Rethinking Eu Energy Security Considering Past

Perspectives on Global Development
and Technology 13 (2014) 757-825
PERSPECTIVES
ON GLOBAL
DEVELOPMENT
AND
TEC HNOLOGY
brill.com/pgdt
Rethinking eu Energy Security Considering Past

Trends and Future Prospects
Mehdi P. Amineh
Programme Director: Energy Program Asia (epa) at the International Institute

for Asian Studies (iias), University of Amsterdam, and Webster
University(Leiden)
m.p.amineh@uva.nl
Wina H. J. Crijns-Graus
University of UtrechtCopernicus Institute of Sustainable Development

w.h.j.graus@uu.nl
Abstract
eu energy policy objectives are directed at three highly interdependent areas: energy
supply security, competitiveness and decarbonization to prevent climate change. In
this paper, we focus on the issue of energy supply security. Security of energy supply for
the immediate and medium-term future is a necessary condition in the current context
of the global political economy for the survival of the Union and its component member states. Since the Lisbon Treaty entered into force, energy policy no longer comes
onto the agenda of the European Commission through the backdoor of the common
market, environment and competitiveness. The Treaty created a new legal basis for the
internal energy market. However, securing external supplies as well as deciding the
energy mix, remain matters of national prerogative, though within the constraints of
other parts of eus legislation in force. Without a common defense policy, the highly
import dependent Union and its members face external instability in the energy rich
Arab Middle East and North Africa.
Concern about energy security has been triggered by declining European energy production as well as the strain on global demand exerted by newly industrializing economies such as China and India and the Middle East, as well as the political instability in
this reserve-rich part of the world. This paper explores the following two topics [1] the
current situation and past trends in production, supply, demand and trade in energy in
the eu, against the background of major changes in the last half decade and [2] threats
to the security of the supply of oil and natural gas from import regions.
koninklijke brill nv, leiden, 4|doi 10.1163/15691497-12341326
758
Amineh and Crijns-Graus
Fossil fuel import dependence in the eu is expected to continue to increase in the coming two decades. As global trends show, and despite new fields in the Caspian region
and the Eastern Mediterranean, conventional fossil oil and gas resources remain concentrated in fewer geopolitically unstable regions and countries (i.e. the Middle East
and North Africa (mena) and the Caspian Region (cr) including Russia), while global
demand for fossil energy is expected to substantially increase also within the energy
rich Gulf countries. This combination directly impacts eu energy supply security. It
should be noted that the trend towards higher levels of import dependence was not
interrupted when the era of low energy prices, between 1980 and 2003, came to an end.
Within the eu itself, domestic resistance to the development of unconventional
resources is an obstacle to investment in unconventional sources in this part of the
high-income world. This should therefore not put at risk investments in either renewables or alternative sources at home or conventional resources mainly in the ArabMiddle East.
The situation is exacerbated by the spread of instability in the Arab-Middle Eastern
countries. There are three domestic and geopolitical concerns to be taken into
consideration:
(1) In the Arab-Middle East, threats to eu energy supply security originate in the
domestic regime of these countries. Almost all Arab resource-rich countries belong to a
type of patrimonial, rentier-type of state-society relation. These regimes rely on rents
from the exploitation of energy resources and the way in which rents are distributed.
Regimes of this type are being challenged. Their economies show uneven economic
development, centralized power structures, corruption and poverty at the bottom of
the social hierarchy. The discrimination of females is a major obstacle to the development of the service sector. At present, even the monarchies fear the spread of violent
conflict.
Offshoots of these consequences have proven to cause civil unrest, exemplified by
what optimists have called the Arab Spring.
(2) The second concern is the domestic and global impact of Sovereign Wealth Funds
(swfs) managed by Arab patrimonial rentier states. swfs have proven to be an asset in
both developing and developed economies due to their ability to buffer the Dutch
Disease, and to encourage industrialization, economic diversification and eventually
the development of civil society. In patrimonial states, however, swfs are affected by
corruption and the diversion of funds away from long-term socioeconomic development to luxury consumption by political elites. In fact, Arab swfs underpin the persistence of the Arab patrimonial rentier state system.
(3) Finally, the post-Cold War, me and cea geopolitical landscape is shifting. The
emergence of China and other Asian economies has increased their presence in
the Middle East due to a growing need for energy and the expansion of Asian markets.
The recent discovery of energy resources in the us has led to speculation that there will
be less us presence in the region. There would be a serious risk to eu energy security if
Perspectives on Global Development and Technology 13 (2014) 757-825
Rethinking eu Energy Security
759
emerging Asian economies were to increase their presence in the Middle East as us
interests recede.
Keywords
eu energy policy energy supply security fossil fuels unconventional fossil fuels
the Caspian Region and Central Asia Middle East and North Africa and the Persian
Gulf, China
1 Introduction
Security of energy supply is an important part of the long-term development
goals of the eu, as it supports key policy objectives such as competitiveness
and stability. Concerns for energy security have been triggered by declining
European energy production as well as the strain on global demand exerted by
newly industrializing economies such as China and India and political instability in many energy producing regions such as the Middle East and North Africa
(mena) and the Caspian Region including Russia (cr) (eea 2008; Amineh &
Yang 2010, 2012). Although the eu is believed to hold a significant amount of
shale gas that could contribute to its supply security, the prospects for development appear bleak in a number of member states due to strong environmental
opposition and uncertainty about the true extent of deposits.
The entry into force of the Lisbon Treaty in 2007 created a new legal basis
to eu energy policy. The Treaty legally includes solidarity in matters of energy
policy within the eu. However, member states remain in control over external
supply security and the domestic energy mix. Internal supply security, on the
other hand, is now on the agenda of the Commission. The implication of current eu legislation is that the Union does not have an agency in charge of setting a limit to the level of import dependence.
Although there is no direct common policy aimed at increasing energy
security, energy supply security is linked to a wider set of policies on climate
change such as the Climate and Energy Package of December 2008 (European
Commission 2008) and improving competitiveness. Specific actions of the
Package include increasing energy efficiency by 20 per cent and a 20 per cent
share of renewable energy. An increase in renewable energy would reduce
greenhouse gas emissions and reliance on imported fossil fuels. But the question is, are these policies sufficient to ensure energy supply security? Imports
of fossil fuels have increased in the last decade, in spite of an increase in the
use of renewable energy sources. And what contribution can the deployment
760
of new fossil fuel technologies such as shale oil and shale gas make to energy
supply? There are concerns that many decisions, e.g. on long-term oil or gas
purchases or (low) levels of infrastructure funding are made primarily at a
national level, leading to difficulties in ensuring a coordinated eu approach
to common energy policy across multiple, potentially conflicting objectives
(energy security, environmental and competitiveness) (crs 2008).
This paper explores the following two topics: [1] the current situation and
past trends in production, supply, demand and trade in energy in the eu, against
the background of vast changes in the last half decade; and [2] threats to the
security of the supply of oil and natural gas from regions of import. For the
second topic two regions that include key energy suppliers are distinguished:
Middle East and North Africa (mena): Algeria, Bahrain, Djibouti, Egypt, Iran,
Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta, Morocco, Oman, Qatar,
Saudi Arabia, Syria, Tunisia, United Arab Emirates, West Bank and Gaza,
Yemen.
Of which Persian Gulf (Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi
Arabia and United Arab Emirates)
Caspian region (cr): Azerbaijan, Kazakhstan, Turkmenistan, Iran and
Russia.
The paper is organized as follows. Section 2 discusses concepts and data

