United States
Energy Information Administration

World Oil "Potential Hot Spots"

Algeria        Iran        Iraq        Libya        Nigeria        Indonesia        East Asia

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Main Concerns: Political unrest related to activities of Islamic fundamentalists could undermine foreign investor confidence in the country's important oil andgas sectors. Algeria has experienced serious political and economic problems since 1991, beginning with the military-backed government's decision to annul theelectoral victory of the fundamentalist Islamic Salvation Front late that year. Since then, tens of thousands of Algerians have died in continuing violence fueled byeconomic, political, and social problems (more than 1,000 in January 1998 alone). To date, Algeria's oil and gas industry largely has escaped this strife. In fact,state oil company Sonatrach has initiated a $28 billion investment program and, with the assistance of foreign partners, aims to boost crude oil productioncapacity to 1.4 million barrels per day by 2000 (currently 850,000 barrels per day). With respect to the overall economy, Algeria has successfully resumed itsInternational Monetary Fund (IMF) macroeconomic stabilization program (originally begun in 1989).

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Description of Sanctions

Main Concerns: U.S. economic sanctions and diplomatic pressure are complicating Iran's efforts aimed at attracting needed investment to its oil and gas industries. Iran's new President, Mohammad Khatami (elected May 1997), has expressed interest in a dialogue with the West, but the extent to which such dialogue may proceed given the extensive influence of the country's Islamist fundamentalists is uncertain. Despite the change in leadership, tensions between Iran and the West, particularly the United States, continue. Among the key points of contention are: 1) Iran's oppositionto the Middle East peace process; 2) U.S. accusations of Iranian support for various terrorist groups; 3) the Iran and Libya Sanctions Act of 1996 (Public Law104-073), which authorizes the imposition of U.S. sanctions against foreign companies investing in Iranian oil or gas projects (originally applied to investmentsof $40 million or more annually, automatically lowered to $20 million one year after enactment); 4) Iran's occupation of three islands in the Persian Gulf also claimed by the United Arab Emirates; and 5) allegations of Iranian involvement in an alleged plot to overthrow Bahrain's government. The United States has had no diplomatic ties with Iran since 1979, after Islamic militants stormed the U.S. Embassy and held 52 Americans hostage for 444 days.

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Description of Sanctions

Main Concerns: Iraq has been subject to international sanctions since its 1990 invasion of Kuwait. Sanctions are to remain in place until Iraq complies with the provisions of the United Nations (U.N.) Security Council resolutions ending hostilities in the subsequent 1991 Persian Gulf War. A key provision is the destruction of long-range missiles and weapons of mass destruction. However, Iraq has periodically refused to cooperate with U.N. weapons inspectorsresponsible for verifying compliance, heightening tensions. In response to developments since the fall of 1997, the United States led a military buildup threateningstrikes against Iraq. Although Iraq ultimately agreed to cooperate after last-minute discussions with U.N. Secretary General Kofi Annan in February 1998,military intervention remains a possibility should Iraq fail to comply with the terms of the agreement. Iraq currently exports limited volumes of oil (an estimated1.2-1.3 million barrels per day in February 1998) under U.N. Security Council Resolution 986, which allows oil sales to raise revenue for humanitarian purposes, war reparations, and U.N. operations in Iraq. In February 1998, the U.N. Security Council unanimously approved an increase in the amount of oil Iraq may export, to$5.265 billion worth of oil over a 180-day period (from $2.14 billion over the same period). However, Iraq has indicated it may be able to export only about $4billion worth of oil over a 6-month period, due to limited export capacity, and would need additional infrastructure investments (banned under current sanctions)to boost exports beyond about 1.6 million barrels per day. The Energy Information Administration estimates Iraq's current export capacity is in the range of1.4-2.4 million barrels per day. In anticipation of the eventual lifting of economic sanctions, Iraq already has signed potentially lucrative oil and gas deals (whichwill come into effect when sanctions are lifted) with companies from Russia, France, and China, and has invited international partners to invest in natural gasprojects worth $4.2 billion. Prior to August 1990, Iraq was producing over 3 million barrels per day and exporting 2.8 million barrels per day (1.6 million barrels per day via pipeline to theTurkish port of Ceyhan; 800,000 barrels per day via the IPSA2 pipeline across Saudi Arabia, which is currently closed; 300,000 barrels per day via the Persian Gulf port of Mina al-Bakr; and somewhat less than 100,000 barrels per day by truck through Turkey).

