This Dangerous "New" Energy Crisis is Crippling the Middle East

Don't look now, but there are some problems developing in the global energy network.

It's hardly reassuring that the epicenter of all this is the Middle East.

The primary problem is hardly new. Actually, calling it an "old" problem is more accurate because the culprit is a collapsing network of delivery and storage that has been deteriorating for decades.

Unfortunately, this is hitting areas already beset by broad, accelerating economic shortfalls the hardest. That they also happen to be areas of significant unrest hardly improves the situation.

The latest is in Pakistan. There a combination of lower-than-expected water availability and a government powerless to provide the diesel fuel essential for the planting season means a population already on the brink is staring at food shortages.

The picture is very grim.

The main difficulty here remains the energy crisis that has locked this country in a downward spiral. Pakistan has some of the worst energy prospects on the globe, accentuated by low levels of domestic production and alternative importing possibilities charged with politics.

Take an essential natural gas pipeline from Iran, for example. The transfer of gas across the common border between the two countries would be an immediate relief for this beleaguered nation. But that project is in no-man's land.

The Western pressure against Tehran to end its nuclear program prevents any new projects because the sanctions are targeting Iranian hydrocarbons. Islamabad has attempted to kick-start a liquefied natural gas (LNG) import plan to offset the political impasse. Unfortunately, that alternative involves a considerable cost that the government cannot afford. It has started a domestic war among potential corporate participants, and is likely to take too long to develop.

As an aging electrical grid begins to break down, rolling blackouts have become a daily routine. Major cities are often able to provide less than eight hours of reliable power. That, in turn, is wreaking havoc on industrial production, food distribution, local revenue, and the manufacture of goods necessary for money-making exports.

In addition, the increasing energy plight is undermining the thin veneer of political stability. Already, the central government has lost control over wide expanses of territory inside the country now effectively controlled by local warlords and terrorist groups bent on toppling Islamabad's ability to govern.

This week, the situation is becoming worse. Opposition politicians are beginning to demand government action, associating themselves for the first time more directly with demands made by more radical groups. The situation is deteriorating.

The collapse of an overburdened energy delivery network is now becoming a likely cause of a domestic insurrection. And as the energy picture worsens, so does employment prospects in a country where the median age is 21.5 years. The rising number of unemployed youth in this region is a fertile breeding ground for terrorism.

However, Pakistan is hardly the only nation in this unsettled region experiencing an energy crisis. Its neighbor, and frequent adversary, India has similar problems. There, one of the leading engines in the international development drive is experiencing its own energy crunch.

Once again the source is an inability to procure and deliver adequate energy. India is experiencing a disturbing rise in brownouts and blackouts, while its requirements for imported energy continue to grow. Its population is 6.5 times the size of Pakistan, making the demand even stronger.

India is also feeling the pressure from Iranian sanctions. The country is the second-leading importer of Iranian crude (after China). New Delhi has received a reprieve from Washington - the U.S. has granted it a temporary exemption from the sanction penalties.

Saudi exports have helped some, but India is again paying an "Asian premium" for that oil, a price higher than the same oil bound for other places like Europe. And with its refineries built to operate on Iranian-grade crude, even finding continuing (not to mention affordable) alternatives will still create problems.

Elsewhere, Egypt is facing an absolute energy shutdown. As the problems in Cairo streets heat up again, government officials now speak openly of massive power deficiencies. One suggested earlier this month that the delivery infrastructure could shut down altogether.

This week in Jordan, blackouts have hit, with the prospect of more frequent shortfalls coming. Jordan has been a bastion of relative stability during the Arab Spring, but there are signs of unrest developing there as well.

Then there is Turkey. What happens in this country may well end up being the lynchpin for the entire Middle East. Turkey's energy needs are the fastest growing in the world, with prospects forming to transform the country into the de facto regional leader as internal disorder blunts the influence of Egypt and Syria.

Turkey is also poised to be the primary new throughput nation for gas and oil coming into Europe from rising production in the Caspian basin. The gas future looks very strong with competing pipeline projects contesting to deliver energy west by traversing the country.

Increasing oil exports, on the other hand, are limited to what additional volume can be moved safely through the Bosporus and the Dardanelles - the Turkish Straits. This is a major chokepoint in international oil trade and an accident would subject large and congested populations to an outright disaster.

Yet these days the government in Ankara is becoming more concerned about its ability to feed the growing domestic demand requirements. Turkey's internal stability will depend on solving its own energy distribution situation.

As the picture darkens, a region thought for some time to be ripe for competition over energy production is morphing into one where the next wave of conflict may well result from the lack of energy availability.

That becomes far more dangerous for everybody.

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About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.

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