sources used in the study. In section 3, current energy policy in the eu is discussed with a focus on the impacts of the different policies on energy supply security. Section 4 analyzes the developments in fossil fuel use and import
dependence in the eu in the period 1990-2012 as well as expected developments in the period up to 2050. These periods cover the implementation of
policies aimed at reducing greenhouse gas emissions leading to increasing
shares of renewable energy use and a reduction of the use of coal. Section 5
discusses developments in global energy demand and supply, in relation to the
impact these may have on future energy security in the eu. Section 6 focuses
on the geopolitical aspects of eu energy supply security from the Persian Gulf
and cr and discusses the political economy of energy of these eu suppliers.
Lastly, section 7 gives conclusions and recommendations.
2
Concepts and Data
Section 2.1 outlines the definitions and concepts used in this study and section
2.2. explains the main data sources used.
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2.1 Definitions
In this section we give definitions for the key concepts used in the analysis of
security of supply issues. These refer to energy security, geopolitics and the
relationship between energy security and geopolitics and between geopolitical
risks and energy security.
Definitions of the concept of energy security range from narrow issues of
physical supply disruption to wider ones engaging the economy, environment
and political consequences of changes in the energy market, resources and
fossil reserves. According to the undp (2004), energy security can be defined
as the availability of energy at all times in various forms, in sufficient quantities and at reasonable and/or affordable prices, without an unacceptable or
irreversible impact on the environment. Energy security can be threatened
by different types of scarcity, which can be affected by different types of geopolitical forces. According to Amineh and Houweling (2003, 2006, 2007), the
need for energy security is enhanced by limited reserves and increasing extraction costs.
The combination of increasing oil and gas consumption, diminishing
reserves and geopolitical rivalry creates a setting for both the eu and other
major consumer countries, such as China, that can be characterized as one
of demand-induced, supply-induced and structural scarcity, or a combination
thereof. We will discuss these three types of scarcity in more detail. Demandinduced scarcity, is caused by three factors. The first is population growth in
consuming countries. The second is rising per capita income in high-income
countries, i.e. the major per capita consumers and importers and in late industrializing economies, particularly in South and East Asia (mainly China and
India), where the bulk of the world population lives. Demand-induced scarcity varies for groups at different levels of per capita income. Those who cannot afford market prices find themselves excluded without any actor deciding
to exclude them. Owing to the lopsided distribution of societies, according
to their level of per capita income, demand-induced scarcity will enter into
high-income societies last. These are the countries that industrialized first,
using cheap energy. The third is technological change. The history of technological change since the 1850s has rendered access to fossil energy more, not
less, important for the production of wealth and power. Without energy, other
resources cannot be mobilized or used. Technological innovation, governance,
and households depend on it.
Supply-induced scarcity is caused by the dwindling of stock. In reality,
demand- and supply-induced scarcity interact. Extraction costs, refining and
retail plus profit mark-ups determine offer price. The intersection of demand
and supply determine consumer price. However, supply-induced scarcity
762
should be studied in its own right. One reason is that the dwindling of stock is
not translated by the price mechanism into gradual price increases. However,
price volatility will increase as awareness spreads that stocks are dwindling.
Supply-induced scarcity, or its anticipation, may provoke a process of competitive power projection by economically as well as military capable and importdependent nations aiming to gain control over stock or territory where stocks
are located either by strategic investment or force. Domestic regime strength
and military capability determine the capacity of target countries to ward off
unwanted cooperation by outsiders.
This brings us to the third type of scarcity, called structural scarcity.
Structural scarcity is supply-induced by the deliberate action of a major power,
by non-state actors such as major oil companies or by producer cartels such as
the Organization of Petroleum Exporting Countries (opec) and also powerful National Oil Companies from resource-rich countries. Past experience with
creating structural scarcity is not inspiring. In the run-up to World War One,
the British blocked Germanys Berlin-Baghdad rail project; during World War
Two, Nazi Germany competed with the British for influence in Iraq and tried to
capture Baku. Japan waged war with America to gain access to oil in the Dutch
Indies. A major power that manages to gain control over conditions of access
by third parties to the stock has the option of inducing scarcity for selected
outsiders (see Yergin 1991; Bromley 1991).
In the current unipolar military order, the us can opt to induce scarcity for
allies, competitors and enemies alike by interdicting the maritime transport of
oil and gas. That option, however, is available only after oil and gas have been
brought to ports and ships from the territory of extraction. By extending the
countrys defense perimeter into the heartland of energy supply, America is
equipping itself with the capacity to induce structural scarcity for contenders
by diverting flows on land. This is the aim of energy foreign policy. Particular
attention is given to keeping the region richest in oil, the Persian Gulf, within
the American sphere of geopolitical power projection.
The Russo-Ukrainian gas crisis of 2009 provides an excellent illustration of
how Gazprom induced structural scarcity for 18 European countries simply by
shutting down the gas pumps, which are under the control of Gazprom. In
recent decades there have been many instances of structural-induced scarcity;
for example, the overthrow of the Premier Muhammad Mossadeq of Iran in
1953 and the support for and alliance with Saddam Hussein in Iraq, until he
invaded Kuwait (See Yergin 1991; Amineh 1999; Klare 2001; Abrahamian 2013).
In this study, we will focus on the availability of oil and gas in sufficient
quantities, and in particular on the risks of oil and gas supply disruptions.
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The research consists of two parts; a quantitative part that assesses risks to
energy security based on indicators and a second part that focuses on geo
political risks.
In the first part, we identify developments for demand-induced and supplyinduced scarcity. The indicators used to analyze developments include import
dependence, fossil fuel production in the eu and globally, fossil fuel reserves in
the eu, shale oil and shale gas reserves and global developments in energy consumption and supply. We examine trends in the period 1990-2012 and future
