The next major crisis in the Mediterranean could begin with a drop in the price and demand of oil. Algeria, one of the main energy suppliers of the European Union, derives a significant part of its resources from hydrocarbons and has limited margins to absorb a sharp decrease in exports. If the world consumes progressively less crude oil, the North African country could lose up to 87 percent of its oil revenues, with potentially explosive economic and social consequences just a few hundred kilometers from the European coasts.
What the report says
It is one of the scenarios contained in the report “Playing the oil endgame”, published by the British think tank E3G and taken up by Guardian. The study highlights an aspect of the energy transition that has so far remained in the background: gradually abandoning fossil fuels is essential to contain the climate crisis, but the way in which this process is managed could decide the stability of entire regions.
The problem especially concerns states that have built their public budgets around oil. In 17 countries, hydrocarbons guarantee over 40 percent of government revenues. These resources not only finance investments and large infrastructure, but also public salaries, food imports, energy subsidies, essential services and debt payments. In Iraq and Libya, according to data retrieved by E3G, oil and gas cover between 70 and 90 percent of state revenues.
Because the risk also concerns Europe
The possible collapse in revenues would not be confined within the producing countries. In Algeria it could translate into cuts to benefits, unemployment, protests and greater political instability, fueling new departures towards Europe. In Libya, the reduction in revenues would instead risk escalating the clash between militias and armed groups for the control of oil fields, terminals and trade routes.
The situation could be even more serious in Nigeria, which according to the report’s forecasts risks losing more than 60 percent of its oil revenues. This is not a marginal producer, but the most populous country in Africa. A weakening of Nigerian institutions would have repercussions on security and migratory movements throughout West Africa.
The risk described by the researchers is therefore not that of a single global oil crisis, similar to the shocks that have sent prices soaring in the past. Rather, we could witness a series of national fiscal crises, different from each other but capable of fueling each other: social revolts in North Africa, new tensions in Iraq, military competition for Libyan infrastructure and further weakening of the most fragile states in sub-Saharan Africa.
What makes the picture even more delicate is the debt. Angola and Mexico already allocate more than a quarter of public revenues to interest and maturity payments. With fewer resources coming from exports, these countries could see their currencies weaken, the cost of financing increase and be forced to reduce social spending at the moment of greatest difficulty.
The race to extract before demand collapses
The peak of global oil demand is expected to be reached between 2030 and 2035. In advanced economies, it has already been exceeded for more than twenty years, according to the International Energy Agency. Even China, which in recent decades has represented the main driver of consumption growth, is approaching a turning point thanks to the spread of electric vehicles. India’s trajectory remains more uncertain, destined to play a decisive role in the last phase of market expansion.
When demand begins to decline, not all producers will suffer the same consequences. Saudi Arabia and the United Arab Emirates can mine cheaply and have large financial reserves with which to support economic diversification. Algeria, Nigeria and Angola, on the other hand, have fewer investment opportunities and more exposed public budgets.
The prospect of an increasingly smaller market could also produce a paradoxical effect: rather than immediately reducing extraction, many governments could try to sell as much oil as possible before it loses value. Producers with the highest costs would be forced to defend their shares, while the most competitive ones could lower prices to drive rivals out of business.
The risk is a long phase of aggressive competition, opportunistic geopolitical deals and strong volatility. Even uncertainty about the speed of the transition can become destabilizing, because it makes it more convenient to maximize revenues in the short term rather than investing in expensive reforms whose results will only arrive after many years. In short, like every revolution, the ecological transition doesn’t seem to be “a gala lunch” either. And starting to think about the possible consequences now seems to be a must.