(MENAFN - Arab News) Almost fifteen years ago, I started my professional career in the oil industry by undertaking extensive training on board large oil tankers that transport crude oil from Saudi Arabia to the United States.
The tanker crews always welcomed the shorter trip when we returned via the Suez Canal instead of having to travel around the tip of Africa. Eight hours transit in the canal was an occasion to appreciate and reflect on the efforts that had been put into constructing this key shipping channel, and also the strategic importance of the Middle East and North Africa (MENA) region. The so-called "Arab Spring" or "Arab Awakening", which brought political instability to Libya, Egypt, Yemen and more recently Syria, has brought another opportunity to reflect on the significance of this region through considering the likely profound impact that any political volatility can have on the global oil market.
The MENA region has massive hydrocarbon resources (some 60 percent of the world's proven oil reserves and 45 percent of global gas reserves). Most of those resources are concentrated in the Gulf Cooperation Council (GCC) region, which is home to approximately 40 percent of the world's proven oil reserves and 25 percent of natural gas reserves. So, the MENA region, and the GCC region in particular, is of great importance to the global energy market and to the economic stability and prosperity of the world. The current political unrest has already been reflected by a surge in oil prices, but the world hopes that this will be the only short-term effect of the transitional phase that the region is currently experiencing.
Consider the case of Libya - a member of OPEC, which has the largest national reserves in Africa. Libya is blessed with some of the world's highest quality crude oil, and its geographical proximity to Europe has always placed the country in a favorable position in the global oil market. In 2010, Libya was exporting around 1.8 million barrels of oil per day in addition to substantial amounts of natural gas. It is therefore no coincidence that the Libyan revolution has been a key reason for the recent rise in oil prices, despite Saudi attempts to bridge the oil production gap.
As a result of the escalation of events in Syria, among other factors, Iran's oil production has begun to be negatively affected. Additionally, the European Union voted earlier this year to stop buying Iranian oil from this summer, but the Iranians did not wait and cut off oil sales early. From its position as the global "swing producer", Saudi Arabia has recently reiterated its pledge to keep the oil market well supplied if sanctions hit Iran. However, any military sanction on Iran is likely to cause a host of serious events, which may include closure of the Strait of Hormuz.
Speak to any oil professional who works on shipping oil through the Strait of Hormuz and they will tell you of its importance to the oil industry. Around 18 million barrels of oil - originating from Saudi Arabia, Iran, Kuwait, Iraq and the United Arab Emirates - pass through the Strait on a daily basis. An alternative route could be the Fujairah Pipeline (currently under construction), which upon completion should be able to deliver most of Abu Dhabi's oil exports to the Indian Ocean. To put this into perspective, the amount of oil that could be shipped through this pipeline represents only 10 percent of the total oil currently transiting this strait. Another alternative route - albeit an operational one - is the Saudi pipeline, known as Petroline. However, presently, this pipeline can only carry around 25 percent of the amount of oil shipped through the Strait of Hormuz. The closure of this Strait will not only result in "skyrocketing" oil prices with disastrous effects on the global economy, but will also hurt the Iranian economy which currently relies on the Strait to transport oil, food and other essential goods.
Thus, apart from being blessed with the vast majority of the world's hydrocarbon reserves, the MENA region has a major geographic significance due to its influence on key oil and gas shipping routes, which include the Strait of Hormuz as well as the Suez Canal and Bab-el-Mandeb.
Moreover, bearing in mind that production in many of the non-MENA oil fields has already peaked, and with Iraq and Libya now offering high production targets, many industry analysts anticipate that the MENA region will be responsible for supplying at least 90 percent of global oil production over the next 20 years. Substantial investment will be needed to develop oil and gas fields in the region, which adds to the challenges currently facing those GCC governments that seem to face a relatively lower chance of revolutions taking place within their territories.
Taking such factors into account, one can only envision an increasingly important position for the MENA region. However, without greater effort to respond to increasing pressures, particularly with regard to issues related to transparency, social equality, democracy and unemployment, the region is destined to witness endless public uprisings breaking out with a disastrous impact on the global economy.
- Yasser Al-Saleh, senior research fellow at INSEAD Innovation and Policy Initiative in Abu Dhabi.
