Africa

By Greg Priddy

Saudi Arabia faces a complex set of challenges in its role as leading member of OPEC amid ongoing economic and financial market volatility. After achieving an unprecedented level of compliance with OPEC production cuts from other members earlier this year, the kingdom now confronts a problem: compliance is beginning to fray, even as a weakening of the U.S. dollar and a surge in global equities markets push the oil market surging ahead.

If the breakout above $75 per barrel for West Texas Intermediate (WTI) crude oil is sustained and the momentum continues, it's entirely possible that Saudi Arabia will intervene to try to tamp down prices. If that happens, it wouldn't be as part of any understanding with the United States -- a relationship now under serious strain -- but from pure self-interest. With the global economic recovery still fragile, a rapid momentum-driven escalation in oil prices could weigh on consumer confidence and economic growth. That could produce a drop in oil prices. Saudi Oil Minister Ali al Naimi has spoken in recent months of a "goldilocks" range for crude oil at around $75 per barrel, and hinted at action to blunt any sustained push past $80 per barrel.

The Saudis also need to manage price increases to maintain pressure on Iran. Iran's nuclear progress has Gulf Arab governments on edge -- and the Saudis, in particular, would like to avoid taking any action that provides Iran's government with extra revenue. The Saudi government can balance its budget with WTI crude oil in the vicinity of the high $50s. That means they are now replenishing reserves at a rapid pace after running a deficit for the first half of this year. Despite spending cuts, Iran is still under financial pressure, and the Saudis would like to keep it that way.

Managing output levels and prices will be difficult, given that global inventories of crude oil and petroleum products remain well above their normal ranges. Any move by the Saudis to tamp down a surge in prices would likely involve a modest amount of increased exports -- say 500,000 bpd -- and could be pulled back once it has its intended effect of breaking the market's momentum. To bring inventories down, however, the leading Gulf Arab members of OPEC (Saudi Arabia, Abu Dhabi, Qatar, and Kuwait) will need to keep their own output well below pre-September 2008 levels through at least the end of 2010. Right now, compliance outside the Gulf Arab members has receded, particularly in Iran and Angola. Nigeria remains at its target, but that's a result of the continuing violence in the Niger Delta, not a policy decision to keep its promises.  

Greg Priddy is a Global Energy & Natural Resources analyst at Eurasia Group.

JOE KLAMAR/AFP/Getty Images

By Eurasia Group analyst Philippe de Pontet

Major new oil finds in Uganda, Ghana, and Sierra Leone could bolster government revenue, finance social spending, and lift entire communities out of poverty -- or not. The resource curse is about to be put to the test again in Africa, as each of these recent discoveries have the potential to produce upwards of a billion barrels of crude. If the past is any indication of things to come, these countries may live to rue the discovery of black gold. But if they study the cases of other oil-cursed African nations -- Nigeria, first and foremost -- they may learn how not to manage the windfall.

It has been 40 years since oil was found in the Niger Delta. Four decades, $80 billion, and 134 billion barrels later, living standards have actually fallen, amid environmental decay, rampant corruption, and a succession of rebel groups that seem to get more violent with each new incarnation. Many Nigerians are now convinced that true economic and political development will only come after the last drop of oil has been pumped, not an imminent prospect for a country with more than 30 billion barrels in reserves.

In the meantime, instability, the threat of sabotage, and oil bunkering have taken offline half of the country's production capacity -- which totals nearly 3 billion barrels per day -- and multinationals such as Shell are seriously considering leaving. Angola, which currently chairs OPEC, has dethroned Nigeria as sub-Saharan Africa's top oil producer and China's most dependable supplier. Nigeria's downward trend is likely to continue over the next 18 months as the election campaign heats up, unleashing a new cycle of rent-seeking unrest in the Delta. If oil prices continue to rise and global inventories tighten, Nigerian supply risk could again become a driver of price spikes and volatility as in 2007.

Of course, Nigeria is not the only resource-cursed nation on the African continent -- it's just exhibit A. On a smaller scale, the governments of Chad, Equatorial Guinea, Sudan, and Gabon have all squandered billions of dollars in oil revenues, with more money ploughed into Swiss bank accounts and Mediterranean villas than into their own economies. Gabon's recently deceased leader Omar Bongo amassed about a dozen palaces in France during his 40 years in power -- properties that will be inherited by Gabon's new President Ali Bongo if they aren't confiscated by French courts.

