Libya: Heralding Risk?
Photograph by Gianluigi Guercia, AFP/Getty Images
The shots that rang out in Brega (map), where this Libyan rebel patrolled a key refinery last week, truly were heard around the world—a world that relies on autocratic or troubled regimes of the Middle East and North Africa for one third of its oil.
With a protracted violent civil conflict looking likely in Libya, consumers in the United States have been hit with the second largest one-week gasoline price hike since government tracking began in 1990. (The only shock that was worse came after Hurricane Katrina.) Global crude prices now stand at their highest level since the 2008 recession.
(Related: “Oil Markets Churn Over Egypt’s Potential as a Gateway for Revolt”)
Former California governor Arnold Schwarzenegger voiced the frustration of many at an energy conference near Washington, D.C., last week: “Why should a dried-up country with a crazy dictator play havoc with our energy security?”
As much as 60 percent of Libya’s 1.6 million barrels per day of oil production has been shut down due to the strife, but the unrest there hasn’t caused a supply crunch; Libya provides only about 2 percent of global petroleum supply. Rather, the market is focused on Libya as the seventh-largest producer among eight key nations that provide 32 percent of the world’s current oil supply and, in fact, hold nearly 60 percent of all known petroleum reserves. Few of these states have as outsized an authoritarian figure as Colonel Muammar Qaddafi at the helm, but the market perceives their governments as at risk—whether due to monarchic rule, corruption, or economic stagnation.
“Nobody can be quite certain what exactly their vulnerabilities are,” says Bhushan Bahree, senior director of global oil for the consulting group IHS Cambridge Energy Research Associates (IHS CERA). “After all, we did not anticipate many of these things as recently as two months ago. The anxiety in the oil markets is precisely this—the unknown.”
(Related from National Geographic: Libya Guide)
Published March 9, 2011
Qatar: A Relative Haven Amid Instability
Photograph by Sean Gallup, Getty Images
Office buildings and hotels rising among the skyline of Doha last fall mark Qatar’s effort to expand its economy beyond oil. The emirate ranks last among the eight big oil producers of Middle East and North Africa, but its importance as an energy state, reformer, and even peace-broker is immense.
(Related Photos: Inside Qatar, Host of the 2022 World Cup)
The al Thani dynastic clan, which ruled Qatar dating back to the 1800s, has held the reins of government since the state’s independence from Great Britain in 1971. But the current emir, Sheikh Hamad bin Khalifa al Thani, has instituted wide-ranging reforms since seizing control in a bloodless coup against his father in 1995. These include education, women’s rights, and media freedoms that led to the rise of the Arab world’s most important broadcaster, satellite TV station Al Jazeera.
(Related fromNational Geographic: “Qatar: Revolution from the Top Down”)
Under Sheikh Hamad, Qatar also invested heavily in its huge natural gas reserves. So even though its oil production lags that of every OPEC state but Ecuador, Qatar is the world’s leading exporter of LNG (natural gas chilled to liquid form so it can be transported easily by tanker). Qatari exports fuel economies from the United Kingdom to Japan. Natural gas and petroleum still are Qatar’s biggest sources of income, but they were surpassed by the non-energy sector in contribution to GDP in 2009, and double-digit economic growth is forecast this year.
Qatar has not seen the protests that have rocked neighboring states (although a Facebook page calling for the emir’s ouster attracted several thousand fans ). In the region, the nation’s role has been as diplomat; Sheikh Hamad was active in brokering a pact to ease civil strife in Lebanon in 2007, and the peace agreement to end the Darfur conflict in Sudan in 2009. The emirate has stood apart among Arab states in calling openly for Qaddafi to step down, "to take a courageous decision to avoid Libya a lot of bloodshed and money."
Sheikh Hamad’s cousin, Prime Minister Sheikh Hamad bin Jassim bin Jabor al Thani, has made assurances that advisory council elections would be held in the near future. “The emir will determine this, as I know his seriousness in this regard,” he said in a statement.
