Feb 25, 2017 09:36 amSunanda K Datta-Ray
WITH about 28 per cent of the population languishing below a low poverty line, the best news lately was that foreign exchange reserves rose by $2.1 billion in January to touch $26.4 billion against December’s $24.2 billion. More intensive and efficient exploration of oil can make all the difference to a country that was seen at one time as a leader of the Afro-Asian world but has taken a back seat in recent years mainly because of domestic political problems.
Almost as if to repudiate this column’s somewhat gloomy comments about Egypt last week, the country is now celebrating what is billed as the first ever Egypt Petroleum Show. It is the largest oil and gas industry event to take place in North Africa, with over 40 British companies participating. Oil, we are told, might yet overcome all disadvantages and help to revive Egypt’s economy and restore its traditional leadership role.
Globally, oil has held the key to power in modern times. It brought the Cold War to an end. Under Leonid Brezhnev and his immediate successors, the Soviet Union floated on a sea of oil profits while the rest of the world was gasping for energy. Oil supplied the cash for a huge military-industrial complex. The rest of the Soviet economy might be rotten and tottering but that did not matter so long as world crude prices rode high. The oil boom had gone by the time Mikhail Gorbachev assumed office in March 1985. Nikita Khrushchev’s 1958 boast that by 1970 the Soviet Union would overtake American per capita production to capture “first place in the world both in absolute volume of production and per capita production” and claim the world’s highest living standard was long forgotten. Gorbachev’s reform programme could not hold back the tide of popular, political, sectarian and regional demands. “We have a historic opportunity to change the world” Richard Nixon crowed when the Soviet Union disintegrated.
Oil is also an instrument of power politics. Every time I see the Oilibya sign along Egypt’s smooth wide highways cutting through the desert, I am reminded of the late Muammar Gaddafi warning the chiefs of 21 oil companies operating in Libya not to try pressure tactics. “People who lived without oil for five thousand years can live without it again for a few years in order to attain their legitimate rights” he said. In contrast, I am also reminded of James Baker, the American secretary of state, telling Inder Kumar Gujral when Saddam Hussein seized Kuwait, “Oil is our civilisation” and that the US would not allow anyone to choke supplies. Gujral says he realised then that the liberation of Kuwait was only an excuse to topple the Iraqi leader.
It’s not often realised that Egypt is also an important non-OPEC energy producer. Although not a member of OPEC, it is a member of the Organisation of Arab Petroleum Exporting Countries. Saudi Arabia and some of the Gulf kingdoms are more prominent but the presence of the British ambassador to Egypt, John Casson, and the UK trade envoy, Sir Jeffrey Donaldson, at the recent show was a reminder that with the sixth largest proven oil reserves in Africa – over half being offshore – Egypt may be poised to recapture something of its past glory.
The show was significant for two reasons. It marked a reconciliation with Britain which has historically left a bad taste in the mouth for Egyptians. It also indicated that Egypt’s economy is beginning to emerge out of the doldrums. With about 28 per cent of the population languishing below a low poverty line, the best news to be heard lately was that foreign exchange reserves rose by $2.1 billion in January to touch $26.4 billion against December’s $24.2 billion. More intensive and efficient exploration of oil can make all the difference to a country that was seen at one time as a leader of the Afro-Asian world but has taken a back seat in recent years mainly because of domestic political problems.
Commercial quantities of oil were first found in Egypt in 1908, and more petroleum was discovered in the late 1930s along the Gulf of Suez. Later, large oil fields were found in the Sinai Peninsula, the Gulf of Suez, the Western Desert, and the Eastern Desert. Approximately 50 per cent of Egypt’s production comes from the Gulf of Suez, with the Western Desert, Eastern Desert, and the Sinai Peninsula being the three other primary producing areas. Domestic consumption was estimated at 564,000 barrels per day in 2004 when net oil exports were estimated at 134,000 barrels per day. The Suez Canal and the 322-kilometre Sumed pipeline from the Gulf of Suez to the Mediterranean Sea are two routes for oil from the Persian Gulf, which makes Egypt a strategic point of interest in world energy markets. The canal was deepened twice (the second time in 2006) to accommodate the largest bulk freight carriers in the world. Egypt operates nine refineries capable of processing crude oil at an estimated rate of 726,250 barrels per day, the largest being the El-Nasr refinery at Suez.
Trying to make up for lost time, atone for past colonial bungling, and prepare for a future outside the European Union, Britain is taking the lead in helping Egypt develop its oil and gas industry and become a Mediterranean energy superpower. Recalling the UK’s more than 50 years of experience working in the North Sea, Casson says, “Energy investment is what will revive Egypt’s economy in 2017”. According to the British ambassador, “British investors are leading the way with the fastest action … Who else is investing more than $13 billion in the next five years? Only Britain – Egypt’s number one investment partner.”
He and others feel 2017 is a critical year for Egypt’s economy. They see foreign investment as by far the most important factor in ensuring sustainable dollar flows, jobs, and global competitiveness. Britain isn’t the only country to be optimistic about Egypt’s future. Sultan Al-Jaber, the United Arab Emirates’ minister of state and CEO of Abu Dhabi National Oil Company, believes Egypt has successfully restored the confidence of foreign investors and international institutions through the government’s reform programme, which showed in a number of market indicators, most notably a 76 per cent rise in the stock market over the last year. Al-Jaber stresses that Egypt has proved to be a reliable partner in the energy sector by relying on financial and economic policies and implementing an appropriate legislative framework. Such measures have enabled international oil companies to invest in Egypt’s oil and gas sector. Recent discoveries of substantial offshore gas deposits in the Mediterranean bear out the importance of foreign money and expertise.
Egypt’s economy has been on a downward spiral since Hosni Mubarak was ousted in 2011. Rising inflation, falling government revenue, and dwindling energy supplies have been the main features. The unrest following the coup aggravated the impact that declining tourism revenue and decreasing foreign investment had already had on the economy. Mohammed Morsi’s ouster in 2013 and the ensuing turmoil prompted three Arab countries – Saudi Arabia, Kuwait and the UAE – to pledge $12 billion in aid long before the British business initiative. They all know that Egypt’s historic role and geopolitical position are of such crucial importance that prolonged instability there would have a damaging impact on the rest of the Arab world.
The writer is the author of several books and a regular media columnist