The Impact of the Arab Spring on Egypt's Energy - Research Paper Example

The Impact of the Arab Spring on Egypt's Energy Critics have developed various arguments against the Arab Springs with respect to the impacts that it has on energy sector. Most Arab countries are principal oil and gas producers in the international market. During the Arab Spring, the global oil market experienced price shock, which is a feature of the civil unrest. The production of oil and gas stalled during the civil upheavals thereby influencing the supply of oil and gas in the international market. The economic conditions of these countries changed because of the unfavourable conditions for international trade. It is arguable that the spring intended to revamp the then political system; activities that took place during the Arab Spring had devastating effects to the economic growth of these nations. Since oil production is critical to the economy, it is evident that the disruption on its production would lead to economic down turn (Bahgat 2). The influence of the spring is evident in the energy industry where export of oil and choice to export oil to other nation is under scrutiny. This paper will focus on Egypt energy situation after the Arab Spring and its current choices on the international oil gas trade. The paper will specifically focus on oil production in Egypt, its investment, shipping and consumption. Investment in oil production is critical to both political and economic stability of the Arab countries. Key players in the oil industry usually value political stability because it dictates the relationship between the international players and the producing countries. For instance, the relationship between BP and political regime of the ousted Egypt President Mubarak was critical to the survival of the company in Egypt. In most cases, political influence of a country defined a relationship between the country and the international players. Policies devised the oil producing countries do not only influence the production oil and gas in this countries but also influence its supply in the international market. Political platform of most Arab countries receive its financing from oil as the major economic resource. However, some countries derive their finances from trade and labour resource, which remits funds that support these countries. The supply of trade items in this region depend on political goodwill or international politics (Youngs 136). Thus, unstable political structure is susceptible to challenges because it lacks proper structures that could influence beneficial trade deals in the international scene. The Arab Spring is a threat to regional integration and similar cooperation. World economic report groups the Arab countries as heavy reliant on oil trade. Since the Arab countries indulged in the upheavals, they have registered economic slump, calling for international aid and humanitarian aid. Ideally, the spring has devastating effects of the political structures that are crucial to the development of the nations. Observers have remarked on the consumption trends in the international market as well as the national market and noted a change in trend in the consumption of the oil and oil products. Critically, the consumption trends owe a lot on the international politics as defined by policies that create and promote the international relation (Prausello 166). For instance, the move by the international community to step up the war against Libyan president is an indication of influence of political relation in relation to the Arab spring. It means that the threat created in the political structures of these nations would have devastating impact on the growth as well as trade among these countries and the world. Domestic Consumption in Egypt Arab countries are leading other countries in the world in oil production. In 2005, Arab oil stood at 59% of the economic oil production of world, while the production of economic gases stood at 35.8% of the total world production (BP Statistical Review 15). The quantity of oil that Arab countries took to the world market is critical to economic growth of the dependant nations. Oil and gases are the central sources of energy that drives industrial processes. The economic trends in the Arab countries seem to respond positively to trends of oil and gas demand in the global market. Increase in global energy increases the gallons that the oil producing countries send into the world market. The positioning of the Arab countries is another critical factor that influences the consumption of the Arab oil in the international market. For instance, Libya oil production stood at 3.4% in the global market. The figure reflected the conditions of production and consumption before the Arab springs. The domestic consumption of oil and gas products is equally important as the product sent into the international market. The BP Statistical Energy Survey (24) indicated that Egypt oil reserves stood at 4.5 billion barrels, which reflects 0.32% of the world reserve at as end of 2010. The daily oil production in Egypt stood at 736.4 thousand barrels by 2010 while its consumption rate stood at 756.77 thousand barrels per day in 2010. On the other hand, natural gas production stood at 1.42% of the world production in 2010. In the same year, it consumed 1.18% of the production. The figures project a decline in oil and gas