MENA: The changing geopolitics of oil in the Middle East

One in every three barrels of exported crude petroleum still comes from the Middle East. Yet significant shifts in this sector are transforming the geopolitical equation of oil in the region:

• The US is not as reliant on the region as it once was, as its shale gas revolution has made it relatively energy independent.
• Iran could once again become a regional competitor in the sector, if its diplomacy efforts with the US succeed.
• Energy prices are volatile, frequently hitting budget-busting lows.
• Chinese demand will become significantly more relevant for the region.
• Two former large producers, Libya and Iraq, are in deep crises and producing well below potential, with no quick-fix solution in sight.
• Extremists control vast swathes of territory across Syria and Iraq and sell crude oil at steep discounts. Though not enough to significantly impact the oil market overall, this factor is sufficient to ensure a steady influx of money that will continue to create havoc in the region and slow down trade and pipe lines.
• Saudi Arabia has found itself in a tight spot in this new context and its allegiances are becoming more muddled by the day – over ISIS, over Syria, over Iran and over the global oil regime by using oil prices to defend their market share and position themselves politically.

So what do these shifts mean? Well, for one, they mean that energy policies will have to adapt, as will the overall policies of regional powers. A sound and forward-looking energy policy that pays due diligence to the local and regional environment is as critical to national security as it is for uninterrupted energy access.
This concern was a key takeaway from sessions at the recent World Economic Forum on the Middle East and North Africa.
So too was the idea that the region’s governments must reverse the traditional thinking that strict security measures and state control are the fundamental ingredients to ensuring socioeconomic sustainability. Instead, they must realize that socioeconomic sustainability and a sense of social inclusion is paramount to improve the security of the region. At times, oil-dependent governments have announced economic reforms when the commodity price has been depressed, but when prices recover, implementation is deprioritized or halted, keeping meaningful socioeconomic development an illusion. But reform is more needed than ever before.
The largest obstacle to achieving the above is the lack of good and transparent governance, legal certainty and physical security in the region. Multinationals have the luxury of managing operations at a portfolio level and choose to invest in regions where it is easier to work. While regional businesses can navigate regional complexities better, the stark lack of stability and transparency in most of the region are still huge obstacles to them, too.
Coherent energy policies are critical for the economies of much of the region, given the sector’s revenue windfall, but de-politicization of these policies is even more crucial to advancing stability in the region. To do this, the role of government and the private sector must be reconfigured. Governments still control most of the energy sector as a means to manage their economies, but tend to do so in rather inefficient and opaque ways. Governments would be well advised to limit their roles to clear and fair regulation, to allow the private sector to maximize the energy industry’s performance. This in turn will provide governments more wealth to invest in essential public service entities and projects.
As highlighted in the shifts described above, the global ramifications of developments in the Middle Eastern energy landscape are significant, and what happens globally will impact the future of the Middle East. The politicization of oil prices in general and the current drop in value could hurt the shale oil boom in the US and Canada. Chinese energy demand is likely to further offset the decrease in demand created by the US shale gas revolution, so although economic diversification is a necessity for socioeconomic development in the Middle East and North Africa region, the bulk of the wealth of much of the region will continue to derive from petroleum.
Half of China’s energy consumption is industry-related. Hence, when China’s consumer demand increases, which appears inevitable given its exponentially increasing middle class, its demand for energy will grow as well. And although China is boosting R&D spending on alternative energy sources, the progressive alternative energy policies of Europe still demonstrates that fossil fuel dependency does not disappear overnight. Furthermore, Japan’s energy demand is going in reverse as energy security, following Fukushima, has gained more relevance. It seems fair to expect that as the US dependence on the region recedes, Asian powers will find themselves obliged to take a stronger role vis-à-vis the Middle Eastern political and security challenges.
Thus, given the reality that the energy sector will continue to dominate the Middle East region for some time, it is important that the sector develop a transparent model for public-private partnerships. In a tumultuous geopolitical landscape, those in the Middle Eastern energy sector have an opportunity to play a positive role in both ensuring greater economic security through diversification and socioeconomic development. In short, as the energy sector transforms, energy politics in the region must change from being divisive to being an enabler of sustainable and inclusive economic growth, which is critical to security in the region and beyond.

World Economic ForumJune 25, 2015

Libya: Import ban cancelled

The Tripoli authorities have reversed the import ban issued on 17 May on 32 items through letters of credit (L/C’s) for six months.

The import ban was announced as a move to stem the hemorrhaging of Libya’s fast depleting foreign currency reserves.

The authorities said they had reversed the import ban because the Central Bank of Libya (CBL) had failed to impose the ban.

The acknowledgement that the CBL had ignored the Tripoli authorities’ decree is an embarrassing revelation confirming that the CBL sets its own economic and fiscal agenda for Libya. It also confirms that the CBL was probably not consulted prior to the announcement of the import ban.

The import ban had attracted much criticism from the business community as inflationary and encouraging black-market economy.

LH 11.6.2015

Africa’s largest free-trade zone is to be created, covering 26 countries and including more than 625 million people

The leaders of 26 African countries gathered in Egypt Wednesday 10.06.2015 to sign a new trade pact to create a common market across half the continent that will serve 625 million people. The signing will take place at a summit hosted by Egyptian President Abdel Fattah al-Sisi in the Red Sea resort of Sharm el-Sheikh, where negotiators finished drafting the deal this week.

The pact – known as the The Tripartite Free Trade Area (TFTA) – will then be officially unveiled at the upcoming summit of the South Africa. Three existing trade blocks – the Southern African Development Community (Sadc); the East African Community (EAC) and the Common Market for Eastern and Southern Africa (Comesa) – make up this pact.

TFTA will cap five years of negotiations to set up a common framework for preferential tariffs that will ease the movement of goods across member countries.
Since the end of colonial rule, governments have been discussing ways to boost intra-African trade. The poor state of roads, railways and national airlines have made it difficult to move goods across borders.

The idea behind it is to remove trade barriers on most goods, which will stimulate $1tn (£648bn) worth of economic activity across the region.
However, concluding the deal in Egypt will merely be the first step and it will need to be approved by each countries’ parliament, before the wheels are set in motion. The deal will pool the interests of the East African Community, Southern African Development Community and the Common Market for Eastern and Southern Africa (COMESA), whose countries have a combined gross domestic product of more than $1 trillion (885 billion euros).

Members of the three blocs range from relatively developed economies such as South Africa and Egypt to countries like Angola, Ethiopia and Mozambique, which are seen as having huge growth potential.

Negotiators said the agreement has addressed concerns such as management of trade disputes and protection for small manufacturers once the TFTA comes into force. The schedule for “dismantling trade barriers” was yet to be worked out and the agreement will still have to be ratified by national parliaments within two years.

Officials said TFTA envisions the eventual merger of the three blocs, but that bilateral agreements between countries would continue.
“The ultimate goal is to ensure easy movement of goods in these countries without duties,” said Peter Kiguta, director general of the Eastern African Community.

It is hoped that this will happen by 2017.