLUME 9 ISSUE 2
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124