production. Egypt has been a consumer and an exporter of oil. The oil and gas production in Egypt is central to its economy. In 2005, Egypt started exporting liquefied gas that was a boost to its economy (BP Statistical Energy Survey 25). The consumption price in most Arab oil producing countries is quite cheap when compared to prises in the world market. Moor (1) believes that most nationals of these countries believe that the oil consumption at a subsidized rate is worth because production occurs in their land. Critics have observed that Arab nations command a great influence on the world prices. For instance, world oil prices usually respond to changes in demand projected into the global market by the Arab countries. Historically, oil producing Arab countries has been instrumental in changing or influencing prices (Muhreb 6). The chronology of prices oil in the international market reveals that oil shock in 1973-4 oil strikes in 1978 Iranian Revolution alongside other political attentions in Arab countries have influenced the oil prices by increasing the prices of the commodity in the international market (Prausello 256). The recommendation made by the Arab countries against western support to Israel influenced the prices of oil in the world market. The above instances demonstrate the influence that the Arab nations have influencing the prices of oil and gas in the international market. Prior to the Arab Springs, many Arab nations have thought of methods of reducing the oil subsidies in their respective countries (Bahgat 5). However, the notion has not been successful because of the fear of tensions that would rise following such attempts. Unfortunately, the Arab Spring surpassed the government initiative to influence the angry citizens to reverse their approach to uprising. It is notable, the uprising started as a protest in European countries against the failing economy. However, the similar demonstrations in the Arab countries exerted great magnitude in political system, which eventually influenced their economic situations. Foreign Investment World energy needs influence the consumption of oils in countries that produce the oil. Energy production statistic in Egypt indicates that oil production and gas production for export is critical to the Egyptian economy. Information from the Egyptian Petroleum Authority shows that Egypt entered into a number of trade deals with international cooperation (Deloitte 12). For instance, in 2009, Egypt signed a deal with a Germany based corporation at a tune of $ 8 billion. Further, the report indicates that the foreign investment in energy sector in Egypt is worth $ 16.3 billion. These figures demonstrate that oil and gas project is central to the economic growth of the nation. However, the production of energy (oil and gas) in Egypt snarled following the popular uprising that shook the foundations of most Arab countries. The trend did not only occur in Egypt, but also in Libya. The oil production in Libya in the past six months of civil war reduced drastically. This forced the foreign investors to shut their oil mines in order to seek stable and ample political situation. Oil investment companies demonstrate a common trend of investing in countries with stable political structures. Moreover, the conditions that promote international trade depend on international relation policies. For instance, the historical Arab War against Israel had economic effects on oil prices in the international scale because trade in the product declined (Muhreb 12). Similar trends were evident during the rise of the Arab Springs and the reverberation of the spring. Ideally, any international trade would flourish in environment where the involved parties share mutual interest. Countries producing surplus commodities do not only take these products into the international market to earn economic revenue, but also to promote cooperation which would be important in advancing regional needs (Prausello 165). A close analysis in trends in the international oil trade indicates that the Arab Spring had similar effects in the economy of oil rich countries. A focus on the economy of Egypt and Libya relate instances of similarities and differences. Ideally, the differences stem up from the trends employed during the uprising. Egypt The Egyptian oil and gas production is important to both domestic and international sectors. The oil production sites of Egypt include Gulf of Suez, East Beni Suef where international oil companies such as Agip and Apache operate (BP Statistical Review 12). The southern block and western blocks in areas bordering Libya are also critical to Egyptian oil production. It is important to note that while foreign investment in oil production in Egypt command large volume of the overall production, Egyptian Energy Regulation Authority play vital role in influencing the consumption behaviour in the international market. For instance, the pricing of the oil product in Egypt seem to project subsidised costs as opposed to conditions observed in the international market. This means that a political turmoil in Egypt would influence the production rates and the consumption in the international market. During the Arab Spring many processes stalled, the change in trends observed in consumption behaviour during the Arab Spring got a considerable change. The trade in oil largely rely on international relations. International