Post on 03-Feb-2022
MEASURING THE EFFECT OF POLITICAL INSTABILITY IN MIDDLE
EAST AND NORTH AFRICA ON GLOBAL ENERGY SECURITY
Dr Sara Vakhshouri, Independent Consultant, Washington DC
Phone:+1 202 415 8807, Email: s.vakhshouri@gmail.com
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1- Introduction
Since the beginning of year 2011, we have witnessed crises and uprisings in the Middle East and
North Africa.1 These regions possess immense crude oil resources. The democracy-seeking movements in
Tunisia quickly spread to Egypt, which saw Hosni Mubarak‘s three decades of rule collapse. Echoes of
these uprisings have been felt in other MENA countries, namely Bahrain, Libya and to a smaller degree,
in Iran. Coincidentally (or perhaps not), Mubarak‘s fall occurred on the same day the Shah of Iran over 30
years ago. And in both instances, the simple departure of a sovereign led to a spike in crude oil prices.
The obvious geopolitics unrest, combined with the region‘s huge energy resources, both underscore the
importance of these countries‘ role in the global security of energy supplies. In the end, their supplied
contribute disproportionally to global energy security.
Egypt, for example, currently produces 660,000 b/d of oil. This is slightly less that its domestic
consumption.2 It is also estimated that Egypt‘s proven gas reserves stand at roughly 77 Tcf
3, an increase
from previous 2010 estimates of 58.5 Tcf. This is the third highest in Africa after Nigeria (187 Tcf) and
Algeria (160 Tcf).4
Although Egyptian oil and gas production facilities were never truly at direct risk, we still
witnessed the impact upon market uncertainty and the creation of greater price pressure. Yet even here,
non-Egyptian events kept prices high. A week after Egypt‘s political temperature dropped, panic struck
the market with news of Iranian war ships transiting the Suez Canal for the first time since 1979. If such a
disruption did occur, the Canal‘s closure would add considerably to the transit time needed for oil
shipment from the Middle East to markets west of Suez. Other studies estimate that over 3 m b/d of
Persian Gulf oil exports currently transits the Suez Canal/Summed Pipeline complex.5 In the wider global
production of crude oil, a smaller disruption could have disproportionate effects on world energy markets.
Libya, in a way, is both an example and an exception to this. Even before public protests started
to grow, markets began to feel a sense of panic. This has grown even more since violent protests started in
Tripoli in February 2011. Yet Libya is unique in that it is the first oil exporting nation to be fully engulfed
in a real political upheaval Investors are worried that further chaos in the region will drive crude prices
even higher. ENI, BP, Statoil have already started to ask their employees to leave the country. After anti-
government protests broke out in the Libyan town of Ras Lanuf – itself a massive oil refinery and
1 MENA 2 U.S. Energy Information Administration (EIA) 3 Trillion cubic feet
4 Oil and Gas Journal
5 EIA, ― Persian Gulf Fact Sheet,‖ April 2003, available at www.eia.gov/emeu/cabs/pgulf.html
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petrochemical complex – there was a serious treat to the security of Libya crude oil supplies.6 Expectedly,
the price of oil spiked in the days after.
An OPEC member7 with total proven reserves of 44 billion barrels, Libya holds the largest
proven oil reserves in Africa.8 Libya produced about 1.65 million barrels per day in 2010, making it
Africa's third-largest producer.9 It also supplied several hundred thousand barrels per day of natural gas
and other liquid petroleum products.10
European countries such as Italy (425,000 bbl/d), Germany
(178,000 bbl/d), France (133,000 bbl/d), and Spain (115,000) were among Libya‘s most immediate and
best customers.11
For its part, fellow OPEC member Iran is the second-largest producer after Saudi Arabia and the
third exporter. Iran also ranks among the world‘s top three holders of both proven oil and natural gas
reserves.12
Iran has an estimated 137.6 billion barrels of proven oil reserves: roughly 10 percent of the
world's total reserves.13
The Strait of Hormuz is also located just off Iranian territorial waters. The Strait is the only
shipping channel in and out of the Persian Gulf. It is almost impossible to substitute this shipping route
elsewhere. Over 16 m b/d of oil flow through this strait goes daily to Japan, the U.S, and Western Europe.
Simply put, it is the world‘s most important oil chokepoint. Any real or perceived threat in the Strait
would disproportionately affect the security of Middle Eastern supplies and global energy prices.