predictions.
In the second part, geopolitical risks are assessed through a qualitative analysis. A geopolitical risk to the security of supply of the eu is when a change or
breakdown in the global system, or a part of that system, occurs (exclusivity/
discrimination, autarky, war/civil war, political boycott, failed states, terrorism,
power rivalry), which results or could result in absolute or relative disruption
of energy (oil and gas) flows to the eu.
2.2
Data Sources
The main data sources used are described briefly below. All energy data presented in this paper is based on the lower heating value.
iea Energy Balances are used for general developments in energy demand
and supply (iea 2013). For import dependence the Eurostat Statistics Database
(Eurostat 2014) is used. This database includes imports and exports to countries within the eu, by country of origin or destination. Conversion rates used
are 41.868 tj/tonne crude oil and 29.3 gj/tonne coal. Natural gas use given in
tj-higher heating value is converted into lower heating value with a factor
of 0.9.
Import dependence at the eu level is calculated by dividing net imports
(imports - exports) to eu countries by gross inland consumption. For exports
the following data tables are used: nrg_134a for natural gas; nrg_133a for
crude oil and nrg_132a for solid fuels. For imports: nrg_124a for natural gas;
nrg_123a for crude oil and nrg_122a for solid fuels. For gross inland energy
consumption and production data tables: nrg_101a for solid fuels; nrg_102a for
oil; nrg_103a for gas and nrg_100a for total gross inland energy consumption
are used.
Unless otherwise specified, the data for the eu refer to eu28 and thereby
include Croatia who joined the eu in 2013. Due to data availability, data for
eu27 is also shown in a number of cases. It should be noted that the inclusion
of Croatia has a very low effect on the numbers since it accounts for only 0.5
per cent of primary energy use in eu27 in 2011 (iea 2013).
764
For fossil fuel reserves the British Petrol Statistical Review of World Energy
2013 (bp 2013) is used. The conversion factors used are: one cubic foot of natural gas equals 0.9783 mj and one barrel of oil equivalent (boe) equals 5.4 gj
(both lower heating value). Shale oil and gas reserves are based on the report
Technically Recoverable Shale Oil and Shale Gas Resources by the us-Energy
Information Administration (2013).
Future projections are based on a number of sources including the World
Energy Outlook 2012 (iea 2012), bp Energy outlook 2030 (bp 2011, 2012), the
International Energy Outlook by us eia (2012, 2013f) and official eu projections (European Commission 2013d).
3
The European Unions Energy Security Policy
Energy supply security in the eu was addressed in the green papers Towards a
European Strategy for the Security of Energy Supply (European Commission
2000) and A European Strategy for Sustainable, Competitive and Secure
Energy (European Commission 2006). The latter paper discusses Europes
dependence on imported energy (demand induced scarcity) and fluctuations
in demand and that action is needed to ensure that there is an uninterrupted
energy supply. It discusses several ways to achieve this:
Opening up the markets because it is believed that it creates a stable, competitive environment that companies want to invest in.
Creating a European Energy Supply Observatory to monitor the energy market and identify potential shortfalls.
Re-examining the Directives on gas and electricity security of supply from
the perspective of security of supply, particularly with regard to the eus oil
and gas stocks.
The choices of member states for their energy mix could be reviewed at the
European level by means of a Strategic eu Energy Review. This Review
would offer member states a clear European framework for choosing their
energy mix, which would take into account sustainability, competitiveness
and security of energy in the eu.
An integrated approach towards tackling climate change that involves
energy efficiency improvement and renewable energy use.
The green papers formed the basis of energy policy in the eu. Electricity and gas
markets were liberalized in the period 1998 to 2004 and a Market Observatory
765
for Energy was established in 2008. Strategic Energy Reviews in 2007 (com
2007/1) and 2008 (com 2008/0781) led to the European Councils agreement on
energy policy targets for Europe.
As a result, in December 2008, an energy and climate change package
was adopted to deliver the objectives of reducing greenhouse gas emissions,
increase energy efficiency and renewable energy use by 2020 (com 2008/30).
Central to the strategy is a strengthening and expansion of the Emissions
Trading Scheme (ets). Emissions from the sectors covered by the system will
be cut by 21 per cent by 2020 compared with levels in 2005. Emissions from
sectors not included in the eu ets (such as transport, housing, agriculture and
waste) will be cut by 10 per cent from 2005 levels by 2020. The overall target for
the eu is to reduce 20 per cent of its greenhouse gas emissions by 2020 in comparison to 1990. For renewable energy use the target is to generate 20 per cent
of final energy demand with renewable energy sources by 2020, which is legislated through the re Directive (com 2008/19). The Directive establishes an
overall eu binding target of 20 per cent of renewable energy sources in energy
consumption, as well as binding national targets by 2020 in line with the
overall target. The Directive on energy efficiency (com 2012/27) established
a framework for the achievement of 20 per cent energy efficiency improvement by 2020 (measures include e.g. ecodesign, labeling, energy performance
of buildings, energy efficient products and cogeneration). Lastly, the package
promotes the deployment of Carbon Capture and Storage (ccs) through the
ccs Directive (com 2009/31).
In order to support the goals set for 2020, the European Strategic Energy
Technology (set) Plan was developed. This plan aims to accelerate the development of low carbon technologies (e.g. in the area of renewable energy,
energy conservation, nuclear reactors and ccs). Furthermore, it sets the ambitious target for 2050 of an 80-95 per cent reduction in eu greenhouse gas emissions in comparison to 1990 levels (European Commission 2010).
The energy and climate package will, in principle, have a positive impact on
energy security. More use of renewable energy sources will increase the amount
of indigenous energy production in the eu (with the exception of biomass
imports). Energy efficiency improvement is a necessary step, if not for reducing absolute energy use, then at least for limiting the growth of energy use.
Limiting energy use results in less needed energy imports in absolute terms.
The implementation of carbon capture and storage also could impact energy
security positively. It would allow continued use of coal, whilst still reducing
greenhouse gas emissions. Since eu member states have larger reserves of coal
than gas or oil this could improve security of supplies (wec 2007).
766
The 2nd Strategic Energy Review stipulates that a number of infrastructure developments should be recognized as energy security priorities of the
Community. These include:
Better linking of the Baltic region with the eu,

