Energy is Jordan’s eternal bogeyman; Syria is its immediate threat to stability. Together, they make for a great deal of royal discomfort.
The list of Jordan’s energy woes is a long one. Topping the list is the fact that it has no natural resources to speak of other than oil shale, not to be confused with shale oil (we detail this in a separate report this week). Jordan imports 97% of its energy needs. Dependent on gas pipelines from Egypt to power over 80% of its electricity, ongoing instability in Egypt and the sabotage of pipelines in the Sinai Peninsula has rendered the situation rather desperate. The country is reeling from more than $23 billion in external debt, while at the same time facing the challenge of cutting $2 billion in fiscal deficit this year. It’s an ominous task when it comes simultaneously with cuts in gas supplies from Egypt. This cut in gas supplies means that Jordan is importing heavy fuel to generate power, and the additional price tag for this is up to $1.4 million a day.
Jordan’s responses to its energy crisis are multifaceted:
Raising electricity prices
As of January, Jordan will raise electricity prices by 15%, except for low-use homes. What Jordan most fears is the civil unrest this could spark—as it has in the past. This is where the specter of Syria looms largest. On its own, a rise in electricity prices will not spark enough unrest to translate into instability. But combined with tensions over the conflict in Syria, the use of Jordan as a training ground for Sunni jihadists, the growing disillusionment within Jordan’s own moderate Muslim Brotherhood, and the mounting crisis surrounding Jordan’s masses (500,000 and counting) of Syrian refugees that the country cannot sustain, a rise in electricity prices becomes a much bigger thing.
But even the price rise alone will have some reverberations. With power costs already 10 times higher than in Egypt and 20 times higher than in Saudi Arabia, for instance, some segments of the public are not ready to accept another 15% price hike. Even for those households exempted from the price rise due to lower usage —which includes about 90% of households—the fear is that there will be a snowball effect that will see higher electricity costs for industry translate into higher food prices for all. If this happens, protests could become intense.
The scale of nationwide protests that began in November 2012 when fuel prices were hiked by up to 53% provides us with a cautionary tale. The nature of these protests, though large and across the country, was not close to an “Arab Spring” level, nor do we expect a second wave to be. However, each time they will gain in momentum and chip away at the foundations of the monarchy. In November, there were intermittent calls for King Abdullah II to step down. We will see this again, though perhaps only with a slightly more significant resonance.
But the price rise, while it may be short-sighted and lead to a rise in the price of food and other basic staples, is a direct response to massive losses incurred by the state-owned National Electric Power Company (Nepco). Nepco is drowning in debt because Egyptian gas pipeline sabotage has forced it to import expensively.
So raising electricity prices is only quick triage on a major wound.
On 20 August, Jordan green-lighted the construction of the kingdom’s first nuclear research reactor, which should be operational in 2016. The reactor will be situated at the Jordan University for Science and Technology, just north of Amman. The $130 million reactor will be financed in part by a $70 million soft loan from South Korea, with fuel supplied by France’s Areva. The reactor will be a 5MWt version of the Korea Atomic Energy Institute’s 30 MWt Hanaro high-flux advanced neutron application reactor. Daewoo Engineering Construction is leading the project. The intention is to significantly reduce dependence on gas supplies from Egypt.
Gas from Israel
Again, US-Noble energy features into the geopolitical dynamics. All that gas it discovered in Israel’s Levant Basin is seeking out its export markets, and Jordan may end up being on the receiving end, which would be a lifesaver for the kingdom—economically, at least. Diplomatically, it could throw a few kinds in the chains in terms of its relations with its other neighbors.
Noble Energy and its Israeli partners—the Delek Group and its subsidiary Avner Oil & Gas—are in advanced talks with companies in Jordan, Egypt, Turkey and the Palestinian Authority about selling them Israeli gas and building the necessary pipelines to get it to these markets.