relations theory posits that a state is anarchy where they would act in favour of provisions that would influence their growth. Thus, the power that oil-producing countries tried to consolidate during their demands that influenced the oil prices in 1970s has valid schemes. Conversely, social constructivism theory tends to root for corporation among cultures (Blanchard 6). The corporations influence the policies designed to influence the international trade. For instance, the formation of movements such as OPEC (Oil Products Exporting Countries) is attempts which intended to mould the relationship between the countries producing oil. Arab Corporation is another body that has played instrument role in influencing the trade in the oil product (Addo-Korie 126). A focus in Egypt shows that Egypt signed agreement that led to exportation of gas from Egypt to Israel. Observers have indicated that since the beginning of the Arab Spring, the target on the Israel Egypt gas pipeline has increased. Reason behind the attack includes the relationship between Israel and Arab countries. The historically, perception that Israel is occupying the Arab territory is a factor that has often undermined peace pact as well as trade between Arab countries and the Zionist nation. Another factor is that target of the uprising. Destruction of property and government institutions is a common event that took place during the uprising. Such activities vandalised the structures used in the sector thereby influencing the pricing as well as consumption trend of the Egyptian oil. The deal between Israel and Egypt draw criticism from Egyptian critics as well as members of the Arab Corporations. Most of the Arab countries believed that the choice made by Egypt into offering Energy to Israel was a breach of the corporation accord (Addo-Korie 125). Ideally, the progress of the region is a reciprocal of the existing policies, which influence the international oil business. Liberalism theories, the actor cantered posits that argumentative interaction generated at domestic level pose challenge to the national interest. This theory was vital during the signing of the treaty between Israel and Egypt in 2008. It is arguable that the interests of the Egyptian people in serving the Israelis do not reflect the demands of the Arab Corporation. In such case, these interests would influence the devising of policies that guide that relationship brokered the two interested players. The deal does not only benefit the Zionist nation, but Egypt enjoys economic gain in the whole affair. The administration of the oil production in Egypt falls in the docket of the government. Several government ministries command a formidable influence in relation to the production and exportation of the Egyptian gas and oil. For instance, the then minsters under the fallen regime of Mubarak are under criticism for their contribution towards the Israeli- Egypt gas pipeline. Although, the intention behind the agreement was good, politics after the Arab Springs has revamped the whole process (Bahgat 3). Concomitantly, observers are watching to see the choice that the Egyptian government would make after building its political and the social structures. While international trade remains to a be joint concern of factors modulated by the social trends and the politics, service to individual interest of Egyptian is another factor that is worth consideration against the pressures exerted by external factors. The Mubarak government engaged foreign owned companies in exploiting the Egyptian oil (Minio-Paluello 1). Specifically, British owned BP and American Corporation exploited oil in Egypt against the will of the Egyptian people. History records that BP has been in operation in Egypt since 1910. The uprising exposed the relationship between Egypt and BP. Critics have argued that Mubarak dictated the relationship between BP and Egypt. This relationship ensured that Mubarak western allies gained heavily from the operations they had in Egypt. Critics of Mubarak regime unearthed activities of BP, which supported Mubarak suppression to the Egyptian people. The dossier indicated that BP was instrumental in creating neoliberal policies that restricted other players from exploiting oil in Egypt (Minio-Paluello 2). Further, it diffused the US Congress move to institute democratic process in Egypt. The Statistic report on Egypt oil consumption indicates that Egypt oil production cannot sustain its economic demand (BP Statistical Review 19). Thus, it has to rely on imports to offset the deficit in demand. However, Egypt has large gas deposits, which it markets in the global market. Egypt is third in gas production in Africa after Algeria and Nigeria. The production of gas has increased since 2000, however, the consumption trend as also increased in the same amount BP Statistical Review 20). Observers believe the price of the gas at the local market defines the consumption trends adopted by the country. The uprising in Egypt did not target any of the gas fields or the oil fields. However, the political economy is a factor that is likely to influence the trends in the current government (Bahgat 5). The government is has to demonstrate concern over the high prices that led to the uprising as well as balancing its activities in support to the deteriorated economy. The issue of popular demand by the people is critical