Development of a Southern Gas Corridor for supply from crs and the
Middle Easts sources;
Sufficient lng capacity or availability for all member states on basis of
solidarity arrangements,
Completion of a Mediterranean energy ring, linking Europe with the
Southern Mediterranean through electricity and gas interconnections
(to also help develop the vast solar and wind energy potential),
Development of North-South gas and electricity interconnections within
Central and South-East Europe,
Development of a blueprint for a North Sea offshore grid, interconnecting
national electricity grids and plugging in planned offshore wind projects,
Consolidate the partnership with Russia to make it more stable, and
The diversification of energy import to secure sustainable supply of oil
and gas.
As a follow-up, in 2008 the Commission tabled the Green paper Towards

a Secure, Sustainable and Competitive European Energy Network (com
2008/782). It discusses the aging European energy networks and poor east-west
and south-north connections. These make it more difficult for energy to move
around the eu and makes some regions more vulnerable to supply disruption.
With energy imports set to rise, new import routes are urgently needed to give
the eu greater flexibility in its supplies. Furthermore, the paper states that
a clear and stable legal framework is the main precondition for stimulating
private sector investment in generation and transmission/transport. Creating
this framework is one of the principal aims of the energy and climate package
and the third internal energy market package on the completion of the internal gas and electricity market. The third internal energy market package (ip
2007/1361), adopted in 2009, should stimulate investments, synergies, efficiencies and innovation in energy networks.
Umbach (2010) analyzed the degree to which the implemented policies
contribute to ensure energy security in eu. He found that, although energy
security has forced its way up the European policy agendas, the member states
have largely failed to forge a coherent European energy security strategy after
the Spring summit of 2007. Political solidarity has still been lacking, despite
the solidarity clause in the Treaty on the Functioning of the European Union.
767
The 2nd Strategic Energy Review of November 2008 has, on the other hand,
recommended new initiatives to overcome this lack by promoting concrete
infrastructure and political solidarity. If the eu is able to implement the decisions this could have beneficial impacts on energy security.
The planned infrastructure developments are on their way and are aimed at
diversifying primarily natural gas imports. A Southern Gas Corridor to transport natural gas from the Caspian region via Turkey to Austria are planned to
be in operation by 2019 (Ratner et al. 2013). Russias energy strategy is one of the
main constrains of the project. The construction of the Russian pipeline, South
Stream and the involvement of the Eastern European countries weaken, both
commercially and geologically, the pipelines in the context of the Southern
Gas Corridor. In this project, however, Gazprom cooperates with major western
banks and European energy companies as eni, edf and Wintershall as shareholders. The project promises to improve gas supply to East European countries. In 2012, the Nord Stream pipeline went into operation, which directly
connects Russia to Germany. The infrastructure developments are necessary
to facilitate required natural gas imports and to increase the diversity of supply from different regions. However, good infrastructure opportunities might
increase energy imports further and, in that way, have an uncertain impact on
energy security. The Russian South Stream and Nord Stream, by illustrating
the Russian determination and its strategy to control the transit routes to the
Union, determine the diversification efforts of the eu.
To conclude, although policies at eu level and individual member state
level1 will have booked some successes in the field of energy security, import
fossil fuels dependence in the eu has only increased in recent years, as we will
show in section 4. Furthermore, it is questionable whether the implemented
policies are sufficient to change the trends in the period up to 2020.
4
Import Dependence in eu: Past Trends and Future Developments
Due to a combination of high consumption, few resources and limited domestic production, the eu is a net importer of energy. In this section we will
1 The introduction of a mandatory and comprehensive eu energy policy was approved at the
meeting of the European Council in 2005. The eu Treaty of Lisbon of 2007 legally includes
solidarity in matters of energy policy within the eu. In practice, however, the implementation of energy policies remains mainly at the national member state level. Member states
have implemented policies in different ways and have, in some cases, established additional
policies for energy security.
768
examine developments in import dependence in the last two decades in the

eu. First, we discuss the development of total primary energy use and the reliance on fossil fuels (section 4.1). After that, we will assess import dependence
per fossil fuel (section 4.2 for natural gas, 4.3 for crude oil and 4.4 for coal), to
be followed by the overall import dependence of energy supply (section 4.5).
Lastly, we discuss developments in fossil fuel production in the eu (section
4.6) and future trends (4.7).
4.1
Total Primary Energy Use
Figure 1 shows the development of total primary energy supply in eu27 in the
period 1990-2011, by energy source. A number of things are apparent when
looking at the trends. First, the share of coal in the fuel mix has decreased to be
replaced by a higher use of natural gas. Oil and nuclear have remained roughly
the same. Second, fossil fuels are an important part of primary energy supply.
Their share has slightly decreased from 83 per cent in 1990 to 79 per cent in
2000 and 75 per cent in 2011, primarily to be replaced by more biofuels/waste
use, which increased from 3 per cent in 1990 to 8 per cent in 2011 (see Figure 2).
The total share of renewable energy increases from 5 per cent to 11 per cent in
this period.
Total primary energy supply (pj)
80,000
70,000
60,000
Other
Geothermal
Solar/wind/other
50,000
Hydro
40,000
Biofuels and waste
30,000
Nuclear
20,000
10,000
Oil
Coal
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Natural gas
figure 1
Total primary energy use in eu27 by source (based on iea, 2013).
769
Total primary energy supply (pj)
100%
90%
Other
80%
Geothermal
70%
Solar/wind/other
60%
Hydro
50%
Biofuels and waste
40%
Nuclear
30%
Natural gas
20%
0%
figure 2
Oil
10%
Coal
1990
1995
2000
2005
2011
Primary energy use in eu27 by source (based on IEA, 2013).
4.2
Natural Gas
Figure 3 and Figure 4 show the origin of natural gas use in the eu28 in the
period 1990-2012 by country. The category own supply refers to natural gas
that is produced and consumed within a countrys border. Intra eu imports/
exports refer to natural gas that is imported and exported by countries
within the eu28. This consists for 95 per cent of natural gas exports from the
Netherlands to, mainly, Germany, Italy and Belgium. The figures show that net
imports of natural gas in the eu come primarily from Russia, Norway, Algeria,
Qatar and Nigeria, in recent years. In the period from 1990 some shifts are
visible. The contribution of Norway has increased from 7 per cent to 22 per cent.
Furthermore, the entrance of Qatar is visible, starting with 1 per cent in 2004
and increasing to ~7 per cent in 2010-2012.
Total net imports for natural gas supply amount to 64 per cent in 2012. This
is a strong increase in comparison to 1990 where net imports amounted to ~46
per cent. The difference can be explained by a decreasing share of domestic
supply and an increase of imports from Norway. If we ignore Norway, which is
closely related to the eu28, the import dependence reduces to 37 per cent in
1990 and to about 40-45 per cent in the years 2000-2012.
A large share of natural gas imports comes from the mena region (Middle
East and North Africa)2 and the Caspian Sea Region.3 In 2012, these countries
2 Algeria, Bahrain, Djibouti, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Malta,
Morocco, Oman, Qatar, Saudi Arabia, Syria, Tunisia, United Arab Emirates, West Bank and
Gaza, Yemen.
3 Azerbaijan, Kazakhstan, Turkmenistan, Iran and Russia.
770
deliver 62 per cent of natural gas imports, which is a decrease in comparison to

