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Monday, March 14, 2011

Middle East and North Africa Unrest: Implications for Oil and Natural Gas Markets

Michael Ratner
Analyst in Energy Policy

Neelesh Nerurkar
Specialist in Energy Policy

Political unrest in the Middle East and North Africa (MENA) has contributed to higher oil prices and added instability to energy markets. Supply disruptions and fears about the possible spread of unrest to major exporters have pushed prices higher. Even if the crisis abates, some risk premium may persist to the degree that market participants fear such an event could occur again.

Higher oil prices can negatively impact the economies of oil importing countries. The cost of oil is the primary determinant of gasoline prices and prices of other petroleum products; increased costs can be a burden on households and many businesses. Rising import costs for oil, natural gas and petroleum-based products can be a drag on economic growth by negatively affecting the trade balance. This may slow the current economic recovery, though it is not expected to derail it.

Many energy policy options to address vulnerability to disruptions and higher prices, such as what is taking place in MENA, are long-term in nature. It takes a long time for the energy sector to make material shifts, be they through renewables, efficiency, or increased domestic oil and gas production. Short-term energy policy options (as opposed to the broader national security and diplomatic issues) are limited. Oil exporters with spare production capacity, particularly Saudi Arabia, may make short-term decisions to try to moderate prices by adjusting production levels, but their ability and willingness to do so are often based on internal decisions. For more information on the political unrest in MENA, see the CRS Issue in Focus page on the Middle East and its associated reports.

Part of the U.S. energy policy debate around recent unrest has focused on whether it is appropriate to release oil from the Strategic Petroleum Reserve (SPR). The government holds the SPR to mitigate the impacts of a “severe energy supply interruption.” Proponents of using the SPR point out that there is a disruption to oil production in Libya and the resulting price increase negatively impacts the U.S. economic recovery. Critics question whether this is the appropriate time to release oil from the SPR or whether it should be saved to guard against larger future disruptions, and emphasize that the SPR has not traditionally been viewed as a device to manipulate prices.

Date of Report: March 10, 2011
Number of Pages: 20
Order Number: R41683
Price: $29.95

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