Amid the 27% drop in oil prices over the past four months its worth remembering that the security situation across many oil producers has shown little sign of fundamentally improved. Since 2011 Libya has seen the major loss of output and it was the unanticipated return of Libyan exports over the summer that may have been the initial catalyst for the recent downward movement in oil prices.
We have been here before though. Libyan oil production almost returned to normal in early 2012 only for the oil markets fears to swing to Iran, Sudan and Syria. Come mid 2013 though and Libyan oil production rapidly went into reverse. Where will the oil markets attention swing to next?
Libya remains the obvious choice. According to ANZ “…production has increased in an environment where the overall security situation has deteriorated, seemingly placing them at risk for a sudden reversal in export volumes that could help lessen the burden on the other big producers to turn off the spigots…For now, though, oil has been spared from the rising unrest…How long they can maintain this advantage, however, is very much in question.”
Libya is struggling with two competing governments vying for control. Oil traders are concerned about the uncertainty over who is in charge of Libya’s vast oil reserves after a self-styled rival government (who effectively controls parts of western and central Libya) appointed its own oil minister and took over the official website of state firm National Oil Corp (NOC). Although though the oil industry appears secure for now, the expansion of jihadist groups affiliated to al Qaeda or the ISIL may also pose a threat to the Libyan population and its oil infrasturcture.
Nigeria’s oil surge was primarily attributed to a decline in crude theft and force majeures by companies operating in the volatile Niger Delta. As national elections set for February 2015 approach the oil region will likely become more difficult to control. Again from ANZ “The Nigerian military, underfunded and overextended by the virulent Boko Haram insurgency in the north, will be hard pressed to deal with any uptick in election related unrest and criminal activities in the oil region…In our view, the recent gains in output could quickly become a casualty of Nigeria’s looming game of thrones.”
Related article: Oil supply outages are becoming more common and difficult to predict
In Iraq output from the Kurdish controlled region is currently around 300 thousand barrels per day and are expected to reach 500 thousand barrels per day by the end of the year despite the battle against ISIL taking place nearby and threatened legal action by the government in Baghdad. Meanwhile oil exports from the southern fields which continue to produce without interruption rose to 2.5 million barrels per day. Although the threat to oil output from ISIL appears to have lessened following US airstrikes the threat of disruption by other groups to Iraq’s oil infrastructure by other militant groups remains.
Negotiations over Iran’s nuclear program are ongoing with a current deadline of 24th November. Iran’s fiscal break even oil price is thought to be the highest of the OPEC producers and its unclear whether the recent price fall will bring an agreement closer or push it further away. US involvement in Syria against ISIL has so far been supported by Iran. However, if it is seen to be extended to target Assad himself then Iran may start to pull back from negotiations. Even if something is agreed by the deadline it could be several months before oil exports are resumed.
Elsewhere, instability in Yemen continues to affect oil production and exports. In the past week tribesmen shutdown Yemen’s main oil export pipeline carrying 70 thousand barrels per day. Yemen’s oil and gas pipelines have been repeatedly sabotaged since mass protests against the government created a power vacuum in 2011, causing fuel shortages and slashing export earnings for the country.
The country’s domestic oil production is of little concern in the whole scheme of things though. More so is the risk of disruption to busy oil and gas export routes by al Qaeda militants – Yemen shares a long border with the world’s top oil exporter Saudi Arabia and flanks busy shipping lanes.
In Sudan, responsible for almost a third of a million barrels per day of production outages during 2012 and into 2013, the civil war continues apace. Only last month fighting erupted near several oil fields in Upper Nile state, the largest of which is Palouge. The state is responsible for around 80% of South Sudan’s oil production.
Of course unplanned outages due to geopolitical factors could happen elsewhere. However, of those countries identified as having extreme risk of conflict and political violence almost all the oil producers are already accounted for. For the time being geopolitical oil risk is likely to be continue to focus on all of the above.