Middle East Uprisings Make Oil Industry Erratic
With the civilized countries of the world applauding the gumption and insight surrounding the uprisings taking place around the Middle East , the oil industry is mainly concerned with the rising costs of oil production and the unpredictable future. Oil supplies have been disrupted and companies fear the growing unrest will incur more losses.
At the same time, it is hoped that governmental changes and democracy will bring long-term peace and therefore lower prices, but there is not much stability right now. And with some regimes resisting reform, people in the oil industry see fluctuating periods of peace with unrest lurking in the background, threatening to slam prices, forcing them up at any time.
Being the world’s most important commodity, oil has a profound impact on the global economy and can potentially depress growth worldwide and push inflation higher. Before the revolutions were sparked Libya produced enough oil to supply much of Europe and some Middle Eastern countries. With a wary eye, the oil industry is watching the spread of unrest as it touches countries including Oman, Syria, Yemen and Bahrain and the potential collective impact could be as much as 1.5m b/d.
As oil supplies shrink, the market demands are increasing and price are rising to offset the risk of further disruptions to supply. Many countries produce oil but they do so with varying quality and Libyan oil is known to be one of the highest quality types. Now, with the loss of Libyan oil, Europeans are forced to pay record prices for oil from other places like Azerbaijan and Algeria.
As unrest gives way to violence, companies are unsure when their staff can return to countries like Libya and Yemen , and the task of restarting work in the oilfields will be difficult. A further complication for oil companies is the possibility of populist energy policies in the region when the unrest is over.
Global oil companies are fretting about their multi-billion dollar investments along with their future wealth as popular uprisings, marked by instability and violence, threaten to give way to policies that will favor the people rather than multi-national oil companies and the politicians who support them. The worst case scenario for oil companies is that their assets may be nationalized if new democratic governments resist foreign investment or if the current corrupt regimes survive the revolutions and turn against western investors.
If the world is to have sufficient oil supplies in the future, the Middle East and north Africa have to spend more than $20bn a year for the next 18 years to increase production. However, if close their markets to the countries in the Middle East west and if the unrest continues, the entire world is under threat.