A goodbye to stability in the Middle East

A goodbye to stability in the Middle East

By Cyril Widdershoven

What will be the effects of the Egyptian crisis on the oil and gas market? The first indications at present are that there is no real threat to the position of Egypt’s main transit route, the Suez Canal. This could change of course if the current protests were to turn ugly. Military action is still possible and could induce opposition groups to economic sabotage. Suez, one of Egypt’s largest cities, is already known to be a breeding ground for opposition.

A blockade of the Suez Canal would have considerable consequences. The Canal last year facilitated the transport of 1 million barrels of crude (and petroleum products) per day to the Mediterranean (down from 1.6 mbpd in 2009). At the same time, 800,000 barrels per day (bpd) were being transported from the Mediterranean to the Red Sea. 10% of the transport vessels crossing the Canal are petroleum tankers (VLCC and ULCC). If the Canal is blocked, the tankers are forced to add around 6,000 miles to their travel.

But not only the Suez Canal is of major importance to the West. Egypt has also built, almost alongside the Canal, a major pipeline, the Suez Mediterranean Pipeline (Sumed). This 200 miles long pipeline has a capacity of around 2.5 million bpd of crude, though throughput declined from 2.3 mbpd in 2007 to 1.1 mbpd in 2009. So total capacity of 3-4 million bpd is at risk. This is 15 to 25% of Europe’s total imports.

Still, the overall effect of a closure of both transit routes should not be exaggerated. 4 million bpd out of the market for a short period of time is manageable. Just think about the effects on the oil market of the OPEC decision to cut its own export volumes the last two years by around the same volume. No real negative repercussions have been seen, except that prices stabilized.

The Suez Canal also has become one of the main transit routes for LNG transports. Qatar’s LNG volumes, if not going to Asia, largely go through the Canal to Spain, Italy, Belgium and the UK. An extended trip for LNG vessels is an inconvenience but will not bring the market in trouble.

Tremendous effect

If the situation in Egypt stabilizes, and does not result in a new Iranian type Islamic revolution, the overall effect on the oil and gas markets will probably be minimal. On the other hand, the ripple effect of an Egyptian revolution could be much more serious. If Arab opposition groups see that a popular uprising in their own region can result in the removal of the old guard, they will be inspired to try the same at home. This could be the case in already unstable countries such as Jordan, Yemen or Algeria. But even

The EU and the US have always relied on the dictatorial regimes to provide stability and security in the region

allegedly stable states in the region, such as Saudi Arabia, United Arab Emirates (UAE), Bahrain or Kuwait, could be feeling the heat. Opposition in all MENA (Middle East and North African) countries has been stifled quite brutally for a long time by all these regimes. The situation in Egypt is no different in this sense than in Saudi Arabia or Bahrain. Unemployment, lack of freedom of speech and a free press, and a desire for change exists in all these countries. A popular uprising in the Arab oil and gas producing countries could have a tremendous effect on energy markets and thereby the world economy.

The EU and the US have always relied on the dictatorial regimes to provide stability and security in the region. They have may bet on the wrong horse. A spread of the revolt to other Middle Eastern countries is a real possibility. Egypt plays a pivotal role in the whole constellation. An unstable Egypt affects all countries in the region. A more Islamic-oriented regime in Cairo will have its impact on the Arab-Israeli peace process, the situation in Lebanon, Iran and Iraq. As one analyst has said, the rulers in Tehran are currently sleeping with a smile on their face. Their largest Arab adversary, Egypt, has been brought to its knees. No action will and can be taken against a possible nuclear Iran without the support of the Egyptians.

If the Egyptian turmoil spreads, around 20 million bpd of crude oil (a quarter of global production) and most of the LNG exports of Qatar will be threatened. Taking into account that the MENA region holds around 55-60% of all oil and gas reserves and production capacity, the world should be worried.

Thing of the past

No one knows of course what will happen the coming days. A lot of attention is paid by western media to Mohamed El Baradei, the former IAEA chief. However, did we not have an El Baradei figure already in Iraq? The western (US) support for Ahmed Chalabi was massive, his popular support was nil. El Baradei is now riding the wave of the protests, but his position is very weak. Few Egyptians have ever heard of him. We may be betting on the wrong horse again, in a race that has hardly started yet.

The Muslim Brotherhood or Ikhwan Al Muslimiin are suspiciously quiet. Some lessons from the past we should have learned already. The Islamic Revolution in Iran was also not started by Khomeiny but by the left wing student movement. The well-organized Islamic theocracy took over afterwards. The same could happen in Egypt.

We in the West cannot control the outcome, however. If there are new elections, they will see the re-emergence of the old guards: El Wafd, the liberal-nationalist party (the founding fathers of the present Egyptian state), the nationalists of El Watan, the Mubarak-followers of the NDP (National Democratic Party), perhaps the Nasserists, left-wing nationalists. But none of these parties is very well organised.

The Islamic Revolution in Iran was also not started by Khomeiny but by the left wing student movement

In this volatile situation, a growing number of voters is likely to turn to the Islamic groups, in particular the Muslim Brotherhood, which is the only well-organised opposition group that is in no way associated with the old regime. Have a look on the streets in Cairo, Suez and Alexandria. The people are condemning Mubarak as a friend of the Americans, Jews and Israel. This means they may feel they have no alternative than to turn the Islamic groups. This could lead to the establisment of an un-democratic, theocratic regime.

One other group is not asked for their opinion. The Coptic minority, 18 million people in Egypt, lives in fear. Even though their position was not good under Mubarak, their future looks bleaker. Any change to the current situation will probably be negative for them. A more Islamic-oriented regime will probably be more hostile to the Copts. Violence against this minority is already growing. Without the repression of Mubarak this will only become worse.

No one is able to predict the future, but one thing we do know: a stable Middle East is a thing of the past.

About the author Cyril Widdershoven (cwiddershoven@hotmail.com) is energy specialist at TNO, a prestigious, independent Dutch technological research organisation. He was editor for many years of various newsletters and publications on African and Middle Eastern energy markets and has travelled widely in Egypt and elsewhere in North Africa and the Middle East.