The aim of this research is to have a quantifiable index for the weighted effect of political
instability upon global energy security. This paper identifies the sensitive role of MENA in global energy
security and that any political instability in this region could influence global energy security. Therefore
the effects of political instability in MENA – on the security of the region‘s supply – are measured.
2- Global Energy security and security of supply from MENA
The historic decision of Winston Churchill, on the eve of World War I, to shift the power source
of the British navy's ships from coal to oil, was the beginning of relating security problem with oil.
Concerns over access to fuel for the world‘s major navies, highlighted the issue of security of oil supplies.
6 Quryna newspaper, Libya, Monday 21 February 2011.
7 Organization of Petroleum Exporting Countries
8 Oil and Gas Journal, January 2010 9 U.S. Energy Information Administration (EIA) 10 Ibid.
11 The Global Trade Atlas 12 U.S. Energy Information Administration (EIA) 13 Oil and Gas Journal, January 2010
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Churchill intended to make the fleet faster than its German counterpart. But the switch also meant that the
Royal Navy would rely on insecure oil supplies from Persian Gulf instead of secure coal from Wales.
Energy security thus became a question of national strategy. The modern concern over oil security,
however, is broader than access to military fuel. Since Churchill's decision, energy security has
continually emerged as an issue of great importance.
The energy literature and numerous statements by officials of oil-producing and oil-consuming
countries indicate that the very concept of ―energy security‖ is somewhat elusive. Definitions of energy
security range from uninterrupted oil supplies to the physical security of energy facilities to support for
bio-fuels and renewable energy resources. Historically, experts and politicians referred to ―security of oil
supplies‖ as ―energy security‖.
The current global energy security system has emerged largely in response to the 1973 Arab oil
embargo.14
Since the economy is highly related to energy the continuity of energy supply is especially
crucial. Reliable energy supplies depend on the reliability of energy systems in consuming countries and
their ability to cope with disruption.
What is the role of MENA in maintaining the global energy security? Sixty five percent of the
world oil reserves are located in this region. Moreover, some 40 percent of the world gas reserves are
located in this area.15
It is also significant that MENA countries hold the major part of the existing excess
capacity. 16
In recent decade most critical developments of oil markets have coincided with the political crises
in MENA. For instance, from 1950 to 2000 political crisis led to significant decreases in global oil
production. These includes the Suez Crisis (1956), the war between Israel and Arab states (1967), Islamic
revolution of Iran (1979), the Iran-Iraq war (1980-88), and Iraqi occupation of Kuwait (1990), led to 10.1,
7.8, 8.9, 7.2, and 8.8 percent of decrease in global oil production respectively. These consequently caused
a significant rise in oil prices on the global market.
3- Political instability in the MENA and oil prices
Crude oil prices, like any other commodity, have a wide range of price movements in times of
shortage or oversupply. Wars and political instability, in areas that possess substantial oil and gas
reserves, have the potential to exacerbate natural market price fluctuations.
14 Fattouh, B., (2007), ―How Secure Are Middle East Oil Supplies?‖, Oxford Institute for Energy Studies, September.
15 This region also accounts for 28.5 percent of global oil production.
16 These very nations possess around 83 percent of OPEC excess capacity.
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As mentioned earlier, in the last 50 years, war and conflicts in the MENA region have both
immensely affected crude oil prices. The Suez Canal War (1956), the Arab–Israeli wars (1967-1973), the
Iraqi-Iran war (1980-1988), the Iraqi invasion of Kuwait (1990), and the U.S invasion of Iraq (2003),
have all directly affected the rice of oil. For example, in 1972 the price of crude oil was about $3.00 p/b.
Yet by the end of 1974, it had increased to over $12.00.17
This was mainly due to the fact that Arab
nations decreased their production by 5 million barrels per day. Only about 1 m b/d was made up by
increased production in other countries including Iran. The net loss of 4 m b/d extended through March of
1974 and represented 7 percent of the free world production. Yet from 1974 to 1978, world crude oil
prices were relatively flat, ranging from $12.21 per barrel to $13.55 per barrel.18
In 1979 and 1980, political events in Iran and Iraq generated another round of price increases.
The Islamic Revolution in Iran (1979) resulted in the loss of 2 to 2.5 million barrels of oil per day
between November 1978 and June 1979. In September 1980, Iraq invaded Iran, and by November the
combined production of both countries was only a million barrels per day. This was 6.5 million barrels
per day less than a year before. Aggregate worldwide crude oil production declined by 10 percent within a
year. The combination of the Islamic Revolution and the Iraq-Iran War also resulted in the doubling of
crude oil from $14 in 1978 to $35 per barrel by 1981. Even today, Iran's current production is less than
two-thirds of its pre-1979 production.