as described in the liberalism theory that posits that societal demands or influences would generate influence on the national system (Veen-Hincke 3). In this case, the government will address the concern of its people before sending its products in the international market. The situation might result into increased government subsidies, which would influence the gas prices in the whole nation. Egypt has the largest number of gas refineries in Africa and in the recent past, it had indicated attempts to improve its productions (Willward 2). However, the Arab Uprising has created conditions, which are likely to influence such developments. The international investors are keen in vetting grounds that would promote their interest. The current political structure in Egypt does not posses stable structures that can sustain similar uprising in the future (Eldin 2). Further, the reformation of the Egyptian politics is likely to shift allies as well as influencing trading block with other countries. This would also influence corporations, which are mining oil from the country. The sustainability of the political system is very crucial to the growth that Egypt would record in future to energy production (Muhreb 6). In normal occasions, investors will bestow trust in countries, which command peace and tranquillity, and well as security. SUMED Pipeline and Suez Canal Egypt plays a critical role in the global energy market especially the influence it exerts in SUMED pipeline and Suez Canal. The SUMED pipeline and Suez Canal links Egypt with the Gulf region as well as Europe. It means that oil and gas intended for export is under the control the control of Egypt. Egypt has been collecting revenue from the Suez Canal as well as the SUMED pipeline, which is vital for its economic development (Bahgat 4). Historically, events, which destabilises the region usually, influence the shipment of oil to Europe and the global market in general. This influence is negative to the economy of Egypt because it denies the opportunity to collect revenue from activities taking place in the Suez Canal. The Suez Canal is a busy route for shipment activities, which lead to the Mediterranean Sea and the Red Sea. The LNG traffic leads the oil products to European countries while the Persian Gulf line leads to regions in the Gulf. Historical events such as 1956 and 1967-75 Arab war against the Israel led to drastic change in economic activities in the Suez Canal (Praussello 166). Observers have noted that peace within the region is critical to transport activities that occur in the Suez Canal. The challenges created by the instability in the region led to alternative shipment line. The construction of SUMED provided an opportunity for trading in cargoes, which could not go through the Suez Canal. The reason behind the construction of the SUMED pipeline w3as the 1967 war that led to a complete closure of the Suez Canal. SUMED connects the Gulf region and the Mediterranean. Since 2008, the SUMED and Suez Canal have recorded a decline in oil products export activities because of the following factors. First global economic melt down led to a decrease in export from the Persian Gulf region. Second, the change in consumption of oil products in the global market has shifted attention to and Asian countries as opposed to western countries. Lastly, the piracy activities have led to diversion of the oil route, which passed through gulf to shift to the southern tip of Africa. Critics believe that closure of the SUMED pipeline and Suez Canal would lead to a shift in oil route that moves through the north (Bahgat 12). It means that the production from the Gulf region would take a long route to the European countries. The subsequent effect of this change would lead to high oil prices because of the delays that the global market would experience. Egypt Gas Export to Israel The Arab Spring had a considerable effect to gas export to Israel. Historically, Egypt signed a peace pact with Israel in 1979 (Muhreb 3). However, the relationship between Israel and Egypt is not strong because of factors such as Arab cultural perception that Israel has grabbed the Arab territory. Despite the near cold relationship, the Egyptian government entered a 15-year gas export deal with Israelis in 2005. Egypt was to supply 60bcf per year to the Israelis from 2008. The pact to execute the gas export project brought Israeli company Merhav and Egyptian East Mediterranean Gas Company together (Bahgat 3). During the Mubarak regime, the gas export to Israel was never popular. On some occasion, the gas pipeline was under attack thereby resulting into gas supply interaction. The current Egyptian government has demonstrated its dissatisfaction to the deal. The current government has ordered investigation on the deal accusing the former energy officials of supplying gas to Israel at deal below the global prices (Darbouche and Fattouh 12). Probably, the backlash has occurred due to the following factors. First, the exportation of the gas to Israel has been unpopular among the Egyptians. On some occasion during Mubarak regime, activists against the Egypt Israel pact could go to court to block the same. Second, the Egyptian government has subsidized the cost of gas thereby leading to high consumption that consequently results into little gas for export. Third, the global benchmark for gas prices does not exist. For