As the world watches the month-old administration of President Donald Trump, energy production carries on. As the Trump administration tackles various domestic and international issues, one high point on its agenda is relations between the U.S. and the Middle East, which both produce, consume and export energy.
According to Stratas Advisors country risk analyst Thomas Buonomo, the Middle East is facing internal and external factors impacting regional stability and overall energy abilities. In a recent webinar, Buonomo outlined major issues in the region that ultimately reverberate globally.
Offshore Israel
Currently, projects offshore Israel including the Leviathan gas project are moving forward.
Offshore projects would be specifically threatened by the firing of “Iran-supplied missiles” by Hezbollah, Buonomo said.
Hezbollah is currently preoccupied with stabilizing the Assad regime, but conflict between Hezbollah and Israel has “inadvertently escalated in the past,” he added.
Power and stability remain a theme running through the Middle East and North Africa.
Libya
OPEC member Libya, itself destabilized, produces petroleum and natural gas. In 2015, the North African country’s petroleum exports were valued at about $4.98 billion, and it produced more than 403,000 barrels per day (Mbbl/d) of crude and about 15.49 million cubic meters (MMcm) of gas. It exported 235 Mbbl/d of crude, 30 Mbbl/d of petroleum products and 137.2 Mbbl/d of refined products in 2015, OPEC said.
Buonomo said the U.S. could potentially align with Russia and Egypt to back Libya’s Gen. Khalifa Haftar, instead of supporting the UN-backed reconciliation process. In the shorter term, he said, this leads to a greater chance of a stable Libya. However, a more sustainable solution will require cultivating “democratic and tolerant cultures and institutions” acting in Libya’s interest as opposed to “on behalf of a narrow, corrupt and repressive elite.”
Libya faces “Islamist extremist groups,” Buonomo said.
Iran, Israel And The U.S.
Currently, the Trump administration is highly focused on combating extremist threats to the U.S. and containing any nuclear threat from Iran.
Buonomo said “constructive diplomatic engagement” between the U.S. and Iran is vital for broad regional stability, but that engagement remains unlikely. Buonomo suggested that “cultivating democratic principles with sensitivity to Islam is critical to sustainable stability.” Otherwise, regional aggression might increase, the analyst noted.
One of the hindrances to stability in the region is Iran’s view of Israel. In his webinar presentation, Buonomo said Iran’s leader has been “consistently hostile to [the] continued existence of the State of Israel, despite “secretly [communicating] willingness to discuss this issue with the U.S. in May 2003.”
On Feb. 15, President Trump and Israeli Prime Minister Benjamin Netanyahu held a joint press conferenceat the White House, discussing broad issues concerning the U.S. and Israel, including Iran’s ballistic missile and nuclear threat.
“The Israel-Palestinian issue is integral to regional stability,” Buonomo said, warning that “worsening regional conflict” could result from pushing it back.
Negotiations over the Iran nuclear agreement could fall apart, Buonomo noted, adding, “the Iran nuclear negotiators deliberately compartmentalized the nuclear issue from the regional issues in order to simplify and expedite the nuclear negotiations, but however strategic that decision may have been at the time, in reality these issues are ultimately inseparable.”
Buonomo said there are continued risks to Iran’s exports due to deteriorating U.S.-Iran relations. But in 2015, it produced more than 3 Mbbl/d of crude, about 226.6 MMcm of gas and more than 1 Mbbl/d of refined products, and also had petroleum exports valued at about $27.3 billion, OPEC reported.
Other countries in the Middle East and North Africa at risk for declines and disruptions this year include Saudi Arabia, Iraq and Algeria, Buonomo said.
Chess Game
Saudi Arabia and Iran are at odds. “Iran’s Supreme Leader [Ayatollah Ali Khameni] seeks to take advantage of the conflict in Yemen to pursue his longstanding ambition to topple the Saudi monarchy. Saudi Arabia is responding to persistent ballistic missile attacks within its territory by Yemeni rebel forces, as well as other Iranian actions perceived to threaten the kingdom, by cultivating its own militant proxy groups within Iranian territory,” Buonomo said.
As this unfolds, Saudi Aramco prepares for a minimum $2 trillion IPO in which 5% of it could be listed on Riyadh’s Saudi stock exchange and internationally, Reuters reported.
According to the OPEC information, in 2015, the kingdom produced more than 10 Mbbl/d of crude and more than 104 MMcm of natural gas, and sits atop 266.4 MMbbl of proved crude reserves and about 8.58 Bcm of proven gas.
Infighting
Iraq could shatter politically from facing down “political infighting in Baghdad” and bitterness between Shia and Sunni Muslims even as it battles Islamic State, Buonomo said, noting this could reverberate on oil production and exports in the south.
The country, a founding member of OPEC, had about $54.4 billion in petroleum exports in 2015, according to the organization’s fact page.
Looking Ahead
The analyst pointed out that Algeria shored up larger financial reserves in anticipation of the oil price downturn, and could remain a long-term producer—thanks to “substantial” gas reserves and fairly cheap oil production costs–even as it faces a future power vacuum. Ailing President Abdelaziz Bouteflika is currently 79 years old. His death could occur within the next two to four years, Buonomo said.
The North African country is diversifying its energy by developing renewables, sensing “a global shift in this direction, as well as rising domestic consumption of energy resources it could profit more from by exporting,” he said.
Algeria, another OPEC member, had proven crude reserves of 12.2 MMbbl and about 4.5 Bcm of proven gas reserves in 2015.
Across The Map
Buonomo mentioned other issues affecting stability in the region, including:
•Saudi Aramco’s withdrawal of a fuel supply contract with Egypt because of the latter’s diplomatic alignment with Syrian regime;
•How U.S. cooperation with Russia over the crisis in Syria would be perceived;
•Egyptian currency inflation by 18.2% in 2017; and
•The reported youth unemployment rate in the Arab region at 29.73% in 2014, double the global average.
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