Yemen matters | FT Alphaville

Yemen matters

Yemen continues to crumble on Tuesday, Reuters reports:

Yemeni President Ali Abdullah Saleh’s 32-year rule seems near collapse. His exit would spell uncertainty for his broken country and discomfiture for U.S. and Saudi friends, still backing their “ally” against al Qaeda.

The killing of more than 50 protesters in Sanaa on Sunday has turned a trickle of defections into a torrent as Yemeni diplomats, military officers, tribal leaders and politicians hasten to declare support for the anti-Saleh opposition.

The FT has more on the political background and the importance of the resignation Monday of General Ali Mohsen al-Ahmar, commander of the First Armoured Division and the North-Western Military district. A state of emergency remains in place.

The rub, according to a disturbingly precise Eurasia Group note on Monday evening, is that President Ali Abdullah Saleh will be gone sooner rather than later (H/T Sid Verma of FT Tilt):

The likelihood that President Ali Abdullah Saleh will not retain power beyond 2011 has risen to 70%. His ouster will most likely be forced, but a negotiated transition remains conceivable. On the other hand, any situation involving protracted deadlock (now a 30% likelihood) is more likely to turn violent.

A quick glance at some top line energy stats — courtesy of Thomson Reuters, the BP Statistical Review, and the US Energy Information Administration — suggests that Yemen is relatively insignificant to world energy markets:

– Proven oil reserves of around 2.7 billion barrels or about 0.2 per cent of global reserves (as of end 2009).

– Approximately 3.2m bpd pass through the Bab al Mandab strait between Yemen and Djibouti (2009 figures).

– Proven gas reserves of 490 billion cubic metres or about 0.3 per cent of the global total.

– LNG exports of just 0.40 bcm in 2009, though the new Total-led LNG export facility at Balhaf is expected to boost annual capacity 8.28 bcm of gas a year by end of 2011.

But Yemen and the risk of its implosion matters more to oil markets than a quick glance at these stats suggests. (Obviously, it also matters for other reasons, too.) Here are three reasons we’ve picked up, though there could well be more.

Firstly, because of any knock-on impact on an already embattled Saudi Arabia, as Steve LeVine points out on the Oil and the Glory blog:

It’s not that Yemen itself produces much oil or natural gas – its production volumes are modest. But its northern border with Saudi is porous, and as we’ve discussed previously, any flow of Yemeni refugees, including armed ones, could destabilize Saudi Arabia.

To the east of the kingdom, Saudi forces are helping to tamp down unrest in neighboring Bahrain, but meanwhile face new protests from sympathetic fellow Shias in the city of Qatif, in Saudi’s oil-rich Eastern Province. All of this will tempt the trigger fingers of intrepid traders in London and New York.

Secondly, because the location of oil reserves and production in Yemen lies on and around “tribal” fault-lines, which would intensify any civil war and its impact on energy markets, according to a report out Tuesday by IHS Global Insight:

Moreover, much of Yemen’s oil and gas resources are located in the borderlands between what could again* become North and South Yemen should the southern tribes be able to launch a credible attempt to secede, which raises the spectre of fighting in and around the south-eastern parts of the Ma’rib region.

Even if the militarily weak—and still not entirely united—southern tribes are not be able to extend their authority into the old borderlands close to those oil reserves, the scenario is extremely worrying for the Yemen LNG (YLNG) venture, which draws its feedstock gas from fields in the greater Ma’rib area and pipes it to the southern coast Balhaf port, deep into the would-be independent South Yemen.

*The (northern) Yemeni Arab Republic and the southern ex-Soviet People’s Democratic Republic of Yemen were reunited in 1990.

This map of reserves, production and pipelines is also from IHS:

(For more on the tribal and other nuances amongst opposition groups, we recommend this dispatch from Sana’a in Foreign Affairs on February 25.)

Thirdly, because any removal of security forces from protecting energy installations increases the opportunities for sabotage and attacks, adds IHS.

As IHS Energy has reported repeatedly, the reasons to fear are significant for the oil industry, with tribal or Al-Qaeda strikes on oil facilities and employees taking place in Yemen on a high level compared to the rest of the Middle East and North Africa, except for Iraq. With oil and gas export income being key to Yemen, its security forces have nevertheless made it a priority to guard oil and gas upstream, midstream and downstream installations, generally with success.

If forces are now being deployed to the heartland of Northern Yemen and potentially sucked into a civil war between the main tribes there, IOCs might quickly find themselves in a physically very vulnerable position. Apart from Al-Qaeda loyalists, Yemeni tribes have often used attacks against oil and gas infrastructure, or the abduction of oil workers, as a way to gain bargaining power vis-à-vis the central authority or other tribes. There is definitely no reason to assume that this practice should diminish just because the central authority is crumbling.

No reason at all.

Related links:
Yemen looks poised for regime change; why you should care – FT Tilt
Army chief deserts Yemen leader – FT
Saleh warns of civil war if he is forced out – Reuters