Without question, the biggest story in the new year has been the burgeoning civil unrest in the Middle East and North Africa (MENA), where protests in Egypt, Tunisia, Libya, Bahrain, Algeria and Yemen have fanned concerns about disruptions to global oil supply. In  turn, the skyrocketing price of Brent crude oil has spawned concerns about the nascent global economic recovery.

Many US pundits tend to focus on immediate commonalities between these uprisings–demands for political reform and anger over a spike in food prices and high levels of youth unemployment–neglecting important historical differences and socioeconomic conditions in these nations. Some commentators casually describe the process as an inevitable domino effect, the outlook espoused by George W. Bush’s administration in part to justify the invasion of Iraq.

But just because the mainstream media believes in the end of history doesn’t mean that investors should succumb to the panic and confusion that such an approach entails. When disappointing economic data or unexpected geopolitical events roil global markets, my colleague Elliott Gue, editor of Personal Finance and The Energy Strategist, always delves into the actual data and facts, turning a deaf ear to the media’s alarmist proclamations.

Thus far, Elliott’s analyses have been spot on. For example, when a patch of weaker-than-expected US economic data fanned fears of a double-dip recession, Elliott reassured investors that while economic growth had indeed slowed, a second contraction was decidedly not in the cards.

At the end of 2009, a time when many pundits remained bearish on crude oil, Elliott’s evaluation of supply and demand conditions prompted him to forecast that oil prices would hit $100 in 2010. Although oil prices ultimately fell about $5 short of his target, his 2011 outlook, which called for oil prices to spend much of the year above $100 per barrel and occasionally spike to $120 appears prescient thus far.

During the current crisis in MENA, Elliott’s cool-headed commentary in the free e-zines Personal Finance Weekly and The Energy Strategist Weekly, has proved invaluable. While financial television’s talking heads worked their audience into a lather about the potential shutdown of the Suez Canal, Elliott explained the waterway’s relative unimportance to the global oil trade. His insight into the ramifications of a disruption to Libya’s oil exports, and what it tells us about supply and demand conditions in the global oil market, also featured plenty or profitable advice.

In this spirit, this article will focus on the civil unrest in Algeria and its implications for the country’s oil and natural gas production.

Although Algeria shares a border with Tunisia and Libya, two North African countries where protests have touched off transformative political changes, demonstrations in this oil and gas producing nation are unlikely to plunge the country into political turmoil.

The country’s “Day of Rage” protests failed to attract the critical mass of demonstrations in neighboring countries, despite reports of several self-immolations and an opposition-led march in the capitol city of Algiers that defied the government’s edict.

Without the support of Algeria’s most powerful trade unions, these protests against higher food prices and in support of democratic freedoms bore little threat to three-term President Abdelaziz Bouteflika’s administration. A population that favors stability after the violent civil war that wracked the country from 1991 to 2002 also prevented demonstrations from picking up steam.

Bouteflika on Feb. 24 squelched the likelihood of ongoing protests when his administration announced that it would end the long-standing state of emergency, integral to consolidating power and stabilizing the country in the wake of the civil war, returning the country to normalized rule. The president also promised to reduce interest rates on student loans and accelerate efforts to provide housing for the poor.

But Bouteflika’s most important announcement that day reflects the ongoing power struggle that’s taking place behind the scenes. The president said that sole responsibility for counterterrorism and counterintelligence operations, formerly shared by the Military Directorate of Intelligence and Security (DRS) and the National People’s Army (ANP), shifted entirely to the ANP.

This move suggests that President Bouteflika has gained the upper hand in his battle with General Mohamed “Tewfik” Mediene, head of the Algerian secret service, which was instrumental in stabilizing the country after its civil war and combating Al Qaeda. Mediene’s political, business and labor connections make him a power player as the nation begins to seek an eventual successor to the 73 year-old Bouteflika.

In 2010 Algeria’s national oil company, Sonatrach, found itself caught in this battle of political wills when Mediene’s secret service pursued corruption cases against the company’s CEO Mohamed Meziane as well as six other high-level employees with connections to Bouteflika’s regime. These probes prompted a reshuffling of Sonatracth’s management, postponing a number of important downstream projects.

Regardless of these changes, the mismanagement and corruption that have inhibited the company’s performance and ability to execute are likely to continue.

Despite Algeria’s proven reserves of 12.3 billion barrels of oil and 4.5 trillion cubic meters of natural gas, international oil companies showed only tepid interest in the nation’s last two licensing round, citing unattractive contract terms. For example, in the 2009 licensing round, the National Agency for the Valorization of Hyrdrocarbon Reserves reportedly demanded that operators offer international assets as part of any deal.  

With oil and gas accounting for 97.5 percent of Algeria’s export revenue, the upcoming third licensing round is critical to the country’s economic future, especially after the country’s oil and gas output declined in both 2009 and 2010. The winning bids are expected to be announced at the end of this month.

Meanwhile, the woes afflicting the country’s natural gas output are a testament to Sonatrach’s operational inefficiency. In 2005 the company’s management targeted natural gas production of 120 billion cubic meters per year; recent projections have lowered that goal to 85 billion cubic meters per year, a modest increase from the current base of 65 billion. In terms of the global market for liquefied natural gas, Sonatrach’s woes have provided welcome relief from some of the downward pressure on prices.

Going forward, Sonatrach should continue to muddle along. With oil prices likely to hover at elevated levels, export growth appears to be less of a priority.

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