(Related from National Geographic: Qatar Guide)
Published March 9, 2011
Algeria: Struggling to Feed its Economy
Photograph from AFP/Getty Images
The rioting seen here in Oran (map), Algeria, in early January over food prices, housing, and lack of jobs was overshadowed by the protests in neighboring Tunisia that led to the overthrow of Tunisian president Zine el Abidine Ben Ali. But Algeria was the first of the major oil states to be caught up in the wave of unrest.
(Related from National Geographic: Algeria Guide)
This North African state is the sixth-largest oil producer in the region—sending more crude to market each day than Libya, even though its reserves are about one-quarter the size. Its oil, like neighboring Libya’s, is low in sulfur—the light, sweet grade highly sought after for ease of processing into fuels that meet increasingly stringent environmental standards in the United States and Europe.
Algeria also is a major exporter of natural gas, and pipelines send supplies from here directly to Europe, especially Italy and Spain.
Algeria's economy is dominated by oil and gas, which provide 97 percent of the country’s export revenue, and by a sprawling state bureaucracy. But it isn't large enough to provide enough jobs or opportunity for Algeria’s young and growing population. Such is the risk of an energy-fueled welfare state, says Michael Klare, author of more than a dozen books on oil and geopolitics. "They do have a lot of money to spread around, but they have to spread it around to more people every day," says Klare, Five College Professor of Peace and World Security Studies, based at Hampshire College in Amherst, Massachusetts.
Although Algeria is a republic, governance has been rocky. The nation only recently emerged from a bloody civil war in which more than 150,000 people were killed—a clash sparked when the government annulled a 1992 general election won by an Islamist party. The nation has been operating under a 19-year-old state of emergency as the result of that war, but President Abdelaziz Bouteflika two weeks ago lifted restrictions on freedom of speech in an effort to counter the protests.
(Related: "Can the World Feed Seven Billion?")
Published March 9, 2011
Iraq: A Young Democracy Low on Trust
Photograph by Bassem Daham, AP
Iraqi police officers assigned to protect oil production and distribution watch from across the Tigris River as fire and smoke billow from a pipeline fire following a 2005 explosion near Baiji (map). At this same site last week, gunmen attacked Iraq's largest refinery, killing one guard and detonating bombs that sparked a fire that forced the facility to shut down for six days.
(Related from National Geographic: Iraq Guide)
Oil continues to be a flash point, as it was throughout the war that engulfed this nation for seven years after the United States attacked in 2003. Iraq now sees rapid growth in oil revenue as critical for rebuilding. The government has talked of increasing its output from the current 2.4 million barrels to as much as 12 million barrels per day. "This would mean annual growth rates of 10 percent to 15 percent would have to be sustained for at least 10 years—a feat unseen in recent history," said Shell in its most recent analysis of world energy scenarios (pdf), which sees Iraq as potential source of future global energy volatility.
Meanwhile, thousands of Iraqis have turned out in rallies to demand better government services, and several protesters have been killed by Iraq's security forces. In the wake of the clashes, Prime Minister Nouri al Maliki gave his ministers 100 days to improve their performance or be sacked.
After 24 years under the rule of Saddam Hussein, Iraq has a parliamentary democracy. But public trust in the nascent government is so lacking that Iraq ranked fourth from the bottom of the 178 countries in the 2010 corruption perception index compiled by the civil society group Transparency International (TI). With the government dependent on investment deals with international oil companies to fuel its expansion plans, Iraq has tried to burnish its image, signing on to a worldwide initiative for disclosure of financial terms between energy companies and governments.
Secrecy over such deals has eroded public confidence in governance throughout the oil world, says François Valerian, head of private sector programs at TI, which last week released a report ranking oil companies on openness. "The wealth that lies underground has to benefit the population and has to be used for development," he says. "The problem is very often this wealth has been used for the benefit of a few individuals or groups of individuals, for their own purposes, or to buy weapons to defend their power and resources."
(Related Blog: "Perspectives on Iraq")
Published March 9, 2011
Kuwait: Stable, Yet Stalled
Photograph by Steve McCurry, National Geographic
The desert oil fires that raged in Kuwait in 1991, shown here, seemed to herald an era of conflict over Middle East resources. When a U.S.-led United Nations coalition force drove out Iraqi invaders, retreating troops set oil facilities ablaze and opened valves on rigs and pipelines. The vandalism touched off the worst oil spill in history. At 8 million barrels, it was almost double the size of last year's BP oil spill.