1990 when 85 per cent originated from these regions. This is mainly a result of
the increasing share of Norway in imports.
Natural gas use by country of origin (pj)
20,000
18,000
Egypt
16,000
Nigeria
14,000
Qatar
12,000
Algeria
10,000
Norway
8,000
Russia
6,000
Other and non-specified
4,000
0
figure 3
Intra-eu imports/exports
2,000
Own supply
1990 1995 2000 2005 2010 2011 2012
Natural gas supply in eu28 by country (based on Eurostat, 2014).
Natural gas use by country of origin (pj)
100%
90%
Own supply
80%
70%
60%
Egypt
50%
Nigeria
40%
Qatar
30%
Algeria
20%
Norway
10%
Russia
0%
figure 4
1990
1995
2000
2005
2011
2012
Natural gas supply in eu28 by country as shares (based on Eurostat, 2014).
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4.3
Crude Oil
Figure 5 shows the development of crude oil use in eu28 by country of origin,
in the period 1990-2012. There is a growing trend for crude oil supply up to
2005; thereafter oil use decreases and seems to stabilize in 2011-2012. Both in
an absolute and a relative sense there is a strong increase of crude oil supply
from Russia, from 1 ej in 1990 to 7 ej after 2002, with an increasing share from
5 per cent to 30 per cent after 2004 (see Figure 6). Import dependence of oil
has increased from ~75-80 per cent in the period 1990-2000 to ~83-88 per cent
in the period 2006-2012. Excluding Norway, these figures reduce to 60 per cent
in the Nineties and around 75 per cent in 2010-2012. Domestic and intra eu
supply have decreased from 20 per cent in 1990 to 12 per cent in 2012. Intra eu
imports and exports consist mainly of oil supply from uk and Denmark to the
Netherlands, Germany, Sweden and France.
Like natural gas, a large share of oil imports originate from the mena and
Caspian Sea region, corresponding to 72 per cent in 2012. Contrary to natural gas, this is an increase in comparison to the 1990 level when the share of
imports from these regions was 66 per cent.
Crude oil use by country of origin (pj)
30,000
Own supply
25,000

Iran
20,000
Algeria
Azerbaijan
15,000
Iraq
Kazakhstan
Nigeria
10,000
Libya
Saudi Arabia
5,000
0
figure 5
Norway
Russia
1990 1995 2000 2005 2007 2009 2011 2012
Crude oil supply in eu28 by country of origin (based on Eurostat, 2014).
772
100%
Own supply
90%
Intra-eu import/export
80%

