New Mideast threats mean uncertainty for oil, trade, stability in August
August 2024 Al-Monitor Trend Report
After July’s headlines buzzed about a reshaped US presidential race, August’s news cycle struggled to escape the long shadow of conflict in the Middle East as Israel-Iran tensions boiled following the July 31 assassination of Hamas chief Ismail Haniyeh in Tehran.
Outside the spotlight, another hot spot is also flaring up in the region, as Libya again plunges into chaos amid political fallout over the leadership of the fractured country’s central bank. The dispute has prompted oil field shutdowns, and on Aug. 26 the UN warned the crisis risks precipitating Libya’s financial and economic collapse.
Despite this turmoil, global markets continue to mostly shrug off regional tensions. As of this writing, Brent crude was trading at about $78 per barrel, down from roughly $80 on Aug. 1 (and $88 just after Oct. 7, 2023). Still, the Gaza war continues to pose major economic threats globally and locally as the fighting nears the one-year mark.
New risks of regional confrontation have fueled everything from widespread flight cancellations to ongoing oil market uncertainty and global trade worries. Persistent Houthi attacks on Red Sea shipping are hitting local players, with UAE port operator DP World reporting that profits fell 60% in H1 2024. Simultaneously, the specter of Iran ensnaring energy shipments in the Strait of Hormuz loomed large in August.
Meanwhile, keep an eye on the next moves from OPEC+. The oil cartel will (supposedly) begin raising oil production in October as it unwinds its voluntary output cut of one million barrels per day. Regardless, prices are unlikely to reach the $90 range needed for most Gulf economies to balance their budgets in 2024-2025. On that note, this month saw Saudi Arabia reveal that its oil revenues fell to a three-year low in June as the world's largest oil exporter saw sales squeezed by OPEC+ cuts.
Elsewhere, the struggle between Iran and Israel comes alongside another kind of power struggle in the region, as summer continues to expose the region’s inadequate energy security. On Aug. 18, Kuwait announced power cuts to ease pressure on its grid amid scorching temperatures on the same day news surfaced that Algeria was sending emergency fuel shipments to Lebanon as its chronic power shortages worsened. August also saw Iraq forge a new deal with BP, as it hopes to increase natural gas production to help reduce dependence on imports from Iran.
Within all this tumult, plenty of other interesting regional developments also emerged this month, such as new data on worrying youth employment trends in the Arab world and mounting evidence that Saudi Arabia’s era of lavish global spending could be ending as its Public Investment Fund doubles down on domestic investments. (The kingdom also introduced reforms to its investment law this month.) And there’s Kuwait, a laggard in energy transition efforts in the Gulf, signaling interest in developing its nascent renewables sector.
Another story is one of ongoing regional rapprochement and economic integration. Warming Turkey-Egypt ties are setting the stage for new deal-making. On that note, Turkey hosted a summit with Iraq, Qatar and the UAE on Aug. 29 to discuss an ambitious $20 billion project to connect the Iraqi port of Basra to Turkey and beyond. Below, Al-Monitor's monthly trend report digs into other key storylines you may have missed this month.
Tunisia's green hydrogen strategy will need domestic stakeholders
As outlined in a memo by Francisco Serrano, Tunisia has significant unexplored potential to produce clean and renewable energy and is positioning itself as a supplier for European markets. It is attracting interest from the EU, which is attempting to reach its environmental goals by relying on North African clean energy imports, and green hydrogen has become a strategic area of development.
However, developing new energy generation capacity that services external clients exclusively will create tensions. Over the years Tunisia has struggled to maintain energy independence amid falling oil and gas output. By Q1 2024, Tunisia’s rate of energy independence had fallen to 44%. The problem points to severe structural deficiencies in the country’s energy production and distribution infrastructure.
Tunisia’s green hydrogen strategy, released in May 2024, sees sector output reaching 8.3 million tons by 2050. The financial backing required to implement this strategy (an estimated $133 billion) will test Tunisia’s capacity to mobilize private investment and EU support.
In May 2024, Tunisia signed a $53 billion agreement with a group made up of TotalEnergies, Eren Groupe and Verbund to produce green hydrogen. When it comes online in 2030, the project aims to produce 200,000 tons of green hydrogen per year and eventually expand to one million tons.
The majority of the project’s output under current plans (roughly six million tons) is set to be exported through pipelines to Europe. The remainder will be sold abroad through other means or be allocated to local demand.
Exporting the bulk of the green hydrogen output could become a significant foreign exchange source for Tunisia, but green hydrogen could also drive growth in several domestic industries.
Fulfilling Tunisia’s green hydrogen goals will require an acceleration of renewable energy deployment: To secure an output of 8.3 million tons by 2050, the country will need 100 megawatts of renewable energy generation capacity allocated for it. Currently, renewable energy accounts for a mere 5.1% of Tunisia’s total generation capacity.
The takeaway: Tunisia could become a hub for clean energy exports out of North Africa, but securing popular backing and support for new energy projects will require authorities to weigh the needs of domestic businesses and customers over the long term.
Looking ahead: Serrano predicts that Tunisia’s green hydrogen strategy can be completed largely on schedule, but it will benefit export markets disproportionately. As the country lacks the financial muscle to secure the necessary investments, it will have to rely on foreign partners who want to channel most of the green hydrogen output to Europe.