(Related: Gulf Oil Spill News, Pictures, Video)
After one of the largest and most rapid reconstruction programs in history, Kuwait rebuilt its infrastructure and rapidly regained its prominence as an oil state. But concerned about declining output as its older fields mature, the region's fourth largest producer wants to increase its current 2.5 million barrels-per-day capacity to 4 million barrels per day by 2020.
(Related: Kuwait Guide)
However, that plan has stalled, and other than channeling about 10 percent of its oil revenues into the "Future Generations Fund" for the day when oil income runs out, there's been little effort to diversify the nation's economy. That's partly because of the ease of spreading that oil wealth around the small state. With just 2.5 million people, Kuwait's unemployment is low and its per-capita income is comparable to that of the United States.
But part of the reason for Kuwait's paralysis has been the acrimony that has arisen in its hybrid governance system between an elected parliament and the ruling Al Sabah family. So as unrest has spread throughout the Mideast, calls have escalated here not for deposing the emir, but for ousting his nephew, the prime minister, Sheikh Nasser Mohammad al Ahmad al Sabah, who is blamed for corruption and putting restrictions on the media and public gatherings. Hundreds of protesters gathered outside Kuwait's government building Tuesday to call for Sheik Nasser's resignation.
"This bug is quite contagious," said Sara Akbar, chief executive of the Kuwait Energy Company, speaking at IHS Ceraweek, a huge energy industry conference in Houston. "Kuwait has a good constitution and it is one of the most stable countries and systems we have in the region. But this is people asking for their rights and this is a big positive step for the future. We see the end of dictatorship systems, and the huge amount of corruption in the systems that is being revealed." Akbar said she believes oil production will not be curtailed despite the unrest, because all of the region’s governments will ultimately have the incentive to continue to produce and invest in their oil sectors as necessary for their economic well-being.
"It will be a bumpy road. It will take a long time to have stabilized democracies in all the countries," she said. "But I believe the way we see it, from the ground, this is where we want to be. This region is extremely rich in natural resources and there is no reason for there to be poverty."
Published March 9, 2011
United Arab Emirates: Diversity's Strength
Photograph by Maggie Steber, National Geographic
The construction of the Burj Khalifa skyscraper in Dubai, which opened last year and is now the world’s tallest building, emblematizes the United Arab Emirates’ efforts to diversify its economy beyond oil. But even before construction was completed, the global financial crisis cast Dubai's six-year building spree in a new light.
(Related: Dubai Guide)
Dubai was the ambitious but oil-poor state among the seven that make up the UAE federation. It relied heavily on credit and foreign investment in its drive to turn itself into a cosmopolitan center. But the global financial crisis hit it hard, causing its stock market to plummet, jobs to be lost, and foreigners to flee. The capital of Abu Dhabi, the state with 95 percent of the nation's oil reserves, is seen as having weathered the storm better because it remained more conservative in development.
(Related: 360º Energy Diet: Al Nowais Family)
The nation’s government is authoritarian, and the ruler, Sheikh Khalifa bin Zayed, succeeded his father, who died in 2004 after 33 years at the nation’s helm. But religious tolerance and equality for women have been hallmarks of the nation’s culture under the family’s reign. The stability engendered by those values, as well as low unemployment and high per-capita income, have meant that the UAE has stayed quiet during the unrest that has swept the region--even while protests have turned bloody just over the border in Oman.
The strife appears to be too close for comfort, because the UAE, along with other wealthy oil countries—Saudi Arabia, Qatar, and Kuwait—are reported to be discussing a plan to aid conflict-ridden neighbors Oman and Bahrain. The economic package would be aimed at improving living conditions and employment opportunities in those poorer nations in an effort to head off further unrest.