Generally, the impact of wars and civil conflicts on oil supplies is twofold. Firstly, it usually
results in medium to long-term supply losses as it reduces the ability of a country to produce and export
oil. Secondly, it affects countries‘ long-term productive capacity by hindering investment. The US
invasion of Iraq is a prime example. In 2003 many oil experts, both Iraqi and non-Iraqi, expected that
production would return to its pre-Kuwait invasion level of 3.5 m b/d one or two years after the Saddam
Husain‘s regime had been overthrown. Other more optimistic observers projected that sanctions-free Iraq
could increase its production capacity ‗beyond‘ 8 m b/d, competing with or even replacing Saudi Arabia‘s
prominent position in the oil industry. The reality, however, has been quite different. Many years after the
invasion, the security situation is yet to be stabilized and Iraqi oil production has not reached to the
expected level. The best scenario now is one in which Iraq maintains its current production, which still
could not reach beyond 2.5 m b/d.19
The Iraqi case shows that wars and civil disputes not only result in
17 International Energy Agency (IEA) 2008. The Yom Kippur War (1973) started with an attack on Israel by Syria and Egypt. The U.S and many Western countries
showed strong support for Israel. As a result of this support several Arab exporting nations imposed an oil embargo on the countries supporting Israel.
18 Ibid.
19 Ibid.
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short-term loss of oil supplies, but also affect the long-term productive capacity by stunting maintenance
and hindering investment.
4- The effect of Political instability in MENA on energy security
The effect of political instability on energy security is relatively subjective and cannot be easily
measured unlike climate change, the other major energy-related challenge the world faces in the twenty-
first century. The effect of greenhouse gases can be define in terms of their global warming potential, and
the carbon intensities of carbon-based fuels associated with various anthropogenic activities are well
known. The same cannot be said for political instability, as it exhibits qualitative rather than quantitative
characteristics.
Despite this, ranking and quantifying factors which affect the security of supply from MENA
(particularly with regard to political instability) would have an immense added value. It would provide
policy-makers and economists (especially oil market price analysts) a better understanding of the weight
of influence of each factor on energy security. It would also give us the ability to compare the amount of
influence of each factor with the other. Here, this paper will utilize the Analytic Hierarchy Process
(AHP)20
as a methodology to compare the effective factors on energy supply security from MENA. This
methodology is a multi-criteria decision analysis tool, to produce an index for each effective factor and
quantify the influence of the factors. The Delphi methodology will also be used, determining the effective
factors on security of MENA supplies. In the final step, AHP methodology will be used to prioritize and
quantify these factors.
4.1. Recognizing effective factors on security of supply from MENA
As mentioned earlier, with the help of Delphi methodology, the opinions of energy security
scholars were collected. The reason for using this methodology and interviewing the experts was that the
author did not want to add her ideas to this research. Above all, this research attempts to come to a
consensus amongst energy experts as to which factors determine the security of MENA energy supplies
the most.
What is Delphi technique? The Delphi technique is a group process used to survey and collect the
opinions of experts on a particular subject. As Linstone and Turoff argue, ―Delphi may be characterized
as a method for structuring a group communication process so that the process is effective in allowing a
group of individuals, as a whole, to deal with a complex problem‖.21
It has application whenever policies,
20 AHP
21 Linstone, H. A., & Turoff, M. (1975). The Delphi method: Techniques and applications. Reading, Massachusetts, Addison-Wesley Publishing Company.
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plans, or ideas have to be based on informed judgment. This technique is useful where the opinions and
judgments of experts and practitioners are needed, but when time, distance and other factors make it
unlikely or impossible for the panel to work together in the same physical location.
The Delphi technique, by definition, is a group process involving an interaction between the
researcher and a group of identified experts on a specified topic, usually through a series of
questionnaires.22
Delphi has regularly been used to gain a consensus regarding future trends and
projections using a systematic process of information gathering. The technique is useful where the
opinions and judgments of experts and practitioners are necessary. It is especially appropriate when it is
not possible to convene experts in one meeting. The Delphi technique is a method for gaining judgments
on complex matters where precise, quantifiable information is unavailable.23
The Delphi panel in this research in reached to consensuses regarding 5 factors, which have
significant effect on the security of MENA‘s supply. The 5 factors are:
Political instability
Sanctions
Underinvestment
Energy investment regulations (in the host country)
Threats to energy transportation
In the next phase those five factors that are the result of the Delphi technique will be compared,
measured and prioritized with the help of the AHP methodology.