Iran
70%
Algeria
60%
Azerbaijan
Iraq
50%
Kazakhstan
40%
Nigeria
30%
Libya
20%
Saudi Arabia
Norway
10%
0%
figure 6
Russia
1990
1995
2000
2005
2011
2012
Crude oil supply to eu28 by country of origin as shares (based on Eurostat, 2014).
4.4 Coal
The development of coal supply in the eu clearly shows the impact of the economic crisis, with a sharp decrease of coal supply in 2009 and an increasing
trend thereafter (see Figure 7). As was the case for natural gas and crude oil,
Russia is also the biggest supplier of coal to the eu. Its share increased in the
period 2000-2008 from 4 per cent to 13 per cent; after that it stayed fairly constant (see Figure 8). The second source of coal is from Colombia, which contributed 12 per cent in 2012, followed by the United States with 12 per cent and
Australia with 4 per cent. Other countries have fairly small shares. The contribution of South Africa slowly decreased from 12 per cent in the early 2000s to
3 per cent in 2012. Overall import dependence on coal increased sharply from
21 per cent in 1990 to 51 per cent in 2012. Notable is the increase of the United
States in coal imports in 2011. As a result of the shale gas revolution, the us has
increased the level of its coal exports (euiss 2013).
Coal production in the eu amounted to nearly 7 ej in 2012 of which about 1
ej was exported to countries outside the eu (mainly Bosnia and Herzegovina,
Norway, Turkey and Switzerland), leaving about 6 ej for domestic use and 6 ej
of imported coal (Eurostat 2014).
773
20,000
18,000
Own supply
16,000
14,000
Ukraine
12,000
Canada
10,000
Indonesia
8,000
South Africa
Australia
6,000
United States
4,000
Colombia
2,000
0
figure 7
Russia
1990 1995 2000 2005 2007 2009 2011 2012
Coal supply in eu28 by country of origin (based on Eurostat, 2014).
100%
90%
Own supply
80%
70%
Ukraine
60%
Canada
50%
Indonesia
40%
South Africa
30%
Australia
20%
United States
0%
figure 8
Colombia
10%
Russia
1990
1995
2000
2005
2011
2012
Coal supply in eu28 by country of origin as shares (based on Eurostat, 2014).
4.5
Total Primary Energy Supply Security
Table 1 summarizes net import rates per fossil fuel source in eu. While looking at the trends in imports of the different fossil fuels, we saw that crude oil
and natural gas have the highest import rates of 88 per cent and 65 per cent in
2012, respectively. Excluding Norway, these figures decrease to 78 per cent and
774
40 per cent, respectively. The import rate for coal is 51 per cent in 2012 and thus
comparable to the natural gas import rate excluding Norway.
All fossil fuels show increasing rates of import dependence in the period
1990-2012. The share of natural gas imports increased from 46 per cent to ~65
per cent, crude oil from 75-80 per cent to 85-88 per cent and coal from 21 per
cent to 51 per cent.
The overall import dependence for total primary energy supply in the eu
amounts to 53 per cent in 2012, coming from 43 per cent in 1990. Excluding
Norway, these shares were 39 per cent in 1990 and 47 per cent in 2012.
table 1 Net import rate in eu per fossil fuel source (share of energy use in eu28 that is net
imported)
Coal
Natural gas
Oil
Total primary
energy use
1990
1995
2000
2005
2010
2011
2012
21%
46%
80%
43%
25%
44%
75%
43%
36%
49%
76%
46%
45%
59%
82%
52%
44%
63%
85%
52%
47%
67%
86%
54%
51%
64%
88%
53%
Source: Based on Eurostat (2014).
90,000
Total primary energy supply (PJ)
80,000
70,000
Coal imports
60,000
Natural gas imports
50,000
Crude oil imports
40,000
Intra eu
30,000
Own supply
20,000
10,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
figure 9
Total primary energy use in eu28 by type of origin (based on Eurostat, 2014).
775
Figure 9 shows the development of total primary energy use in the eu, broken
down by the origin of the energy. The category own supply includes energy supply coming from fossil fuel production, renewable energy and nuclear energy
use within eu countries. Intra eu refers to supply from other eu countries
inside the eu and consists mainly of natural gas supply from the Netherlands
and oil supply from the uk. The figure shows that of fossil fuel imports, crude
oil is highest in an absolute sense, followed by natural gas imports.
Figure 10 shows a breakdown of primary energy supply by country of origin. All countries supplying more than 1 ej of fossil fuels to the eu in 2011 are
included. Two main countries can be identified as sources of fossil fuel: Russia
and Norway. Their shares have increased from 8 per cent in 1990 to 18 per cent
in 2012 for Russia and from 4 per cent to 9 per cent for Norway. The remaining
imports are coming from a number of countries, such as Algeria (natural gas),
Saudi Arabia (oil) and Columbia (coal). The share of mena and the Caspian
Sea Region in total imports equated to 62 per cent in 2012, which is the same
level as in 1990.
Total primary energy use (pj)
100%
Other
90%
Iran
Azerbaijan
80%
Qatar
70%
Kazakhstan
60%
United States
Colombia
50%
Saudi Arabia
40%
Algeria
30%
Nigeria
Norway
20%
Russia
10%
0%
eu28
1990
1995
2000
2005
2010
2011
2012
figure 10 Total primary energy use in eu28 by country of origin as shares (based on Eurostat,
2014).
776
Coal
an
ia
kR
ep
ub
li
Ge c
rm
an
y
Po
lan
Ne
d
th
er
Un
lan
ite
d K ds
in
gd
om
ar
k
nm
Ita
ly
ee
ce
Oil
Cz
ec
De
Bu
Hu
ng
Gr
lga
ria
Natural gas
Ro
m
4500
4000
3500
3000
2500
2000
1500
1000
500
0
ar
y
Fossil fuel production (pj)
4.6
Production of Fossil Fuels in the eu and Reserves
In the sections 4.2-4.5 we discussed decreasing amounts of own supply of fossil
fuels within the eu. In this section we will discuss production and reserves of
fossil fuel sources in comparison to consumption.
Figure 11 shows fossil fuel production in 2012 by country. More than 70 per
cent of fossil fuel production in the eu occurs in only four countries: the uk,
Germany, Poland and the Netherlands. The remaining countries have an overall low fossil fuel production. Of fossil fuel production, coal is the largest with
43 per cent, followed by natural gas with 38 per cent and oil the remaining 18
per cent in 2012.
Figure 12 shows the trend of fossil fuel production in the eu in the period
1990 to 2012. In comparison to 1990, oil production in the eu has decreased by
43 per cent in 2012, natural gas by 19 per cent and, most notably, coal by 55 per
cent. In the last 20 years, many coal mines in Europe were closed, mainly under
the influence of cheaper imported coal. In 2008, the European Commission
paid 3 billion Euros in state aid to mines (Euroserver 2010). By 2018, subsidies to
coal mines will end and loss making coal mines will be closed by 2014 (Hrushka
2010). Further decreases in coal production are therefore to be expected.
figure 11 Fossil fuel production in eu28 by country in 2012 (based on Eurostat, 2014).
777

