Tag Archives: oil and gas reserves

The End of the Mindless Self-Indulgence: the Gulf States

Algeria needs the price of Brent crude, an international benchmark for oil, to rise to $157 dollars a barrel. Oman needs it to hit $87. No Arab oil producer, save tiny Qatar, can balance its books at the current price, around $40 (summer 2020)….The world’s economies are moving away from fossil fuels. Oversupply and the increasing competitiveness of cleaner energy sources mean that oil may stay cheap for the foreseeable future. 

Arab leaders knew that sky-high oil prices would not last for ever. Four years ago Muhammad bin Salman, the de facto ruler of Saudi Arabia, produced a plan called “Vision 2030” that aimed to wean his economy off oil. Many of his neighbours have their own versions. But “2030 has become 2020…” 

Still, some see an upside to the upheaval in oil-producing states. The countries of the Gulf produce the world’s cheapest oil, so they stand to gain market share if prices remain low. As expats flee, locals could take their jobs…

Remittances from energy-rich states are a lifeline for the entire region. More than 2.5m Egyptians, equal to almost 3% of that country’s population, work in Arab countries that export a lot of oil. Numbers are larger still for other countries: 5% from Lebanon and Jordan, 9% from the Palestinian territories. The money they send back makes up a sizeable chunk of the economies of their homelands. As oil revenue falls, so too will remittances. There will be fewer jobs for foreigners and smaller pay packets for those who do find work. This will upend the social contract in states that have relied on emigration to soak up jobless citizens….With fewer opportunities in the oil-producing states, many graduates may no longer emigrate. But their home countries cannot provide a good life. Doctors in Egypt earn as little as 3,000 pounds ($185) a month, a fraction of what they make in Saudi Arabia or Kuwait. A glut of unemployed graduates is a recipe for social unrest…

For four decades America has followed the “Carter Doctrine”, which held that it would use military force to maintain the free flow of oil through the Persian Gulf. Under President Donald Trump, though, the doctrine has started to fray. When Iranian-made cruise missiles and drones slammed into Saudi oil facilities in September 2019, America barely blinked. The Patriot missile-defence batteries it deployed to the kingdom weeks later have already been withdrawn. Outside the Gulf Mr Trump has been even less engaged, all but ignoring the chaos in Libya, where Russia, Turkey and the UAE (to name but a few) are vying for control.

A Middle East less central to the world’s energy supplies will be a Middle East less important to America. ..As Arab states become poorer, the nature of their relationship with China may change. This is already happening in Iran, where American sanctions have choked off oil revenue. Officials are discussing a long-term investment deal that could see Chinese firms develop everything from ports to telecoms… Falling oil revenue could force this model on Arab states—and perhaps complicate what remains of their relations with America.

Excerpts from The Arab World: Twilight of the Petrostates, Economist, July  18, 2020

Australia the Big Brother of Timor-Leste

The future finances of the young, poor nation of Timor-Leste, formerly East Timor, have become embroiled in allegations of skulduggery by Australia nearly a decade ago. Timor-Leste has taken its big, wealthy neighbour to arbitration over a 2006 agreement on the exploitation of oil and gas in the sea between them. Speaking on a visit to Singapore this week, Timor-Leste’s oil minister, Alfredo Pires, claimed to have “irrefutable proof” that, during negotiations in 2004, Australia’s secret services had illegally obtained information. His lawyer claims the Timorese prime minister’s offices were bugged. Whatever the truth, leaders in Timor-Leste feel Australia took advantage of them. In 2004 the tiny nation was still recovering from the devastation that followed its vote for independence from Indonesia in a UN-organised referendum in 1999. The Indonesian army and supporting militias had sought revenge in a rampage of killing and destruction.

Ever since, Timor-Leste’s hopes of prosperity have rested on offshore oil and gas reserves. But most are located in the Timor Gap, under waters also claimed by Australia. Cash-strapped and desperate for revenue to start flowing, leaders saw no option but to agree to treaties with Australia that many in Timor-Leste see as unfair. In all, three linked treaties covering the Timor Gap were signed, but the maritime boundaries were never agreed upon.

The first, the Timor Sea Treaty, signed in 2002, gives Timor-Leste 90% of the revenue from a Joint Petroleum Development Area (JPDA). This meant that revenues could start flowing.  The JPDA was a compromise between Australia’s insistence the maritime boundary be the deepest point as agreed with Indonesia in 1972, and Timor-Leste’s hope to use the “median line”, halfway across the sea. Only 20% of one of the largest fields, Greater Sunrise, is within the JPDA.

Then another treaty[Treaty between Australia and Timor-Leste on Certain Maritime Arrangements in the Timor Sea (CMATS)] was signed in 2006, after two years of tortuous negotiations, during which the alleged spying took place. This one gives each country an equal share of revenue from Greater Sunrise on condition that they waive their rights to assert sovereignty, or pursue any legal claim over the border, for 50 years.  It is this treaty that rankles with the Timorese. If the median line were the border, Greater Sunrise and many other fields would fall in Timorese waters. Mr Pires says that the uncertainty about the maritime boundary makes it hard to plan for the long term or to attract investment. Despite its growing oil wealth (its petroleum fund already contains $13 billion) Timor-Leste remains one of Asia’s poorest countries. It is pinning its hopes on the Tasi Mane project, an ambitious plan to build a gas plant to process gas from Greater Sunrise, and a refinery and associated petrochemical industry. That is a gamble as long as the sovereignty issue is unresolved and an impasse persists over the route of a gas pipeline from Greater Sunrise. Timor-Leste wants a pipeline to Tasi Mane to bring jobs and income. Australia wants a pipeline to Darwin. The bugging allegation and arbitration proceedings seem intended to force Australia to the negotiating table. Leaders in Timor-Leste hope to break the logjam and perhaps to win a better deal.

Timor-Leste and Australia: Bugs in the pipeline, Economist, June 8, 2013, at 44

Response of Australia