The recent upheaval in North Africa, which resulted in the toppling of two heads of state in Tunisia and Egypt and in the ongoing civil war in Libya, has raised great issues regarding the security of the whole of the Mediterranean region and exposed quite a few sensitive points of the European Union, the most important ones being illegal immigration and energy security.
As far as the latter is concerned, the European Union’s energy-security status is predominantly related with the developments in three geographical regions—Russia, the Middle East andNorth Africa, from where it imports the bulk of its hydrocarbon needs. Therefore the Arab Spring is of outmost importance for Europe and will determine several critical developments as far as energy security in the European Union is concerned.
E.U. reliance on imports and current energy trends
Currently, the 27 E.U. member states import 85 percent of their oil needs and 65 percent of their natural gas. It is estimated that by 2030 those numbers will be 95 percent and 85 percent, respectively. E.U. countries have no oil and gas production. Regarding external energy reliance, 26 percent of gas consumed in the European Union derives from Russia, 12 percent from Algeria, 3 percent from Qatar, and 3 percent from Libya (before the war). A potential demise of the North African markets, especially Algeria due to internal strife, would upgrade E.U. dependency onRussia, primarily for gas imports, and on countries such as Qatar and Indonesia for liquefied natural gas imports.
The war in Libya has halted the majority of the local production in oil, which amounted to 1.6 million barrels per day and has been temporarily covered by increased Saudi and Russian production. The price of oil is still close to $100 per barrel and affects the ongoing weak European and global financial recovery.
Nevertheless, there are certain indications that pinpoint the importance of the North African upheaval in conjunction with other global energy trends that may strike a blow regarding E.U. energy security and economic sustainability in the near future. First of all, China continues to consume more oil; it witnessed a 27 percent increase in imports in January 2010, thus helping to keep prices on a high level for the foreseeable future. Moreover, throughout the whole of 2010 and even before the events in the Arab world, world oil stocks declined by 220 million barrels due to increased consumption, and in the second half of 2010 daily consumption rose by 2.2 million barrels per day, whereas production of oil managed to increase by only 900,000 barrels per day.
Therefore the instability in North Africa and the heartland of oil production in the Middle East greatly affects the price of oil and increases the likehood of yet further spikes of its price. Deutsche Bank recently estimated that, should the price of crude oil surpass $120 and stay at that level for a few months, a recession would be re-enacted in the world economy. Japanese investment house Nomura calculates that an upheaval in Algeria affecting its exports could cause oil prices to skyrocket up to $200 per barrel.
Furthermore, the International Monetary Fund predicts a steady 4.5 percent world economic growth under the assumption that for 2011 the average price of oil will be $95 per barrel, a number that seems to be surpassed up to date. Various energy analysts predict a $110 per barrel price for the second half of 2011, as long as Asian imports are increasing and stability in the Arab world is fragile. J.P Morgan estimates that for each 10 percent spike in the price of oil, there is a 0.25 percent decrease in global GDP growth, which results in millions of job losses.
North Africa in a state of increased risk
Egypt, Libya and Algeria produce 4.1 million barrels of oil per day, which is approximately 4.8 percent of the global output and 160 billion cubic meters of natural gas, out of which more than 60 billion are being exported to the European Union. A further point of interest is the Suez Canal in Egypt, which is the main energy chokepoint since 2.2 million barrels of oil are being transported through there daily, and 8 percent of global oil marine transport. From this amount, about 35 percent is travelling to E.U. markets. Also Egypt hosts the SUMED oil pipeline that transports 2.4 million barrels per day from the Red Sea to the Mediterranean Sea.
Egyptis still the crucial country that can still detonate an energy crisis that will hit first and foremost the E.U. economy and the global growth thereafter. In mid-2010 the Egyptian public debt was estimated at 81 percent of its GDP, but since then there has been significant drop in tourism revenues, combined with a capital flight because of the revolts, increased public spending due to public servants’ wage increases, and many other expenditures relating to the destabilization of the country.
It is likely that Egypt’s public debt will reach 100 percent of its GDP by the end of 2011 and its credit rating will be cut due to the world worry of state debt that has already crippled the E.U. economy due to Greece, Portugal, Ireland and quite possibly Spain and Italy. The high food prices still affect the daily livehood of the majority of the Egyptian population; therefore a second round of destabilization in this country cannot be excluded.
In Libya, almost six months have passed since the beginning of the civil war and the subsequent NATO intervention, with no tangible results. The economy of the country is being destroyed on a daily basis, and its energy infrastructure is being eroded, in combination with capital flight and degradation of social conditions for all sides involved in the country’s conflict.
Algeria is in a better financial state than the previous two countries, with a low external debt and rather sound public finances and substantial foreign reserves. It also escaped the Arab Spring, apart from some minor clashes in urban centres.
Nevertheless, unemployment combined with rising food prices is a ticking bomb. Although officially Algiers’ jobless rate is estimated at 10.5 percent, the State Department’s Bureau of Near Eastern Affairs puts the figure at 30-plus percent. Another striking element is that, according to the IMF, around 75 percent of the country’s population is below 30 years old, with a high percentage of that demographic unemployed or underemployed. The existence of influential extremist and terrorist Islamist groups in the country, and the lack of non-energy industries that could boost domestic growth, such as tourism, provide significant risk factor. Lastly, the remittances of the Algerian communities in countries such as Spain and France are predicted to decrease due to the almost zero E.U. growth.
Overall, the sensitive situation in North Africa could still spark a second round of the Arab Spring in the near future, and in such a case, should Algeria join the revolutionary spirit, that may well start the toppling of energy dominoes, affecting the E.U. at first and spreading to the entire planet thereafter, in a period where most economies are struggling with rising public debts, anaemic domestic consumption, and slim banking financing of corporations and individuals.
For the time being, there has been no noteworthy effort by the European Union’s authorities and collective bodies to assist North African states, either to create more jobs or to ease the burden of high food prices that erode the daily income of the vast majority of their population. The indifference being shown may well have grave consequences in the not-so-distant future.
By Ioannis Michaletos