Another factor to watch: Tunisia’s green hydrogen ambitions face plenty of competition in North Africa and from the Middle East, where many players are eying the opportunity as they navigate the energy transition despite dubious market demand for the clean fuel.
How will Iran's new government impact its foreign and energy policy?
As explored in a memo by Bijan Khajehpour, the election of Iranian President Masoud Pezeshkian has important implications for Iran's international relations and energy policy. The key question is this: Can Pezeshkian’s Reformist agenda succeed in generating positive momentum akin to the 2015 nuclear deal?
Pezeshkian is inheriting an energy sector that is facing major challenges and offering mixed signals. On the one hand, there are regular reports about electricity cuts, gas shortages and other disruptions. On the other hand, crude oil production and exports show an upward trend, and the Petroleum Ministry plans to increase capacity to four million barrels per day by March 2025.
Challenges seem to be deeper on the gas side: Experts describe the conditions in the country’s energy sector as an energy imbalance. Years of neglect in terms of new investments have led to loss of capacity in production and distribution of gas and electricity.
The key remedy is to invest in efficiency improvements in production, distribution and consumption. According to Iranian officials, the gas sector alone will require investments as high as $80 billion. However, due to external sanctions and ongoing budget deficits, the government is not in a financial position to invest heavily in its energy sector.
During his presidential campaign, Pezeshkian underlined two key policy shifts that will have a direct impact on Iran’s energy equation. He vowed a proactive diplomatic engagement to put an end to the current nuclear sanctions, and his administration is expected to reform the current energy subsidies.
The previous administration’s ambition to attract needed investments and technology from China never materialized. So far, China has not made substantial investments in Iran’s petroleum projects, and the main sources of funding are thus domestic investors who cannot meet Iran’s enormous capital and technology needs.
Consequently, to secure the level of investment and technology that will be required to reverse the current trajectory, Tehran will have to work to lift of the current sanctions in a deal similar to the 2015 Joint Comprehensive Plan of Action.
The takeaway: Pezeshkian’s Reformist agenda promises to deliver some needed impetus in the fields of international relations and energy policy. However, a new trajectory for Tehran will also need the cooperation of other players, most importantly the US government.
Looking ahead: Iran’s hard-line deep state will give Pezeshkian some space in his first term to maneuver, and if the outcome of his policy initiatives are positive, the regime as a whole will also endorse his moves. According to Khajehpour, the most likely scenario is that Pezeshkian’s administration will start a gradual process of moving toward a new deal with the United States in order to provide Iran with the needed degree of sanctions relief.
Another factor to watch: Iran's political scene was left shell-shocked in August after prominent Reformist figure Mohammad Javad Zarif stepped down as vice president only days after taking the post. The move has stirred debate on the deadlock stopping meaningful reform within the existing frameworks of the Islamic Republic.
Netflix in crosshairs as Middle East streaming competition mounts
Many believe that we have reached a climactic battle in the global streaming wars and that Netflix has won after pushing its customer base past 260 million in 2023, a new record. However, the streaming wars remain far from over in the Middle East, where regional broadcasting giant MBC Group’s streaming service, Shahid VIP, is currently the market leader.
With a population of roughly 500 million, the Middle East and North Africa region remains a largely untapped and fragmented streaming market. For instance, Digital TV Research has forecast that streaming subscriptions in MENA will double between 2022 and 2028 to reach 42 million.
According to technology research group Omdia, three players currently dominate regional video streaming: as of Q4 2023, Shahid VIP, StarzPlay and Netflix combined controlled 57% of MENA’s market. Overall, the region features roughly a dozen streaming platforms with varying business models.
Until recently, Netflix appeared to be outpacing competitors in the Middle East. As of 2022, forecasts indicated it would continue leading in Arabic-speaking countries, rising from about 3.55 million subscribers as of 2021 to 5.45 million by 2027.
The tables have since turned. In February 2024, Digital TV Research reported that Netflix is going to lose leadership in Arabic-speaking markets to Shahid VIP, with local players expected to thrive as some US-based platforms lower their global rollout and Arabic content commitments.
On Aug. 8, MBC Group announced that its Arabic-focused streaming platform, Shahid VIP, had 4.6 million paid customers as of H1 2024, up 36% year-on-year. Netflix doesn’t break down MENA numbers, but Digital TV Research found it had 3.8 million subscribers across 13 Arabic-speaking markets by the end of 2023. Meanwhile, StarzPlay Arabia reported 3.22 million subscribers during Q1 2024.
MBC also raised $222 million from an IPO in January 2024, with the group reporting that some proceeds would be devoted to Shahid’s content investments.
A new streaming giant could also be rising. In April 2024, OSN+ completed the acquisition of a 55.45% stake in Mideast music streaming platform Anghami, creating a merged entity reporting over 120 million registered users, including around 2.5 million paid subscribers.
The takeaway: Although MENA’s streaming market remains largely untapped overall, Netflix could be in danger of falling further behind as MBC, StarzPlay and other local rivals make moves to boost growth in 2024.
Looking ahead: As a legacy media company betting big on streaming to drive future growth, MBC may also face the same pitfalls that have undercut other Netflix rivals and could turn off investors, especially if it struggles to reach profitability as MBC’s broadcasting revenues erode.
Another factor to watch: State-controlled MBC Group has Riyadh’s ambition influencing its trajectory, which could see the media giant make moves around entertainment and sports, perhaps in concert with the Public Investment Fund.