4.2. Measuring the effect of influential factors on security of energy supply from MENA
As mentioned earlier, we aim to rank factors affect supply security from MENA region and assess
their weight of influence. Significantly, the influential weight of political instability in MENA on
interruption of supply from this region could be important for decision makers and analysts in assessing
different scenarios of global energy security, or each individual country.
The reason that AHP methodology has been chosen is because these factors are relatively subjective and
hard to measure with other analytical tools. It also enables one to not only prioritize the mentioned factors
and find their rank, but also to measure the percentage of each factor‘s influence.
22 Linstone, H. A. (1978). The Delphi technique. In J. Fowlers (Ed.), Handbook of futures research (pp. 273-300). Westport, CT: Greenwood Press.
23 Skutsch, M., & Hall, D. (1973). ―Delphi: Potential uses in education planning‖. Project Simu-School: Chicago component. Chicago, IL: Chicago. Board of Education, Illinois
Department of Facility Planning.
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AHP is a Multi-Criteria Decision Making24
technique developed by Saaty in 1980.25
It
decomposes a complex MCDM problem into a system of hierarchies.26
AHP is widely used in the field of
energy and environment, including such areas as energy policy analysis, electric power planning,
technology choice and project appraisal, energy utility operations and management, energy-related
environmental policy analysis and energy-related environmental control/management.27
Simplicity, ease
of understanding, and the fact that AHP decomposes a complex problem into a simple hierarchy, are some
of the reasons for AHP‘s wide application in the field of energy and environmental modeling.28
AHP has
four steps to reach to a final output29
:
1. Construction of hierarchical structure or the AHP questionnaire
2. Comparative judgment
3. Consistency analysis
4. Final ranking of the factors
In this regard, the AHP questionnaire was distributed to energy security scholars and experts.
They were asked to compare each factor with the other one and rank the effectiveness of one in compare
to another one. In this survey, interviewees should have expertise in the petroleum industry, energy
security, and the effective factors, which influence energy security. They require knowing the political
history and the current situation in the MENA region. Having a good understanding of economics,
investment rules and regulation for investing in host counties in MENA region and also the economic and
political results of sanctions is important. Scholars from both producing and consuming countries, as well
as people involved in petroleum IOCs, were chosen to respond to the questionnaires.
The questionnaire that presented to the interviewees had a guideline of Saaty‘s scale of 1 to 9 to
perform pair-wise comparisons.30
Table 1 lists the normalized score matrix of the pair-wise comparison
between each factor.
24 MCDM
25 Saaty, T.L. (1980), The Analytic Hierarchy Process. McGraw-Hill.
26 Triantaphyllou, E. (2000), Multi-Criteria Decision Making Methods: A Comparative Study. Dordrecht: Kluwer Academic Publishers.
27 Zhou, P, P.W Ang, and K.L Poh. (2006), "Decision analysis in energy and environmental modeling: An update." 2604-2622.
28 Pohekar, S. D., and M. Ramachandran. (2004), "Application of multi-criteria decision making to sustainable energy planning—A review." Renewable & sustainable energy
review (Renewable and Sustainable Energy Reviews) 8, no. 4: 365-381.
29 Saaty, T., and J. Alexander. Conflict Resolution:The Analytic Hierarchy Process. Praeger, 1989.
30 A basic, but very reasonable, assumption is that if attribute A is absolutely more important than attribute B and is rated at 9, then B must be absolutely less important than A
and is valued at 1/9., Saaty, T.L. (1980), The Analytic Hierarchy Process. McGraw-Hill.
9
Table1.The normalized score matrix
Underinvestment
0.1395
0.5454
0.0764
0.1176
0.2448
Sanction
0.0465
0.1818
0.3821
0.2352
0.3265
Political Instability
0.6976
0.1818
0.3821
0.3529
0.3265
Energy Investment Regulations
0.0697
0.0454
0.0636
0.0588
0.0204
Threats to Energy Transportation
0.0465
0.0454
0.0955
0.2352
0.0816
For calculating the final output of the judgment matrix, the normalized matrix has calculated the average
of each row.31
Table 2 shows the average weight of each factor in the comparison.
Table 2.The result of pair-wise comparison of the factors
0.22474
Underinvestment
0.23442
Sanctions
0.38818
Political Instability
0.05158
Energy Investment Regulations
0.10084
Threats to Energy Transportation
31 Saaty, T.L. (1980), The Analytic Hierarchy Process. McGraw-Hill.
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The table 2 demonstrates the result of the pair-wise comparison of the effective factors on energy
security. Each number is the average weight of effect of each factor.
