IHS™ CERA Alert
Storm Warning: Winds of Change Threaten Established Order in the Middle East
IHS™ CERA Alert
storm Warning: Winds of Change Threaten Established Order in the Middle East
by Bhushan Bahree
On January 14, Tunisia’s long-time president Zine el-Abidine Ben Ali fled his country following
mounting and uncontrollable street protests against him and his government. The success
of Tunisia’s so-called Jasmine Revolution has sparked similar protest movements elsewhere
in the region. The biggest of these protests is now raging in Egypt, the most populous
Arab country. Protesters are seeking the ouster of Hosni Mubarak, Egypt’s president for
nearly 30 years, and sweeping political and economic reform. Despite the resignation of
the government, and Mubarak’s appointment of new cabinet and a Vice President for the
first time, street protests continue.
• Deterioration in egypt’s security situation could have a negative impact
on gas exports and international shipping, which includes significant
volumes of oil and lng that pass through the suez Canal. Crude oil flows
through the Suez-Mediterranean (Sumed) pipeline from the Red Sea to the
Mediterranean could also be at risk.
• on the positive side world gas supplies are plentiful, as is global spare
crude oil production capacity. Saudi Arabia alone has more spare oil
production capacity than recent flows of oil through the Suez Canal and the
Sumed pipeline combined.
• like Tunisia before it, egypt’s protesters could inspire similar movements
across north africa and the middle east. Egypt is the biggest domino in the
region. Disturbances there could profoundly affect neighbors and reverberate
across the wider Middle East, including the Persian Gulf where many Egyptians
live and work. Egypt’s controversial 30 year-old peace agreement with Israel
has maintained a critical status quo that includes Jordan.
UNREST IN EGYPT, A MIDDLE EAST PIVOT, STOKES MANY FEARS
Egypt plays a pivotal role in the Middle East because of its history, location, and
military strength. So whenever its stability is threatened, as it is now by street
protests seeking the ouster of Hosni Mubarak, its president for 30 years, tremors
can be felt in the wider Middle East that includes North Africa, the Horn of Africa, and the
Persian Gulf. Ripple effects reach even further.
For the moment protesters are focused on trying to unseat Mubarak and his government. They
have clashed with the police, but not with the Army, a respected institution in Egypt. The Army
is present on the streets of Cairo, but it is so far unclear what decisive role it may choose to
play, and when.
The political unrest in Egypt has stoked many fears, among them one that has to do with the
country’s role as an exporter of natural gas and a transit corridor for international shipping,
including oil and gas from the Persian Gulf to the Mediterranean.
OIL AND GAS OUTPUT AND EXPORTS
Egypt’s gas output more than more than tripled in a decade, from close to 17 billion cubic
meters (Bcm) in 1999 to nearly 63 Bcm in 2009. It exported 18.6 Bcm in 2009, much of it as
liquefied natural gas (LNG) to the United States, Spain, and France. Top importers of Egyptian
gas via pipeline were Jordan, Israel, and Syria.
In 2010, Egypt’s LNG exports fell to 9.5 Bcm from 13.5 Bcm in 2009. Most of these shipments
went to Spain, the United States, and South Korea. Israel received an estimated 2 Bcm of
pipeline gas in 2010, up from 1.7 Bcm a year earlier.
There is no sign so far that Egypt’s gas production, liquefaction facilities, or pipeline operations
have been compromised by the political unrest. Yet there is concern among importers, notably
Israel which relies entirely on Egypt for the gas it imports, at even the remote possibility of
a disruption. Israel’s fast-growing market already relies on Egyptian gas to meet about half its
Egypt’s oil production has fallen from over 900,000 barrels per day (bd) but is still slightly above
domestic consumption.1 Egypt’s oil output in 2010 totaled 740,000 bd, down from 750,000 bd
a year earlier.2 Domestic demand fell to 721,000 bd in 2010 from 725,000 bd in 2009.
THE SUEZ CANAL
The Suez Canal is one of the world’s major shipping conduits, linking the Red Sea to the
Mediterranean. When it comes to oil tankers, the canal cannot handle the very largest, which
are very large crude carriers and ultra-large crude carriers. In 2009, 34,456 ships transited the
canal and 2,699 of those were oil tankers.3 The volume of crude oil that transited the canal
totaled about 585,000 bd, down from 1.16 million barrels per day (mbd) in 2008.
Liquefied natural gas traffic through the Canal rose to 17.5 million metric tons (mt) in 2009
from 12.2 mt a year earlier as new trains started up in Qatar.
THE SUMED OIL PIPELINE
The Sumed oil pipeline, like the Canal, is an important transport link between the Red Sea and
the Mediterranean. It links Ain Sukhna on the Gulf of Suez to Sidi Kerir on the Mediterranean.
The Sumed has a capacity of more than 2.3 mbd. About 1.1 mbd flowed through the Sumed
line in 2009, down from 2.1 mbd in 2008.
The Sumed pipeline primarily transports Persian Gulf crudes to the Mediterranean. The
alternative is the much longer voyage around the Cape of Good Hope which adds transit times
As it happens, global gas supplies are plentiful, though regional or local distribution issues may
arise from any interruption in Egyptian supplies. Similarly there is no shortage of oil in the
marketplace, and OPEC’s spared capacity of some 5 mbd is considerable. In fact Saudi Arabia
alone currently has spare capacity of about 4 mbd, which is much more than the total volumes
transiting through the Suez Canal and the Sumed combined in recent years.
The oil market’s reaction to the unrest in Egypt has been restrained. In general prices have been
rising on the back of strong global growth prospects. The situation in Egypt heightens uncertainty
about stability in the broader Middle East. From January 25 through January 31, West Texas
Intermediate rose $5.82, to $92.01 a barrel. Brent increased $5.76, to $101.01 a barrel.
BEACON IN HE ARAB WORLD
Egypt has for long been a political, intellectual, and cultural beacon in the Arab world. The
Egyptian government has been a crucial ally of the United States, and Cairo’s 30 year-old peace
agreement with Israel, along with a similar pact between Jordan and Israel, is a critical factor
underpinning stable relations between the three in this volatile region.
Because political development has been restricted, the only organized opposition that survives in
Egypt is the fundamentalist Muslim Brotherhood, and this too underground. That alone makes
it hard to make the transition to any leader other than one anointed by Mubarak and endorsed,
tacitly or openly, by the military.
Mubarak has appointed Omar Suleiman, the head of military intelligence, as his vice president,
and Ahmed Shafik, chief of the air force, as prime minister. A new cabinet has also been named.
But none of these changes has ended the protests on the streets.
The protesters have united under Mohamed El Baradei, a Nobel Laureate and former head of the
International Atomic Energy Agency, to try to form a transitional government that could guide
Egypt to the polls. But Mubarak has shown no sign of giving in or giving up. It is still too
early to tell who will prevail and what the political and economic consequences will be.
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