Earlier this year, Israel decided on a 40% export cap on natural gas produced from its Leviathan field in the Levant Basin. It’s about enough to supply one of two major projects: a pipeline to Turkey and the sale of Israeli gas to European markets, or an LNG facility somewhere on the Israeli coast for export to East Asian markets. Jordan doesn’t really fit into this 40% but Israeli officials are keen to see Jordan become their first customer, so they’re willing to set something aside.
The Israeli PM was hoping that the Cabinet would approve an “over-and-above” proposal that would allow Israel to export to certain countries (like Jordan) for diplomatic purposes without it being counted against the 40% export cap. That proposal has been quashed, so gas for Jordan would have to come from the smaller Israeli Tamar field, which began production already earlier this year. Israeli gas could make its way to Jordan via a pipeline extension across the Dead Sea salt pools, connecting a gas-powered plant owned by Israel Chemicals Ltd and a Potash Corp (partly Canadian) plant on the Jordanian side. It is also possible that Israel would supply all of Jordan’s needs via a separate, new pipeline running from the Mediterranean through the Jezreel Valley in northern Israel to Jordan (near Beit Shean). Jordan is also in talks for Qatari and Iraqi gas. Israeli gas will be the cheapest in terms of money, but they will all be expensive politically.
Iraq and Jordan have inked an agreement to build a pipeline across Jordan to the Red Sea city of Aqaba to deliver more Iraqi crude to Jordan, which is reeling under the pressure of shortages and higher prices.
The new one-million-barrel/day-capacity pipeline will run across Jordan to Aqaba and supply Jordan with Iraqi crude more easily, replacing the use of oil tankers.
In November, Jordan imported some 300,000 barrels of oil from Iraq via tanker trucks, at an $18/barrel discount. After transportation costs are figured in, the discount is about $5/barrel. On average, Jordan imports about 10,000 bpd from Iraq. Iraq has promised to increase that average to 15,000 bpd (about 15% of Jordan’s needs).
Logistics have been challenging, and the high cost of tanker truck transportation—especially when Iraq is selling Jordan oil at a heavily discounted price--cannot be sustained. Hence the pipeline plans.
Should We Be Concerned About Jordan’s Stability?
Yes—and no. The Jordanian monarchy has a knack for doing a little, often, to appease the masses. So far this has worked to keep protests from actually threatening instability. But the problems aren’t going away—in fact they are being compounded by a number of geopolitical and domestic dynamics.
While there was talk of potential violence among rival tribes ahead of and in the immediate aftermath of 27 August municipal elections in Jordan—which are a largely tribal affair—elections passed without any significant incidents, and we do not expect these rivalries to reach any sort of tipping point in the near future. (More than 1,000 municipal council representatives and 106 mayors were elected).
The Muslim Brotherhood, the main opposition party, is fracturing, with half of it seeking a boycott, and the other half not wishing to rock the boat or to lose any ground to influential tribal figures that would benefit in municipal government by a Brotherhood boycott.
From this perspective, the municipal elections benefit the monarchy because these tribal elites are a significant part of its support base. Furthermore, the Muslim Brotherhood has found itself weakened in Jordan after the fall of Mohamed Morsi in Egypt in a 3 July coup.
The results will be most important in those areas that are shouldering the greatest burden of the Syrian refugee crisis. We expect increasing tensions to lead to instability in towns like Mafrag, which is taking in tens of thousands of Syrian refugees when its own original population is only about 60,000. Housing, water and power supplies are beyond overstretched and towns like this are bursting at the seams—and angry at the lack of aid.
Austerity measures designed to chip away at the $2 billion fiscal deficit will necessarily compound issues, especially in these refugee venues.
In the meantime, unemployment is becoming an issue, and will also figure into elections for voters who feel that the Syrian refugee crisis is harming the jobs market as well. Already, the Labor Ministry notes 160,000 Syrian refugees employed in Jordan, and this is a growing cause of anger among the Jordanian unemployed.
