Monday, 18 Jun 2012
By: Jen Alic,
Oilprice.com
Crude oil production in Yemen has
for all intents and purposes halted, with no immediate solution for recovery,
and uncertainty over whether Saudi Arabia will maintain the flow of free oil to
stave off a deepening crisis. But while militant attacks on oil installations
have wreaked recent havoc on the industry, more deep-seated problems are to
blame.
Oil revenues have traditionally
funded around 75 percent of Yemen’s budget and accounted for 90 percent of
total exports. Presently, those exports have been halted, along with most
production, as the country struggles with conflicts on multiple fronts, a
divided military and a power struggle that has yet to determine who will
control Yemen’s oil resources, the revenue from which have long served to buy
patronage to a crumbled regime.
So far, the Saudis have been
supplying free fuel to Yemen in order to avert a worse crisis on its own
borders, but the latest free-fuel agreement is drawing to a close and Riyadh
has given no indication yet as to whether it plans to continue the largesse. This
is causing no small amount of uncertainty in the power corridors of Sana’a, the
capital city.
The easiest way to map out the
problem with oil is to blame the halt in production on Sunni militant groups
linked to al-Qaeda in the Arabian Peninsula, AQAP. Indeed, the number of recent
attacks on oil installations paints a clear picture of sabotage.
Over the past six months, attacks
on oil installations and security personnel guarding these installations have
picked up exponentially. Foreign oil workers have also been caught up in the
violence, with a British oil worker and two France Total employees killed since
December.
These attacks have been attributed
to groups linked to AQAP, though this, too, is a complex matter. By most
accounts, AQAP itself is a very small and closed group of militants who have
managed to buy patronage from a larger network of Sunni radicals operating in
Yemen, Ansar al-Sharia.
Hadramaut is a key flash-point in
this oil conflict as the main oil-producing region and the site of the
Seiyun-Masila basin, which contains nearly 85 percent of the country’s known
oil reserves.
Another key flash-point is the
Shabwa province, home to a massive natural gas plant that has been targeted a
number of times by Sunni militants in recent months.
As the AQAP/Ansar al-Sharia
umbrella establishes what it refers to as “Islamic emirates” in these
oil-producing areas, production has almost stopped altogether. The Balhaf
export terminal has also been sidelined due the ongoing violence, and the
pipeline network running from Marib to the Red Sea has been under continual
attack since unrest began in full force in early 2011. Production in Marib oil
fields has halted entirely.
Oil infrastructure is also
threatened by the military response to the militant takeovers of these areas,
with US-facilitated drone strikes targeting areas dangerously close to
oilfields and other installations.
While it is convenient both for
the Yemeni transitional government and the US military forces backing its
campaign against al-Qaeda to blame the current oil situation on AQAP, it is a
serious simplification.
Much of the violence directed at
the country’s oil infrastructure is emanating from disgruntled tribesmen who
cannot necessarily be associated with AQAP or Ansar al-Sharia. They want
employment and regional development and more of their numbers will join Ansar
al-Sharia’s ranks if this is not forthcoming. We are talking about
socio-economics more than terrorism, and the former informs the latter.
Beyond that, to say that Yemen’s
oil industry is corrupt to the core would be an understatement. For decades,
oil has been used almost solely to fund the patronage system that kept former
President Ali Abdullah Saleh in power.
Yemen’s new Oil and Minerals
Minister Hisham Sharaf Abdullah has arguably the most challenging job in the
country’s fledgling, transitional government-in-crisis.
The only exports slowly dripping
out of Yemen are from Hadramaut and these are also under threat as the locals
express their anger at how the new government is handling the crisis.
In the meantime, oil exploration
has largely ceased altogether; companies have little incentive to remain in
Yemen and there is no incentive for new investors. Growing ranks of
international companies have declared “force majeure”, ceasing exploration and
production activities indefinitely.
Seeking offshore havens,
international companies are leaving Yemen in increasing numbers. But it is not
only physical security of oil infrastructure that has them packing their bags
or seeking to offload their assets — corruption is rampant and legal
arbitrariness makes it almost impossible to operate. Until now, foreign oil
companies have benefited from that corruption, some of them currently the
target of investigations by the US Department of Justice for their role in
propping up Saleh’s corrupt regime.
As for newcomers to the Yemen oil
scene, no one is likely to be tempted onto the stage. Legally it is largely
impossible, and in terms of security, it is a nightmare. The political system
remains in chaos and there is no chance of a resolution in the near term. The
only immediate-term solution to Yemen’s oil distress is more free fuel from
Saudi Arabia, which is likely to happen as Riyadh cannot afford a worse crisis
on its border.
—This story originally appeared on
Oilprice.com
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