The political situation throughout the Middle East and North Africa (MENA) is still in flux, with a rotating cast of countries experiencing "days of rage" and several regimes, including Libya's, teetering. The overthrow of the Egyptian and Tunisian leaders has energized populations and opposition groups--leaders will no longer be able to rely solely on the old playbook of repression and subsidies. Regardless of how the political developments play out, all the regimes in the region have been challenged, and the populations will not be content with business as usual. In fact, many members of Tunisia's caretaker government resigned this week as protesters demanded a government untainted by members of the old regime. In our latest MENA Focus, we consider what the recent political shake-up could mean for regional economies, their neighbors and their trading partners.
Protests have spread to oil-exporting nations, especially Libya, Oman and Bahrain but also Iraq, raising the risk of fuel-supply vulnerabilities. While we do not expect prolonged supply reductions, the escalation of violence could reduce output and impair energy and transport infrastructure, as it already has in Libya. Saudi Arabia's efforts to boost production and redirect OPEC crude to European refiners and the reopening of key Libyan ports have dampened oil prices for now, but risks to prices seem tilted to the upside in the near term, at least until Saudi Arabia's scheduled "day of rage" takes place.
Moreover, international oil companies are putting both current operations and further exploration on hold in Libya, fearing political risks, the sabotage of energy infrastructure and even changes in the royal regimes. If this occurs more broadly in the region, it could add to decades of underinvestment (only Saudi Arabia and Qatar have invested heavily in new infrastructure in the past decade). Continued underinvestment in MENA, which accounts for two-thirds of global oil reserves, could raise future supply risks.
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