By multiplying the result of the pair-wise comparison of each factor (mentioned in Table 2) by 100, we
will have the percentage of the effect of each factor in compare to others. (Table 3)
Table3.The influence percentage of the five effective factors on supply security from MENA
%38.818
Political Instability 1
%23.442
Sanction 2
%22.474
Underinvestment 3
%10.084
Threats to Energy Transportation 4
%5.158
Energy Investment Regulations 5
As we can see in the table below, political instability in MENA has greatest importance on security of
supply from this region at nearly 39% (38.81%). Sanctions, underinvestment and threats to energy
transportation from this region, respectively have second, third and fourth priorities of influence. Energy
investment regulations in MENA‘s countries figures less than 10 percent.
4.3. Consistency index
One of the major advantages of AHP technique is that it does not demand perfect consistency. It
allows inconsistency, while at the same time providing a measure of the inconsistency in each set of
comparative judgments. Inconsistencies can occur in the judgment matrix for a variety of reasons,
including absence of information, clerical error, and lack of concentration. In other words, consistency
analysis will help us to have a better understanding of the reliability of the research.32
A consistency ratio
32 Forman, E.H, and S.I Gass. (2001), The Analytic Hierarchy Process--An Exposition. Linthicum, Maryland: Institute for Operations Research and the Management Sciences
(INFORMS), 2001, 469-486, Saaty, T.L. (1980), The Analytic Hierarchy Process. McGraw-Hill.
11
of less than 0.10 (10 percent) is considered acceptable.33
Hence, avoiding large inconsistencies in the
judgment matrices requires finding the for every judgment matrix. If the value of is greater than
0.10, a return to the comparative judgment phase and a repeat of the pair-wise comparisons until falls
into the acceptable range is recommended.
The value of the CR in this research calculated and the result of this calculation shows that CR for
this survey is 0.02497, which is well below 0.10. We can be confidant that this research has acceptable
inconsistency ratio and that the average weights of the factors have credibility. The results are therefore
solidly reliable. Table 5.7 shows the effective factors on security of supply from MENA in priority in
terms of percentage.34
It should be noted that for this research, the AHP methodology is applied as a software tool in
Excel and consists of a various spreadsheets. Each spreadsheet is handling one part of the AHP process:
creating the criteria, comparing the factors, obtaining the final ranking, and also measuring the
Consistency Ratio. The software is available from the author.
5- The significant of the research results
The results of this comparison brought to light one interesting fact: political instability in the
MENA region has the highest influence on the security of energy supply, in compare to other factors. Yet,
there is no single universally recognized way of measuring a country‘s level of energy security. Such
assessments are normally a matter of expert judgment, as the perceived risk of a serious disruption or
shortfall in investment for any given country or at any given time depend on a large array of different
factors. Some of these factors, such as political instability, are inherently difficult to measure.
Nonetheless, most discussions centre on the following variables, or indicators:
Diversity of the primary fuel mix
Import dependence and fuel substitutability
Market concentration (the dominance of a small number of producing countries in total trade of any one
fuel)
Share of politically unstable regions in imports
33 Ibid 34 The percentage of the is the average weight of each factor multiple 100.
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5.1. Filling an academic gap
Since there is no recognized way of measuring energy security, this paper aims to fill a gap in our
understanding. Some energy scholars, like A.F. Alhajji, see a lack of discussion regarding the interactions
among various components of energy security, in addition to a quantifiable measure of each factor, as one
of the main weaknesses in the literature on energy security.35
5.2. Implications for decision makers
Energy security is now high on the foreign policy agendas of most countries. China and India in
particular both have a growing dependence on imported energy, and a rapid growth in oil imports has led
to a heightened awareness of the geopolitical implications of energy supply and demand. By extension,
such considerations have become key factors in formulating foreign policy and in national security
planning.
On the one hand, the energy dependency on MENA‘s primary resources (especially oil) will
remain and in fact increase over the next two decades. Yet on the other hand, the security of the MENA
region‘s supplies is becoming increasingly important for consumer countries, which are dependent upon
these sources.
The results of this research could be helpful for policy-makers in formulating their countries‘
energy security plan(s). Perhaps most wrenchingly, political instability has the greatest impact upon
energy security. This means any political instability in this region will endanger supplies and will affect
the price of energy coming from this region. For the foreign policy of consuming countries, especially
major oil consumers, maintaining stability in the MENA region should logically be a high priority.