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Description of Sanctions

Main Concerns: Libya is the target of both multilateral and unilateral sanctions because of its continued refusal to extradite suspects in the 1988 bombing of PanAm Flight 103. The United Nations first imposed sanctions on April 15, 1992 (see original U.N. economic sanctions) and later extended them to include a freezeon Libyan funds overseas, a ban on the sale of oil equipment for oil and gas export terminals and refineries, and tougher restrictions on civil aviation and armssales (see additional U.N. sanctions). In August 1996, the United States enacted the Iran and Libya Sanctions Act of 1996 (Public Law 104-073), which extended sanctions on Libya to cover foreign companies that make new investments of $40 million or more in the country's oil or gas sectors over a 12-monthperiod. Sanctions have forced Libya to adopt a more conservative fiscal policy and have interfered with plans to expand oil production capacity.

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Main Concerns: The execution on November 11, 1995 of minority rights activist Ken Saro-Wiwa and eight others set off a wave of international condemnationand sanctions against Nigeria. The country is governed by a military regime, headed by General Sani Abacha, which overthrew an interim civilian government inNovember 1993. Mashood Abiola, the widely recognized winner of the country's 1993 presidential elections, has been imprisoned since being charged withtreason for declaring himself president in June 1994 (his wife, a vocal advocate for her husband's release, was murdered on June 4, 1996). In March 1997, theNigerian government charged exiled writer Wole Soyinka with treason, thus renewing calls from the United Kingdom and Commonwealth governments forsanctions against Nigeria. In October 1997, the Commonwealth voted to continue the suspension of Nigeria's membership and issued a statement that Nigeriafaces expulsion and sanctions, including an oil embargo, if civilian rule is not established by Nigeria's own October 1998 deadline. Although ethnic violence andsabotage have hindered oil production (notably in the Ogoni and Warri regions), Nigeria continues to steadily increase its oil production.

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Main Concerns: A serious financial crisis affecting most of East Asia has exacerbated underlying tensions in Indonesia. Violence and riots have eruptedthroughout the country in response to higher food prices and soaring unemployment; some violence has been directed against ethnic Chinese shopkeepers. Mostof the country's companies and banks are technically bankrupt as a result of the loss of the value of the country's currency (the rupiah). The InternationalMonetary Fund (IMF) has put together a $43 billion rescue package, but this assistance could be put at risk if Indonesia fails to demonstrate greater commitmentto necessary economic reforms. Any impacts on the petrochemical sector could have widespread repercussions, as U.S., Japanese, and European companies areheavy investors in this sector. The country already plans to delay construction of its first private oil refinery. The liquefied natural gas (LNG) sector is feeling theimpact from reduced demand in export markets in the region, and production may need to be cut if alternative export outlets are not found. South Korea hasalready canceled the purchase of 15 cargoes in 1998, and Thailand has delayed planned purchases from the Natuna field from 2003 to 2007.

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Main Concerns: East Asia is experiencing a serious financial crisis, which began in mid-1997. Economic growth has slowed throughout the region, and somecountries (notably South Korea, Thailand, and Indonesia) are experiencing a contraction in their economies. Affected countries are struggling to regain value fortheir depreciated currencies and maintain investor interest while attacking structural problems in their economies. The crisis has resulted in the cancellation ordelay of major projects in the energy and other sectors of these economies and raised questions about future development in the region. A more widespreadconcern is that the economic woes may exacerbate political and social problems in the region, affecting its overall stability.

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File last modified: March 3, 1998

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