18000
Coal
16000
Oil
Production (pj)
14000
Natural gas
12000
10000
8000
6000
4000
2000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
figure 12 Fossil fuel production in eu28 in period 1990 to 2012 (based on Eurostat, 2014).
table 2 Consumption, production and reserves per fossil fuel source in 2012 in EJ and between
brackets global share
Unit: ej in 2012
Oil
Natural gas
Coal
Consumption
Production
Reserves
26 (15%)
3 (2%)
37 (0.4%)
18 (14%)
6 (5%)
60 (1%)
12 (4%)
7 (3%)
1629 (7%)
Source: bp (2013).
Table 2 shows how consumption, production and reserves of fossil fuels in the
eu compare and what their global share is. In 2012, oil consumption amounted
to 26 ej in the eu, equal to about 15 per cent of global consumption. This represents a 4.6 per cent decrease compared to 2011 and interrupts a longstanding
rising trend. Oil production has declined over the last year and now stands at
approximately 3 ej per year, or 2 per cent of global production. Even worse for
778
future prospects are the eus oil reserves, which currently stand at 37 ej, a staggeringly low 0.4 per cent of global reserves and declining (bp 2013).4
The statistics on natural gas are not much more optimistic. In 2012, gas consumption stood at 18 ej, or 14 per cent of total world consumption, which is a 2
per cent decrease from the year before and again interrupts an overall increasing trend. At the same time, gas production in 2012 fell 7 per cent on the previous year to 6 ej (Eurostat 2014), continuing the decreasing trend and making
eu production 5 per cent of global production. Again, the state of the reserves
further aggravates the problem, with the current standing at 60 ej or 1 per cent
of global reserves and decreasing (bp 2013). In other words, the eu possesses
insufficient natural gas and oil reserves to meet future demand.
For coal the situation is different, mainly in terms of reserves. Coal consumption is somewhat lower in comparison to natural gas and oil with 12 ej,
representing 4 per cent of global consumption. Coal production, on the other
hand, is higher with 7 ej in 2012, equivalent to 3 per cent of global coal production. Most notable, however, are coal reserves, which are much higher, representing 7 per cent of global reserves with 1629 ej, sufficient to meet more than
100 times coal consumption in the eu in 2012.
These data include conventional fossil fuel production and reserves, but
what about unconventional resources? Table 3 shows estimated reserves for
shale oil and shale gas in the eu by country. Clearly these are higher than conventional reserves of oil and gas with 70 ej for shale oil and 462 ej for shale gas,
equivalent to 3.7 per cent and 6.6 per cent of global shale oil and gas reserves,
respectively. Shale oil reserves are thereby limited in comparison to consumption and would barely be sufficient for three years. Shale gas reserves, on the
other hand, would cover nearly 30 times the 2012 consumption. However,
countries in the Middle East, North Africa and Russia are estimated to have
large reserves of shale gas (~1400 ej) and shale oil (~700 ej) (derived from
us eia 2013a). So, local shale gas production might compete with importing
(cheaper) shale gas.
This section clearly showed the decreasing fossil fuel production in the
eu and increasing import dependence in the last two decades. In terms of
reserves, only coal and shale gas production are options for larger scale fossil fuel production within the eu, sufficient to cover demand for a couple of
decades. However, with the trend of mine closure due to cheaper imports,
tapping the coal reserves would be an unlikely development, at least in the
short term. The production of shale gas, on the other hand, is under discussion
4 Conversion factors used: natural gas: 35 mj per cubic meter, oil: 5.4 gj per barrel of oil, coal:
29 gj per tonne.
779

table 3
Unproved technically recoverable shale gas and shale oil in the European Union
In ej
Shale oil
Shale gas
Bulgaria
Denmark
France
Germany
Netherlands
Poland
Romania
Spain
Sweden
United Kingdom
European Union
1
0
25
4
16
18
2
1
0
4
70 (3.7%)
17
31
134
17
25
145
50
8
10
25
462 (6.6%)
Source: us eia (2013a).

Note: Conversion factors: 1 cubic foot natural gas = 0.9783 mj (lower heating value). 1 boe =
5.4 gj (lower heating value).
and drilling tests are being conducted in many eu countries. In the us, shale
gas contributes to 34 per cent of total natural gas production in 2011 (us eia
2013b). It seems likely that (some) eu countries will follow sooner or later.
Furthermore, it is apparent that for oil both global reserves and own eu
reserves look bleak. The combination of renewables and electric transport
would therefore be a way to enhance energy security. The combination might
also be beneficial to help balance the supply and demand of electricity, for
example, charging electric cars at night when electricity demand is low, but
wind production may be comparatively high.
In terms of import dependence, the large share of Russia and Norway in fossil fuel imports is noticeable. Natural gas production in Norway is still increasing, but natural gas reserves are exploited at a rapid pace (Soederbergh et al.
2009). After 2020, decreasing production is expected, leading to a possibly
lower role of Norway in gas supply.
4.7
Trends towards Fossil Fuel Import Dependence in eu
Expectations are that the eus dependence on fossil fuel imports will continue to grow. The European Commission has repeatedly warned since 2000
(Green Paper) that the eus net energy import dependency will rise from
51 per cent in 2005 to 70 per cent of the eus total energy requirements by 2030.
780
Moreover, in 2011, 40 per cent of the eus oil imports originate from mena
countries; by 2030 this figure will reach 90 per cent. The situation for gas is
similar. In 2012, 35 per cent of the eus gas imports came from Russia, 34 per
cent from Norway and 15 per cent from Algeria. According to the European
Commission, by 2030, this is expected to be 60 per cent from Russia and an 80
per cent overall import dependency (bp 2012). It is a particular cause for alarm
that the eus import dependency on gas from Russia is likely to grow and that
gas is increasingly replacing oil as the main energy source.
The Energy and Climate package is expected to have a positive impact
on energy security. But what will the impact of the 20-20-20 targets be on
import dependence? The document eu Energy, Transport and ghg Emissions
Trends to 2050 (European Commission 2013d) presents a reference scenario
that includes the expected impacts of these policies. In this scenario, eu primary energy use decreases from at 74 ej in 2010 to about 68 ej in the period
2020-2050. In spite of the implementation of energy efficiency and renewable
energy, net imports increase from 53 per cent in 2012 to 57 per cent in 2030 and
59 per cent in 2050. This is mainly related to decreasing eu fossil fuel production, which is partly compensated for by increasing renewable energy supply.
Fossil fuel production within the eu decreases from 18 ej in 2010 to 11 ej in
2030 and 6 ej in 2050, whereas renewable energy supply increases from 6 ej in
2010 to 12 ej in 2030 and 15 ej in 2050 (see figure 13). Net natural gas imports, as
share of natural gas consumption, increase from 64 per cent in 2012 to 72 per
cent in 2030 and 83 per cent in 2050. Oil imports increase from 88 per cent in
2012 to 90 per cent in 2030 and 97 per cent in 2050. Lastly, coal imports reduce
slightly from 51 per cent in 2012 to 49 per cent in 2030 and to 44 per cent in 2050.
To conclude, trends predict a growing import dependence in the eu, but
it is only one of the factors that influence energy security. The importance of
import dependence for energy security within eu will depend largely on global
developments in the field of energy supply and demand. Therefore, in section
5 we will examine expected developments in the field of energy demand, on
the one hand, (section 5.1) and energy supply (section 5.2), on the other hand.
5
Developments in Global Energy Demand and Supply
5.1
Developments in Global Energy Demand
Global primary energy demand, according to the International Energy
AgencyWorld Energy Outlook 2012 (iea 2012), is projected to increase by
over one third over the period 2012 to 2035, although this is greatly dependent
on, among other things, the level of economic growth until then. Sixty per
cent of this growth is expected to be underpinned by rising living standards in
781