Klare, the Hampshire College professor, argues that even if oil-state governments survive rebellion, the end result may well be less oil on the market. Instead of spending the hundreds of billions of dollars in new investment that would be needed to maintain and expand oil production, the nations will be putting money and natural resources to work domestically. Building energy-intensive industries like aluminum or petrochemicals could create work, and would mean less oil and gas to send abroad.
"My sense is that no matter what happens in these places, there's not going to be the same abundance in the future as we have had in the past," he says. "They have to generate jobs and the only mechanism they have is their oil."
Published March 9, 2011
Iran: Simmering Political Tensions
Photograph by Frank and Helen Schreider, National Geographic
Flaring natural gas casts a glow over oil field towers in Iran. The region’s second largest oil producer knew political turmoil long before the current wave of rebellion; in 2009, the government violently put down the massive demonstrations by protestors who disputed the reelection of President Mahmoud Ahmadinejad.
(Related: Iran Guide)
Despite that recent history, protests erupted in multiple cities in Iran last month, and the government responded with tear gas and batons. Two key opposition figures, Mir Hossein Moussavi and Mehdi Karrubi, have been detained by the Iranian government, spurring more protests, and more confrontations with police.
With a population of more than 77 million, the region's No. 2 oil producer has had a harder time spreading its oil wealth than neighbors with far less petroleum revenue. The Islamic republic has 15 percent unemployment and a per-capita income that lags that of Libya's.
Klare says there’s a characteristic "politics of investment" that prevents petroleum states from diversifying beyond oil. "If there are other industries, you are going to create new middle classes, new political classes and new parties who are going to challenge the monopoly held on power by the oil sheikhs and oil kings," he says. "So you don’t allow alternative economic forces to arise. That’s the last thing you want."
(Related: "Persia: Ancient Soul of Iran")
Published March 9, 2011
Saudi Arabia: Balancing Force
Photograph by Reza Deghati, National Geographic
A man in traditional headdress looks out over the industrial city of Al Jubail (map) in the Persian Gulf nation that leads the region in oil production. Indeed, Saudi Arabia is second in the world only to Russia as a global petroleum producer.
(Related: Ras Tanurah refinery)
More important than the kingdom's 9.7 million barrel-per-day output, in the view of the oil market, is its capacity. Saudi Arabia holds as much as 4 million barrels per day of the world’s 5 million barrels per day of spare oil capacity. That's four times the amount needed to replace the output lost due to the clash in Libya.
And the market is counting on Saudi Arabia to use that clout, as it has during previous disruptions—during the gulf wars and after Hurricane Katrina. "They consider it part of their role in balancing the oil market—providing that assurance,' says Bahree, of IHS CERA.
Although it might seem counter to Saudis’ own interests to churn out more oil to hold down the price, Bahree says the nation looks to keep prices in a range suitable to both producers and consumers. "If prices go too high, that can have a negative economic impact globally," he says. "And that, in turn, has a negative impact for producers, because demand for oil declines."
Of course, those putting their faith in Saudi Arabia's role as stabilizer assume that the kingdom will remain immune to upheaval.
Anti-government demonstrations have surrounded the kingdom on all sides: first in Egypt, then in Jordan, Yemen, Oman, and most significantly in Bahrain, where the religious overtones of the conflict echo Saudi Arabia’s own conflicts between the Sunni majority and the Shiite population.
King Abdullah, the aging scion of the Al Saud dynasty that has ruled Saudi Arabia since its founding, announced a $40 billion package of housing, social welfare, and education measures in effort to quell discontent. This includes, for the first time, unemployment compensation to address the plight of its jobless 11 percent.
But calls for reform have mounted, and human rights activist say the kingdom cracked down on protests last week that were touched off by the detention of activists. A "day of rage" has been called for Friday, the ninth anniversary of the death of 15 girls in a school fire in Mecca. By some reports, religious police had stopped them from escaping because they were not wearing correct Islamic dress.
"Young people in many of these nations are well-educated and have high expectations," says oil geopolitics scholar Klare. "They have a taste of what a more democratized westernized life is like and they want a piece of that. They are not going to be content forever with a medieval lifestyle."
(Related: Saudi Arabia Guide)
Published March 9, 2011
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