The com­ing wave of oil refugees

Financial Mirror (Cyprus) - - FRONT PAGE -

The idea that oil wealth can be a curse is an old one – and it should need no ex­plain­ing. Ev­ery few decades, en­ergy prices rise to the heav­ens, kick­ing off a scram­ble for new sources of oil. Then sup­ply even­tu­ally out­paces de­mand, and prices sud­denly crash to Earth. The harder and more abrupt the fall, the greater the so­cial and geopo­lit­i­cal im­pact.

The last great oil bust oc­curred in the 1980s – and it changed the world. As a young man work­ing in the Texas oil patch in the spring of 1980, I watched prices for the US bench­mark crude rise as high as $45 a bar­rel – $138 in to­day’s dol­lars. By 1988, oil was sell­ing for less than $9 a bar­rel, hav­ing lost half its value in 1986 alone.

Driv­ers ben­e­fited as gaso­line prices plum­meted. Else­where, how­ever, the ef­fects were cat­a­strophic – nowhere more so than in the Soviet Union, whose econ­omy was heav­ily de­pen­dent on pe­tro­leum ex­ports. The coun­try’s growth rate fell to a third of its level in the 1970s. As the Soviet Union weak­ened, so­cial un­rest grew, cul­mi­nat­ing in the 1989 fall of the Ber­lin Wall and the col­lapse of com­mu­nism through­out Cen­tral and East­ern Europe. Two years later, the Soviet Union it­self was no more.

Sim­i­larly, to­day’s plung­ing oil prices will ben­e­fit a few. Mo­torists, once again, will be happy; but the pain will be earth-shak­ing for many oth­ers. Never mind the in­evitable tur­moil in global fi­nan­cial mar­kets or the col­lapse of shale-oil pro­duc­tion in the United States and what it im­plies for en­ergy in­de­pen­dence. The real risk lies in coun­tries that are heav­ily de­pen­dent on oil. As in the old Soviet Union, the prospects for so­cial dis­in­te­gra­tion are huge.

Sub-Sa­ha­ran Africa will cer­tainly be one epi­cen­ter of the oil crunch. Nige­ria, its largest econ­omy, could be knocked to its knees. Oil pro­duc­tion is stalling, and un­em­ploy­ment is ex­pected to sky­rocket. Al­ready, in­vestors are re­think­ing bil­lions of dol­lars in fi­nan­cial com­mit­ments. Pres­i­dent Muham­madu Buhari, elected in March 2015, has promised to stamp out cor­rup­tion, rein in the free-spend­ing elite, and ex­pand pub­lic ser­vices to the very poor, a mas­sive pro­por­tion of the coun­try’s pop­u­la­tion. That now looks im­pos­si­ble.

As re­cently as a year ago, An­gola, Africa’s se­cond largest oil pro­ducer, was the dar­ling of global in­vestors. The ex­pa­tri­ate work­ers staffing Luanda’s of­fice tow­ers and oc­cu­py­ing its fancy res­i­den­tial neigh­bour­hoods com­plained that it was the most ex­pen­sive city in the world. To­day, An­gola’s econ­omy is grind­ing to a halt. Con­struc­tion com­pa­nies can­not pay their work­ers. The cash-strapped govern­ment is slash­ing the sub­si­dies that large num­bers of An­golans de­pend on, fu­elling pop­u­lar anger and a sense that the petro-boom en­riched only the elite, leav­ing ev­ery­one else worse off. As young peo­ple call for political change from a pres­i­dent who has been in power since 1979, the govern­ment has launched a crack­down on dis­sent.

On the other side of the con­ti­nent, Kenya and Uganda are watch­ing their hopes of be­com­ing oil ex­porters evap­o­rate. As long as prices re­main low, new dis­cov­er­ies will stay in the ground. And yet the money bor­rowed for in­fra­struc­ture in­vest­ment still must be re­paid – even if the oil rev­enues ear­marked for that pur­pose never ma­te­ri­alise. Fund­ing for so­cial pro­grammes in both coun­tries is al­ready stretched. Or­di­nary peo­ple are al­ready an­gry at a klep­to­cratic elite that siphons off pub­lic money. What will hap­pen when, in a few years, a huge and grow­ing chunk of the na­tional bud­get must be ded­i­cated to pay­ing for­eign debt in­stead of fund­ing education or health care?

The view from North Africa is equally bleak. Two years ago, Egypt be­lieved that ma­jor dis­cov­er­ies of off­shore nat­u­ral gas would defuse its dan­ger­ous youth bomb, the pow­der keg that fu­eled the Arab Spring in 2011. No longer. And to make mat­ters worse, Saudi Ara­bia, which for years has fun­neled money to the Egyp­tian govern­ment, is fac­ing its own eco­nomic jit­ters. To­day, the King­dom is con­tem­plat­ing what was once un­think­able: cut­ting Egypt off.

Mean­while, next door, Libya is primed to ex­plode. A half-decade of civil war has left an im­pov­er­ished pop­u­la­tion fight­ing over the coun­try’s dwin­dling oil rev­enues. Food and medicine are in short sup­ply as war­lords strug­gle for the rem­nants of Libya’s na­tional wealth.

Th­ese coun­tries are not only de­pen­dent on oil ex­ports; they also rely heav­ily on im­ports. As rev­enues dry up and ex­change rates plunge, the cost of liv­ing will sky­rocket, ex­ac­er­bat­ing so­cial and political ten­sions. Europe is al­ready strug­gling to ac­com­mo­date refugees from the Middle East and Afghanistan. Nige­ria, Egypt, An­gola, and Kenya are among Africa’s most pop­u­lated coun­tries. Imag­ine what would hap­pen if they im­ploded and their dis­en­fran­chised, an­gry, and im­pov­er­ished res­i­dents all started mov­ing north.

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