instance, the prices paid for the same commodity by countries such as Italy, Turkey or Greece indicates that Israel was paying low amount (Bahgat 16). Lastly, the factions opposing the government take advantage of the Sinai region for attacks because the Egyptian government does not exercise strong control. Libya The nature of Arab Uprising in Libya has great impact in the energy sector when compared to Egypt. Toppling President Qaddafi was not as easy as the case of President Mubarak. The Egyptian uprising took 18 days as opposed to the Libyan uprising that lasted for months. The forces supporting Qaddafi and the rebels fought profusely leading to international intervention from the NATO forces (Sharp 16). The civil war in Libya led to attacks in oil fields as opposed to the Egyptian situation where demonstration was peaceful without the destruction of the infrastructure. Libyan oil reserve is quite large when compared with other world producers. It contains 3.4% of the world oil reserve. In addition, the location of Libya with respect to the European markets is advantageous to its oil trade. The European countries depend on imported oil despite their efforts to mix energy production and use. The Libyan oil has higher quality when compared with other crude oils because it contains low sulphur. The processing cost of the low sulphur oil is low when compared to other crude oil. These factors have defined the influence that the Libyan oil commands in the global market. Libyan international relation with other countries as well as International Oil Companies has influenced its exploitation (Sharp 15). For instance, the sanction against Libya led to a decline in production and export oil to the international market. Secondly, the Libya policies in relation to the international companies have often deterred international investors from exploiting oil in Libya. The oil deals that Libya signed with international companies such as BP and Eni in early 2000s did not last because of the following factors (Blanchard 26). First, the Libyan government protracted bureaucratic policies that did not favour the operation of the international companies. Second, institutional skills, which dictate the management of the companies, failed to strike a deal with the Libyan authority thereby leading to a decline in foreign interest. The impact of these conditions is the massive unexploited oil reserve. The oil revenue support 95% of the Libyan economy (Deloitte 9). The domestic economy spends up to 70% of the revenue (Deloitte 9). This means that Libyan uprising had devastating effect to the economy of the country because the attacks during the uprising paralysed the oil export. The current situation in Libya calls for attempts, which would lead to the restoration of the productions as well as restructuring the damaged infrastructure. Historically, Libya has faced challenges associated with international investors shunning operation because of unfavourable conditions for business. For instance, pricing dispute led LNG out of business in 1980. However, Libya revived its gas production following the construction of the Green Stream Pipeline that connected it to Italy. At the height of the uprising, Eni closed the supply oil through the pipeline in February 2011 (Bahgat 5). The western countries have demonstrated interest in resuming their operation in Libya with a view of exploiting the Libyan oil (Blanchard 25). The impact of the uprising is quite massive in Libya when compared to other Arab countries because Libya has to construct a new political system. Second, it has to construct the damaged oil mines, institute security and create new economic ties. Despite the above challenges, Libya has inherited large financial resources, which would play instrumental role in restructuring. In conclusion, Arab Springs influenced the economic activities of the affected Arab countries. The Arab Spring led to a shift in oil and gas production thereby influencing the oil and gas products. The political restructuring would play a critical role in influencing the production oil and gases. Largely, Egypt government has subsidized the prices of its oil and gas product leading to an increase in domestic consumption rate. The oil revenue, which was critical to the economy, declined because of the civil strife thereby influencing the prices of oil in the international market. The political restructuring in these countries is likely to influence foreign investment as well as ties between Arab countries and western. It is evident that a shift political interest is likely to influence the investment of foreign owned companies, which had ties with the fallen regimes. The exploitation of oil in these countries is likely to adopt new trends. Work cited Addo-Korie, Y. Nana. LNG - A Review of Current and Future Markets. Munich: GRIN Verlag. 2012. Print. Bahgat, Gawdat. Energy Security: An Interdisciplinary Approach. New York: John Wiley & Sons. 2011. Print. Bhagat, Gawdat. Preliminary assessment of Arab Spring's impact on oil and gas in Egypt, Libya. Web 24 May 2012 from http://www.ogj.com/1/vol-110/issue-1a/exploration-development/preliminary-full.html Blanchard, M. Christopher. Libya: Transition and U.S. Policy. Web 24 May 2012 from http://www.fas.org/sgp/crs/row/RL33142.pdf BP Statistical Review of World Energy June 2011. 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