Geopolitical Risks On The Rise In The Middle East

Much attention is now duly focused on the Middle East (again), with what is widely believed to be an Israeli attack on an Iranian armaments facility-the level of destruction of which remains disputed. With Netanyahu back on the throne in Tel Aviv, we expect more hard-handed Israeli meddling, which in turn could back Iran into a corner. The concern is twofold: Combined with a resurgence of war-like activities between Israel and the Palestinian Territories, concentrated Israeli attacks on Iranian targets could lead to a wider war in the Middle East. There are on-and-off concerns of the potential for an Iranian attack on Saudi or UAE oil facilities, though we note that Saudi-Iranian talks appear to have been resumed in Baghdad, where the goal is to work towards reconciliation, which is not likely to happen if Tehran thinks Riyadh is entertaining any sort of normalization of relations with Israel (as the UAE has done). Normalization with Israel is far less likely with Netanyahu back in play. Wild predictions won't work here, as the situation is far too dynamic and there are too many variables, especially when you combine the restive situation on the ground in Iran right now. 

Another area of focus this week for industry watchers should be Libya, where many may be wondering why an $8-billion deal between the Libyan National Oil Company (NOC) and Italian giant Eni, which went down with great fanfare, is now said to be "illegal". This is where the shifting game of alliances comes into play in Libya. Rival governments are only one aspect. This requires going back to last September, when interim prime minister Debeibah, nominally the head of the Government of National Unity (GNU) moved to "restructure" the Supreme Council for Energy, which is a body that includes four ministers (oil, planning, finance, economy), the NOC chairs and the Central Bank head. 

That move led to the ouster of long-time NOC head Sanalla, who was replaced with Bengdara. This is where a back-door deal that everyone thought would be impossible happened between General Haftar of the east (or his son) and his rival, Dbeibah. The deal was this (and it all sidelined rival PM from the east, Bashagha-a Haftar ally): Dbeibah won more control over the NOC and the Oil Ministry and Haftar won an ally in the NOC. 

The $8-billion deal with Eni is now in question as the Oil Minister attempts to challenge Dbeibah and the NOC, who together essentially sealed and then tweaked this deal without consent. Aoun's issue with the deal is that the NOC went ahead and increased Eni's share percentage in the partnership without approval from the Oil Ministry and also bypassing the Council of Ministers. The deal, signed on Saturday, amended the original 2008 deal (for Eni to develop two gas blocks offshore Tripoli), giving Eni a 37% stake compared to its original 30% stake, according to the Libyan Oil Ministry.

In the meantime, we do not see Haftar making another attempt to place a blockade on the country's oil, even if his deal with Dbeibah failed to help him to the extent he thought it would. Here, there have also been important shifts in alliances-and financing. While Egypt is still a strong ally, the UAE is becoming increasingly friendly toward Dbeibah-especially since Haftar cut a deal with the rival prime minister over the NOC. But that also leaves Haftar with less … external funding for any move he makes, and he can't afford to impose a blockade without more financing to make up for the revenue losses. There are also rumors that Haftar's two sons-Saddam and Belqasim-are gradually assuming more control from their father, with Libyan and Russian media reports in January even suggesting that Haftar would hand power over the military to one of them. The interests of the three do not necessarily follow the same path, and this means that we can expect many more variables to creep up in the coming months that will dictate the dynamics of the power struggle.