In Chad's case, a World Bank-mandated escrow account and strict 80 percent earmark for social spending are not enough to prevent President Idriss Deby from turning the revenues into his own bank account and financing vehicle for war. Less perfidious, perhaps, but just as destabilizing in its own way, is the case of southern Sudan, where oil provides more than 95 percent of government revenues and less than 2 percent of jobs. Oil literally sucks the oxygen out of the economy and undermines other sectors, such as agriculture, where most people actually work, while turning the government into a rent-seeking enterprise.

Turning back to the newest members of the oil club, Uganda, Ghana, and to a lesser extent Sierra Leone are for now relatively well-governed and reform-oriented nations at peace with themselves and their neighbors. Ghana and Uganda are among Africa's perennial donor darlings -- if any countries have a shot to break the curse, these are good candidates. Sierra Leone has come a long way since the 1990s when the country was practically synonymous with the phrase "blood diamonds." Sierra Leonians voted the opposition into power last year in free, fair, and peaceful elections (much like Ghana).

What will oil wealth do for (or to) these countries? It's hard to say, but maybe Ghana, Uganda, and Sierra Leone can break the resource curse--at least they have clear models not to follow across the continent. 

By Ian Bremmer

Most of us don't think much about Somalia, Yemen, or Tajikistan -- not with more colorful problems like Iran, North Korea, and a global recession to worry about. But growing threats to civil order in these less familiar countries could have serious implications for international politics and the global economy.

On the one hand, the term "failed state" is used way too freely these days. Pakistan's civilian government might well implode, but the country's military is the final guarantor of the country's stability. Ukraine's governing institutions have survived years of political disputes among its president, prime minister, and main opposition leader -- and they're likely to withstand a bitterly contested upcoming election. Mexico has endured swine flu, an earthquake, and an intensified drug war this year, but anyone who believes the country is at serious risk of state failure wasn't paying attention this weekend as legislative elections went off without a hitch.

But other states are at genuine risk of total meltdown -- with potentially serious international consequences.

Africa has no shortage of political and social turmoil, but Somalia, which hasn't had a functioning government in nearly two decades, is in a league of its own. Criminal networks control key ports, stoking the surge of piracy off Somali waters and in the neighboring Gulf of Aden, where more than 10 percent of global oil traffic passes. More than 60 ships, including a Saudi supertanker, have been hijacked in the last 18 months.

Onshore, well-armed Islamic militants, with local roots and al Qaeda connections, have filled a political vacuum across the south and center of the country, attracting foreign fighters to join them. A western-backed transitional government and African Union peacekeepers are virtually powerless to stop their advance.

Somalis who want the militants out lack the weapons and the friends to evict them. We can expect more lawlessness, radicalization, suicide bombings (previously unheard of in Somalia), attacks on western targets inside and outside the country, and more piracy. If the government loses control of Mogadishu's port and airport, the country will slip beneath the waves, with serious consequences for the entire region.

Across the Gulf of Aden lies Yemen, where 20 million people live atop very little land and almost no natural resources. They also live next door to Saudi Arabia, which has plenty of both. Yemen isn't yet a failed state, but in recent months, Islamic militants have pushed it much closer to the edge.

Years ago, al Qaeda made a major tactical mistake: It targeted a Saudi government that has more than enough muscle to fight back. Learning from its mistake, the group now appears to be thriving across the southern border in Yemen, which is fast becoming an ideological incubator and a logistical center of operations for Islamic militancy. This plays into a dangerous domestic dynamic. For the past four years, the Yemeni Islamist movement has split between older generation militants who oppose operations inside Yemen (which they consider a needed sanctuary) and a new generation operating via a looser, less formal network of cells in pursuit of domestic jihad. Killing Americans in Iraq remains as attractive as ever, but it's a lot easier to carry out attacks inside Yemen.

The Yemeni government can maintain security in the capital city of Sanaa, but it can't control rural and tribal areas, where an Afghanistan-style dynamic has unfolded: Local tribes are cutting separate security deals with local extremists. Any yet, the Yemeni government's real vulnerability comes from its deep dependence on energy production for revenue, creating a growing risk of militant attack on oil and gas infrastructure. Yemen's natural resource outlook was already bleak. At current levels of exploitation, flows of oil (and water) will slow to a trickle in the next 10-15 years.

Why should the world care about Yemen's stability? Because state collapse would quickly become Saudi Arabia's security problem -- and Saudi security problems matter for every country in the world that imports crude oil. Beyond cross-border terrorist activities, Saudi authorities face a surge in militancy in northern Yemen, which is pushing Yemeni migrants across the border. And if extremist groups can use Yemen as a base for maritime terrorism the way pirates use Somalia, the global shipping industry would suffer serious consequences.