Sanctions have the second largest impact. In the long term, sanctions upon the energy market will
cause severe underinvestment producing countries. Iran is a prime example. Sanctions have undoubtedly
hit Iran‘s production capacity as well as refinery capability. Lacking upgrading capacity and having to run
crudes that are predominantly heavy and sour, Iranian refineries yield mostly middle and, especially,
heavy distillates.36
Underinvestment and threats to energy transportation are the third and fourth most
affecting factors, respectively. A host country‘s energy investment regulations, perhaps surprisingly, has
the least effect. This is mainly because investment regulations in producing countries are increasingly
35 Alhajji, A.F., ―US Energy Policy Contributed to Lower Oil Prices‖, World Oil, Vol. 220, No 11, November, 1999. 36 Vakhshouri, S. (2010), Sanctions would help Iran solve its gasoline problem, Oil and Gas Journal, Febraury 15, Vol 180, Issue 6, United States.
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following a global standard. But in some countries such as Iran, there has been markedly more reluctance
to adopt such global standards.37
5.3. An index for energy price forecasting models
Aside from the importance of this research for policy-makers, analysts and energy investors, this
research has an important added value for energy price forecast modeling.
Economic factors and political events undoubtedly play an important role in the change of crude
oil prices. However, economic factors have the upper hand in determining long-term trends in oil prices
while political events related to the stability of the MENA and the Persian Gulf region take the lead in the
short run. Indeed, a study of economic factors alone, without an attempt to understand the complexity of
political events, is insufficient to explain and predict oil price trends in both the short and long terms. Oil
traders study regional and world economic factors of crude oil proven reserves, production, transportation
and global demand. In the end, they accept the market‘s determination of oil prices. Yet the percentage of
effect of each factor, particularly political instability, could also be used as index for energy price
forecasting models (particularly for crude oil).
6- Concluding Remarks
The goal of this paper was to identify the important role of MENA countries in global energy
security. This research tried to recognize factors which influence the security of supply from MENA, a
region that has high share in supplying the global demand, and it measure the influence of each factor by
comparing them with the help of AHP technique.
With the help of Delphi methodology, five factors, which affect supply security from MENA and
influence global energy security, were identified. These five factors are political instability, sanctions,
37 Legal restrictions on investment in Iran‘s oil and gas industry—as laid out in the new Constitution, specifically the Budget Act—have limited the flow of much-needed foreign
investment and technology. The problem is the ―buyback contract‖ system. NIOC effectively purchases a foreign contractor's services, including funding of the investments.37
Buyback licensing agreements have played a key role in Iran's oil and gas projects over recent decades.
The buyback contract system prevents any foreign ownership of the Iranian oil industry while still allowing scope for foreign investment. This type of contract revolves around
what could be called a repurchase agreement, in which a foreign investor is responsible for funding the project, installing facilities, and transferring the technology and agrees to
transfer the project to the host country once it is launched. Capital return and capital gain are achieved by selling products. The investor deals with administrative and engineering
affairs, ordering, construction and installation, technology transfer, education, launching, and delivery of the oil field to the host country upon completion. All these stages are
supervised by the host country, technically and financially. This system ensures a profit by guaranteeing a share from the production and sale of oil and gas. Yet the investor
forgoes any potential for profit after completion of the project. The amount of return on the investment depends on the oil or gas production rate specified in the contract. But the
contractor earns a return on investment only by selling oil and gas. These technical and legal issues largely make buyback contracts less attractive than more traditional schemes of
foreign investment which will lead to less investment in the host countries.
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underinvestment, threats to energy transportation and energy investment regulations (in the host country)
in this region. (Figure 1)
Figure 1. Effective factors on security of energy supply from MENA
AHP methodology helped us to rank and weight these factors by comparing them with each other and this
survey indicates that political instability has the highest influence and investment regulation in the host
countries the last. Figure 2 lists the share of influence of the effective factors on security of supply form
MENA.
Figure 2. Share of influence of the effective factors on security of supply from MENA
38.818
23.442
22.474
10.084
5.158
Share of Influence of
the Effective Factors on Security of Supply from MENA
Political Instability
Sanctions
Underinvestment
Threats to Energy Transportation
Energy Investment Regulations
Security of Supply from
MENA
Investment Regulations in
the Host Country
Underinvestment
Political Instability
Sanctions
Threats to Energy
Transportation