Oil and Gas Limits Underlie Syria’s Conflict

In my view, oil and gas resource limits are major contributors to the conflict in Syria. This is happening in several ways:

1. Syria is an oil exporter that is in increasingly perilous financial condition because of depleting oil resources.  When oil production is increasing, it can help an oil exporter in two ways:  (a) part of the of the oil supply can be used internally, to grow more food and to support increased industry, and (b) exports of oil can be used to provide revenue for governmental programs such as food subsidies, education, and building highways.  Syria’s population grew from 8.8 million in 1980 to 22.8 million in 2012, at least in part because of the wealth available from oil extraction.

Figure 1. Syria's oil production and consumption, based on data of the US Energy Information Administration.

Figure 1. Syria’s oil production and consumption, based on data of the US Energy Information Administration.

Now Syria’s oil production is dropping. The drop between 1996 and 2010 reflects primarily the effect of depletion. The especially steep drop in the last two years reflects the disruption of civil war and international sanctions, in addition to the effect of depletion.

When oil exports drop, the government finds itself suddenly less able to pay for programs that people have been expecting, such as food subsidies and new irrigation programs to support agriculture. If revenue from oil exports is sufficient, desalination of sea water is even a possibility. In Syria, wheat prices doubled between 2010 and 2011, for a combination of reasons, including drought and a cutback in subsidies. When basic commodities become too high priced, citizens tend to become very unhappy with the status quo. Civil war is not unlikely. Thus, oil depletion is likely a significant contributor to the current unrest. Continue reading

How Oil Exporters Reach Financial Collapse

Recently, I explained how high oil prices can bring on financial collapse for oil importers. In this post, I’ll discuss the flip side of the situation: how oil exporters reach financial collapse.

Unfortunately, we have many examples of countries that were oil exporters, but are dealing with collapse situations. Egypt, Syria, and Yemen all have had political disruptions since 2011. These may not be called financial collapse, but they all took place as the country’s oil exports decreased and as the price of imported food rose. Another example is the Former Soviet Union (FSU). It collapsed in 1991, after a period of low oil prices, in what looks very much like a financial collapse.

There are several dynamics at work in the financial collapse of oil exporters:

  1. Oil exporters are often dependent on oil export revenue to fund government programs.
  2. The need for government programs grows as population grows and as the price of food  rises.
  3. The amount of oil that can be extracted in a given year often declines over time, as initial stores are depleted.
  4. Exports often decline even more rapidly than oil supply, because of rising oil consumption as population grows.

In general, high oil prices are good for oil exporters (except the effect on food prices). At the same time, oil importers strongly prefer low oil prices.  As a result, we end up with a price tug of war between oil importers and oil exporters.

One additional issue is declining Energy Return on Energy Invested. Countries often have the option of reducing their rate of decline by adding production in areas which are more expensive to drill (say deeper, smaller locations offshore Norway) or by using enhanced oil recovery methods. Such approaches add costs (and energy use), and further add to the price that oil exporters need for their product.

Egypt, Syria, and Yemen

Egypt, Syria, and Yemen are three countries that the press would say are suffering from the continuing impact of the Arab Spring revolutions, which began in 2011, or of civil war. The similarity of the oil production and consumption charts for the three countries (shown below) suggests that declining oil exports likely played a major role as well.  Continue reading