The situation in Tajikistan doesn't look much better. About half its labor force works outside the country, supporting families via remittances and exposing the country to economic volatility elsewhere. In fact, remittances and foreign aid account for about half the country's GDP. More than 60 percent of the population lives in poverty. Nearly 80 percent lack reliable supplies of electricity. Health care and education infrastructure are abysmal.

President Emomali Rakhmon has centralized power by buying off some rivals and throwing others in jail. His government runs largely on political patronage, ensuring that an economic slowdown risks political, as well as economic, consequences. The country's small elite benefits from control of the hard currency produced from aluminum and cotton exports, but the global recession ensures that regular customers are spending less on these products. Tajikistan's aluminum output fell by nearly 17% in the first quarter of 2009. The government tends to ignore economic sectors and geographic areas that have few to exploit. Memories of civil war (1992-1997) have reduced the public's appetite for political protest, but things are getting bad enough that this might change.

Tajikistan matters because it serves as a transit point (and in some cases a source) of flows of drugs and weapons into several more internationally influential countries. It shares a porous 1200 km-long border with Afghanistan that cannot be secured, which could help reinforce militants fighting against US and NATO troops. Drugs and weapons already cross the border into Russia and China and flow across South Asia. State collapse in Tajikistan would destabilize the broader Fergana Valley, with impact on neighboring Uzbekistan and the Kyrgyz Republic.

Finally, there might well be spillover effects inside China's Xinjiang province, where about 45 percent of the population is Muslim and where unrest over the weekend reportedly killed at least 140 people. According to the Chinese government, Xinjiang produces 30 percent of China's oil reserves, 34 percent of its natural gas reserves, and 40 percent of its coal reserves- in a country that still draws 70 percent of its energy from coal.

Countries like Somalia, Yemen, and Tajikistan don't often make international headlines. But they have an increasingly dangerous impact on plenty of states that do.

MUSTAFA ABDI/AFP/Getty Images

By Eurasia Group analyst Mike Davies

South Africans, including some who were not yet born when Nelson Mandela emerged from prison in February 1990, will vote Wednesday in post-apartheid South Africa's fourth democratic election. But the optimism that characterized the early days of a free South Africa has given way to fears of an uncertain future.

This election is less a watershed moment in the country's history than the endgame of a long-running political battle between former president Thabo Mbeki and his deputy Jacob Zuma, the political rival Mbeki fired in 2005 following allegations of corruption. Zuma has won that battle -- though the fallout will continue after the election. Mbeki was driven from office in September 2008. Zuma, whose corruption charges were dropped just two weeks ahead of the polls, will almost certainly be elected president at the first sitting of parliament in early May.

Zuma's African National Congress (ANC) will win the election, though its two-thirds majority is under threat. His bitter fight with Mbeki has divided their party, giving rise to a splinter group known as the Congress of the People (COPE). Along the way, the reputations of various state institutions have been dragged through the mud, and broader questions have been raised about the country's long-term political stability.

What does Zuma's election mean for South Africa? He is a divisive figure. His ardent supporters attend election rallies in the thousands clad in t-shirts adorned with his beaming face, but a variety of groups have deep anxieties regarding who Zuma is and what he stands for. There is his background, with little formal education, as well as his legal problems: In addition to corruption charges, he was acquitted of rape in 2006. And then, of course, there are his controversial views on issues ranging from homosexuality and polygamy (he has four wives) to pregnant teenagers and the transmission of HIV. Both domestic and foreign investors continue to fear that Zuma is beholden to leftist friends and allies within the ANC and its coalition partners: the Congress of South African Trade Unions and the South African Communist Party.

Over the past 18 months, the charismatic Zuma has worked hard to win over skeptics. He has promised international investors in South Africa, the United States, Britain, and Europe that he and his party will continue the market-friendly policies of the past several years. There are reasons for optimism on this score: The balance of power within the party favors the current policy trajectory, limiting the likelihood of radical shifts in macroeconomic policy.

Yet, a potential Zuma presidency continues to cast a shadow, in part because suspicions of political interference in his corruption case and worries that the whole ordeal has eroded South Africa's rule of law have only intensified. Worryingly, Zuma doesn't appear to have a political vision for the country. When questioned on policy, he often simply points to his party's platform, arguing that it is not for the individual to dictate policy. Consensus-building is often a noble thing, but Zuma will soon have to satisfy the often competing demands of business, labor, and government. It remains to be seen whether he will prove decisive, for example, in resolving cabinet disputes or providing the leadership needed to address some of his country's most serious and chronic problems -- from unemployment and poverty to crime and corruption.

As the global economic crisis begins to bite in South Africa, leadership will be crucial if the country's resilience is to pass this difficult test. Beyond his core supporters, Zuma has yet to inspire that sort of confidence.