The issues for the EU

Energy security and oil prices

Oil prices have soared in recent days because of fears over the impact of the unrest on Libya’s oil and gas supplies. Several European energy companies, including Italy’s Eni, Spain’s Repsol YPF and Germany’s Wintershall, have closed or scaled back their operations in Libya and repatriated many of their staff, fearing for their safety.

EU energy ministers, who are meeting in Brussels on Monday (28 February), will probably raise the subject of oil prices and the situation in north Africa over lunch. Libya is an important supplier of oil and gas to the EU. It was the fourth biggest supplier of oil to the EU in 2008, behind Russia, Norway and Saudi Arabia, and the fifth biggest supplier of gas oil, after Russia, Norway, Algeria and Nigeria.

Italy is heavily reliant on supplies for gas and, to a lesser extent, oil. Italy, which imports 90% of its gas needs compared to the EU average of 62%, obtains 13% of its total gas imports from Libya. Algeria is the largest supplier of gas to Italy, accounting for 35% of Italy’s total imports, followed by Russia (32%). Italian energy companies have stressed the drop in supply from Libya can be made up by supplies from elsewhere. They have said there are no plans to tap the country’s gas reserves.

European energy companies have made very large investments in Libya since international sanctions were lifted in 2004. BP, Royal Dutch Shell and Total have invested heavily in exploration and extraction. The country is now the world’s 12th largest exporter of oil, accounting for 5% of OPEC’s output, and 2% globally.

Testing Mediterranean trade

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EU direct investment in Egypt was €27.2 billion in 2009, and in Morocco was €13.6bn. The figures indicate the EU’s close trade and commercial relations with north African countries. It is the biggest trading partner of Tunisia, Morocco, Algeria and Egypt, and has agreements that include trade liberalisation and political co-operation with all of them.

Foodstuffs and live animals accounted for 26.5% of Morocco’s exports to the EU in 2009, worth €1.7bn, while the largest export category was manufactured goods, mainly textiles, accounting for 35.3%. The EU’s imports from Algeria consist almost entirely of energy products.

Most of the countries of north Africa are reliant on food imports, especially of wheat and rice. Egypt is the world’s largest importer of wheat. According to the Food and Agriculture Organisation (FAO), the increase in wheat prices at the start of the year will add substantially to the cost of Egypt’s programmes for wheat import and bread subsidy. Wheat prices in Egypt rose by 32% in the year to December 2010, but government subsidy programmes partially protected consumers. Rising food prices were one of the drivers of the initial protests against the Mubarak regime. Food prices increased by 17.2% in December 2010, according to the FAO.

Libya has observer status in the Euromed partnership. It is not part of the European Neighbourhood Policy although it is entitled to take part because of its geographical position. Negotiations on a framework agreement between the EU and Libya started in November 2008, but have been suspended.

Failed development policies?

The Arab revolts have raised some serious questions about the value of the EU’s development policies.

Andris Piebalgs, the European commissioner for development, admitted on Tuesday (22 February) that the “classic approach” had failed to deliver results in the Middle East. Despite top rankings for Tunisia and Egypt in meeting the Millennium Development Goals, the countries had experience revolts triggered by “lack of political reform and huge youth unemployment” – neither of which is measured under the MDG process.

Classic development achievements such as school enrolment have even contributed to disaffection as graduates failed to find jobs. Egypt doubled its tertiary enrolment rate to 28% over the last 20 years and Tunisia raised it from 8% to 34%. Development aid under the European Neighbourhood Policy (See Analysis – Page 7) provides around €80m a year in 2011-13 for Tunisia, and €150m for Egypt. Libya has never fully participated in the ENP and the €20m a year that was earmarked for the country in 2011-13 is blocked.

The EU held talks yesterday (23 February) with the US, Japan and international financial institutions on co-ordination of financial assistance to democratising countries in north Africa. The European Investment Bank is to raise its lending to the region for 2011-13 by €1 billion, to €3.8bn.

Evacuation of EU citizens

The Commission believes that there are around 10,000 EU citizens in Libya. EU member states have dispatched warships to protect citizens who are being evacuated and to guard against illegal migrants, with Italy taking the lead.

Since the EU has no delegation in Tripoli, member states are responsible for evacuations on the ground. Member states’ diplomats at Tripoli airport are monitoring the chaotic situation there as foreigners try to escape the violence.

The EU’s political and security ambassadors met yesterday afternoon (23 February) to discuss co-ordination. Several energy firms have organised the evacuation of their staff. Around 3,000 Turkish citizens yesterday left Benghazi aboard two ferries. The Turkish government believes that around 25,000 nationals, most of them construction workers, are in Libya. Ukraine is reported to have around 3,000 citizens in the country.

Supporting democracy

The EU has had close relations with most of the autocratic regimes in north Africa and the Middle East. It is now seeking to support democratic processes in Tunisia and Egypt, but without encouraging violent regime change elsewhere. Funding for programmes in Egypt in governance, democracy, human rights and justice currently totals €39m, and a further €20m is planned for “current needs”. In Tunisia, the Commission envisages a new €20m programme to support the justice system over the next three years. This year, around €2.5m should be available in grants for local civic groups, and a further €17m in aid has just been announced. Across north Africa and the Middle East in 2007-10, the EU provided €141m for programmes on human rights, good governance, justice reform and democracy under the European Neighbourhood Policy.

Middle East peace process

The overthrow of Hosni Mubarak in Egypt has removed a crucial player in the moribund Middle East peace process, heightening EU and US fears of a less friendly attitude in Egypt towards Israel, and complicating attempts to restart the talks. Following the Arab uprisings, restarting the process is “even more crucial”, János Martonyi, Hungary’s foreign minister, said on Tuesday (22 February), after a meeting of member states’ foreign ministers. But critics, such as Marwan Muasher, a former foreign minister of Jordan, believe that the current bilateral approach to seeking a settlement is doomed to failure in view of the resistance of Pale-stinians and Israelis to compromise. A regional approach, by contrast, could provide Arab cover for painful compromise by the Palestinians, while Israel could obtain security guarantees from a wider circle than just the Palestinians.