This year’s wave of protests in Algeria, Iraq and Lebanon has inevitably triggered comparisons with the Arab Spring of 2011. The parallels have been evident to the protesters themselves, who have learned from the failures that followed 2011 and understand that political transformation is more challenging than simply replacing aging autocrats with younger models. A common theme of this year’s unrest has been a focus on overhauling defective state institutions and entrenched elites. The result has been protracted struggles between governments and their own people that will extend into 2020.
For business, the resulting uncertainty is particularly acute in the energy sector, where several established and nascent producers are beset by political challenges. Algeria and Iraq are the principal recent examples, but there is also no end in sight to conflicts in Libya and Syria, while US sanctions on Iran have taken a major exporter offline and resulted in wider disruption to energy exports from the Gulf over the last six months. Meanwhile, political instability in Israel and Lebanon is constraining the development of an Eastern Mediterranean gas market.
The unrest in Algeria was partly rooted in energy, with the sharp fall of oil prices in 2014 starving the government of its financial lifeline and making it harder to buy the population’s support. Exasperation with a staid, out-of-touch political and military establishment has steadily mounted, with President Bouteflika’s announcement in February that he would seek a fifth term sparking this into a concerted push for reform.
The protesters’ underlying grievances remain far from being resolved, with the economy stagnant and the establishment unwilling to relinquish decades-old privileges. They have instead sought to appease the protest movement by scheduling new elections for 12 December. With no substantive constitutional reforms and the only candidates being establishment figures, the vote has already been widely rejected.
The anti-government movement and associated political paralysis will therefore extend into 2020. The government has already stated that it will not launch any new investment projects next year. Legislation aimed at opening the energy sector to more foreign investment meanwhile faces protracted uncertainty and challenges to its legitimacy. 2020 will be another year of declining production and under-investment in the development of resources.
In Iraq, grievances over corruption and woeful public services have been at the centre of protests in recent months. In contrast to Algeria, Iraq’s oil production has been on an improving trajectory, reaching record levels in September. However, this has scarcely registered in the lives of ordinary Iraqis, which remain blighted by power outages, limited healthcare provision and high unemployment.
The protest movement is now demanding wholesale political change, including an end to sectarianism and curbs on the influence of external powers, especially Iran. The government of Adel Abdul Mahdi, which remains in place in a caretaker capacity, is struggling to implement electoral reforms as a first step towards fresh elections. A parliament deeply divided on sectarian grounds will struggle to agree on a new cabinet, still less a programme for deeper political reform. Mahdi’s government lasted less than a year and any successor is likely to be similarly unstable.
This year’s protests have been accompanied by widespread violence, although this has yet to target foreign-operated oil facilities as seen in 2018. However, the recent protests have forced the closure of Umm Qasr port, through which much of the country’s oil is exported. Iraq is therefore still a highly volatile security environment for foreign firms, a fact that will remain a curb on new investment in 2020.
The situation is similarly bleak in other Middle East oil and gas producers. An end to Syria’s civil war is still a remote prospect following Turkey’s recent military operation in the northeast of the country. The conflict in Libya also remains intractable. The National Oil Company has managed to sustain production during recent fighting but disruption still occurs when oilfields become targets for rival forces – as seen this month with the suspension of operations at El Feel, a 70,000bpd facility in southern Libya.
The US “maximum pressure” strategy will keep Iran isolated from Western oil markets and compound economic strains in the country, which was hit by violent nationwide protests this month after a 50% hike in fuel prices. Iran’s woes could spell further headaches for its rivals in the GCC in the shape of further disruptive activity in the Gulf as the regime seeks to turn popular anger outwards. This could include more harassment of shipping and strikes against oil and gas facilities in Saudi Arabia.
The prospects for development of natural gas in the Eastern Mediterranean has meanwhile receded as Israel faces a year without functioning government. Two elections since April have yet to produce a viable governing coalition, with the country set to hold a third vote in March. Together with the effects of a slowing economy, this uncertainty saw interest in Israel’s second round of licensing fall earlier this year, with just two bids received.
Lebanon, which too has offshore gas potential, also finds itself at a political impasse after its government was ousted last month in the face of mass protests. The country remains on the brink of economic meltdown while protesters demand reforms that a highly sectarian political system is ill-equipped to deliver. Lebanon’s second licensing round for oil and gas exploration has its submission deadline in January. Low levels of interest are likely to set the tone for another challenging year for the region’s historic and potential energy producers.
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