On 21 August, just ahead of municipal elections, Jordanian Prime Minister Abdullah Nsur reshuffled his cabinet, appointing two more women to the ministries of culture and transport and adding 11 other new Cabinet ministers. This enlarges the government and is in line with promised reforms. Essentially, the reshuffle takes multiple portfolios out of the hands of single figures and spreads them around to new ministers. The Cabinet now has 27 ministers.
Overall, Jordan’s public has a tendency to pursue protests with socio-economic fervor rather than with anger or vengeance, and this keeps protests focused on specific issues that can actually be dealt with. Rarely do Jordanians show a penchant, even since the Arab Spring, for any desire to see an overthrow of the monarchy. This they see as a risk too great to take—a risk that could end up in an Egypt-like scenario.
For now, though, the economic indicators are holding. Jordan’s Gross Domestic Product expanded by an annual 2.6% in the first quarter from 2.2% in the fourth quarter last year, while the unemployment rate eased to 12.6% in the second quarter from 12.8% in the first quarter.
Egypt and Jordan
Egypt remains the key to Jordan’s stability, even as the Syria threat looms large.
Jordan’s King Abdullah was no fan of Egypt’s Muslim Brotherhood under Morsi, so the coup was a loaded blessing for Amman; but whether this will translate into better gas supplies from Egypt in the immediate future is doubtful.
Supplies to Jordan fell drastically under Morsi, but his downfall doesn’t mean that Egypt will be able to control the Sinai Peninsula, the choke point for the gas heading into Jordan. Controlling militants roving the Sinai Peninsula and sabotaging pipelines is an entirely different story from controlling what happens in Cairo after the fall of Morsi and the slaughter of Muslim Brotherhood supporters by the military.
Between 2011 and 2012, we’re talking about at least 15 bombings of the pipeline through the Sinai, and a reduction of supplies overall from 193 billion cubic feet in 2010 to 19 billion cubic feet in 2012.
But the fall of the Muslim Brotherhood in Egypt is still good news for Jordan, even if they can’t keep the Sinai pipeline safe, there will be no worries that Egypt will use its gas to blackmail Jordan over Syria, as Morsi clearly did in order to get Jordan more invested in fighting the Assad regime.
Still, the Sinai will remain problematic—and perhaps even more so than it was under Morsi, whose attempt to install his own radical forces in the Sinai was the move that paved the way for the military coup on 3 July and the removal of Washington’s support for his government.
The blowback is that we will now see an increase in the immediate future of militant attacks in the Sinai by way of retribution for the removal of Morsi. The first payback came on 6 July, only three days after the military coup. The military is stepping in to quash Sinai militantism, but it’s distracted by the chaos that reigns in Cairo and it will have a hard time fully containing the situation in Sinai on the best of days.
Syria and Jordan
Right now, all eyes are on Jordan, not just because it’s bursting at the seams with refugees, but because it is hosting the defense leader powwow on Syria this week following the chemical weapons attack perpetrated either by Assad, by rogue elements of the Syrian army or by Sunni radicals or third parties who wish to push the West over the “red line”.
On 26 August, Amman opened its doors to defense officials from the US, UK, France, Germany, Italy, Canada, Turkey, Saudi Arabia and Qatar (yes, Qatar, which has now finally paid for its meddling in Syria, and though sidelined as the kingmaker here, still gets to play a role). So the planting of the seed for a “coalition of the willing” for direct intervention in Syria is taking place in Jordan.
Outside of the suffering Syrians themselves, no country is as desperate for an end to the conflict in Syria as is Jordan, if only to end the refugee situation, which is draining its resources and threatening immediate- and near-term instability. But the reality is that a potential “coalition of the willing” is not prepared to take direct intervention to the scale necessary to truly end the conflict. For Jordan, though, anything is better than nothing to stem the flow of refugees because it will never get a grip on its energy problems (and hence its economic problems) as long as the conflict continues.