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.

7

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.

8

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.

13

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.

14

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