The Arab uprisings have raised concerns about the region’s long-term export capability and the increasing fiscal dependency of many regional governments on high oil prices, says Oxford Analytica:
Fear of political instability will increase unwillingness among major oil exporting countries to carry out serious domestic pricing reform (which would reduce the growth in energy consumption) or to rein in the significant public spending increases announced in response to the unrest. Price volatility is likely to increase as geopolitical tensions in the Middle East exacerbate divisions within OPEC.
While the region’s major oil producers are set to remain stable in the medium term, the fallout from last year’s uprisings is likely to continue to cast a shadow over oil markets in 2012.
In the short term, low inventories in the OECD will provide price support despite a bearish demand and economic outlook. The prospect of further sanctions on Iran and the risk of instability in Iraq following the withdrawal of US troops will also hold up prices by prolonging market fears over supply disruptions.
- Instability may reduce oil infrastructure investment, reducing the region’s ability to meet the projected increase in global demand.
- Its producers will seek further restrictions on supply, especially in a falling market.
- OPEC may be at risk of oversupply if Libyan production continues to rebound rapidly and global economic uncertainty starts to bite.
For details see MIDDLE EAST: Uprisings increase oil supply pressures
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