45
40
Production (ej)
35
30
25
20
15
10
res
Nuclear
Natural gas
Oil
Coal
5
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
45
40
Net imports (ej)
35
30
25
20
Natural gas
15
Oil
10
Coal
5
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050
figure 13 Production and net imports in eu in period 1990-2050 in reference scenario (based on
eu, 2013).
China, India and the Middle East. Meanwhile, there is a pronounced shift away
from oil, coal (and, in some countries, nuclear) towards natural gas and renewables. The growth of demand in industrialized or Organization for Economic
Cooperation and Development (oecd) countries, such as eu member states
and the us, will be more modest, given that they already have high levels of
per capita use. As a result, it is predicted that in 2035 more than 30 per cent
of world energy demand will come from developing countries and specifically from China, which is now the largest leading global energy consumer.
782
According to bp, China has already overtaken the us as the worlds biggest
energy user since 2010, with a total share of energy consumption of 22 per cent
in 2012, compared with 18 per cent for the us (bp 2013).
Over the next two decades, oil is expected to remain the main fuel for industries and households, accounting for about 40 per cent of global energy consumption. It is expected that global oil demand will increase by 33 per cent
from 171 ej in 2010 to 227 ej in 2040 (see table 4).
The us eia (2013f) anticipates an even higher growth for the global demand
of natural gas during the period 2010-2040 of 63 per cent, from 111 to 181 ej.
Gas import dependency will increase substantially in all major consumer markets, except for East and Southeast Asia, where import dependency is already
very high.
Table 4 shows that in most industrialized countries, total oil demand is
expected to decline as natural gas use increases. High annual growth rates are
estimated for natural gas use in China (5.3 per cent) and Africa (3.1 per cent).
For oil, highest annual growth rates are expected for India (3.1 per cent) and
China (2.5 per cent).
table 4
Projected global oil and natural gas consumption 2010-2040
Region/country
Oil
ej
2010
North America
us
oecd Europe
Industrialized Asia
Japan
South Korea
Non-oecd Europe and
Eurasia5
Russia
46
37
29
15
8.7
4.3
9.5
5.9
Natural gas
2040
Annual
average
growth
2010-2040
(%)
48
0.1
37
0.0
28
0.1
16
0.1
7.7 0.4
5.3 0.6
14
1.2
7.7
0.9
2010
2040
Annual
average
growth
2010-2040
(%)
29
23
19
6.6
3.7
1.5
21
41
29
24
10
5.1
2.4
29
1.2
0.7
0.7
1.3
1.0
1.7
1.0
15
19
0.9
5
Central Eurasia: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgystan, Tajikistan,
Turkmenistan and Uzbekistan.
783

Region/country
Oil
ej
2010
Natural gas
2040
Developing Asia
39
77
China
18
39
India
6.5 16
Central and South America 12
16
Middle East
13
20
Africa
6.7
9
World Total
171
227
Annual
average
growth
2010-2040
(%)
2.3
2.5
3.1
1.0
1.3
1.0
0.9
2010
2040
Annual
average
growth
2010-2040
(%)
14
3.7
2.3
4.8
13
3.5
111
36
17
4.0
8.7
25
8.6
181
3.3
5.3
2.0
2.0
2.2
3.1
1.7
Source: based on eia-International Energy Outlook (2013), table A5 and A6, pp. 184-185.
Note: Conversion factors: 1 cubic foot natural gas = 0.9783 MJ (lower heating value). 1 boe = 5.4
GJ (lower heating value).
5.2
Developments in Global Energy Supply
In section 5.1 we saw that substantial increases are expected for natural gas
and oil demand (45 per cent increase in the period 2010-2040 for oil and gas
together). However, in the period to 2035, global oil and gas supplies are predicted to originate in fewer countries than today (iea 2012). This is due to the
fact that proven oil and gas reserves are unevenly distributed in the world and
that only a few countries are surplus producers. We will therefore examine the
situation for oil and gas reserves in more detail (5.2.1) and look at developments in production thereafter (5.2.2).
5.2.1
Oil and Gas Reserves
In section 4 we discussed oil and gas reserves in the eu and found them to be
small. But what about global reserves and how are they divided over countries? Table 5 shows proven oil and natural gas reserves in the world and
for key countries located in mena and the Caspian region including Russia,
in 2012.
The total global oil stock at the end of 2012 was estimated to be 9,000 ej
proven reserves, of which as much as 73 per cent was in located in opec (bp
2013). Fourteen countries account for 90 per cent of the total global proven
oil reserves: Saudi Arabia, Iraq, United Arab Emirates (uae), Kuwait, Iran,
784
table 5 Proven oil and natural gas reserve in the Caspian Sea Region, Europe, us, Persian
Gulf Region and North Africa, 2012
Caspian Sea Region[1]

Azerbaijan
Kazakhstan
Turkmenistan
Iran [2]
Russia
Persian Gulf Region
United Arab Emirates
Iraq
Kuwait
Oman
Saudi Arabia
North Africa
Algeria
Egypt
Libya
Tunisia
us
eu27
World Total
Proven oil reserve (ej)
Proven natural gas reserve (ej)
38
162
3
848
471
0
528
810
545
30
1436
0
66
23
259
2
189
37
9012
31
45
605
1162
1137
0
210
124
62
33
284
0
156
70
53
293
60
6471
Source: bp (2013).
Notes: [1] The Caspian Sea Region refers to Azerbaijan, Kazakhstan, Turkmenistan, Iran and
Russia; Persian Gulf region countries refer to Iran, Iraq, Kuwait, Oman, Saudi Arabia and United
Arab Emirates. [2] Iran is member of both regions, the Middle East and the Caspian Region.
Venezuela, Russia, Mexico, us, Libya, China, Nigeria, Norway and the uk. Just
five countries (Saudi Arabia, Iraq, uae, Kuwait, Iran) hold almost one-half of
the worlds total proven oil reserves.
Global natural gas reserves at the end of 2012 were estimated to be about 6500
ej. Proven gas reserves are slightly less concentrated than oil reserves. Over
70 per cent of natural gas reserves are located in the Persian Gulf region and
Sea region. The proven gas reserves for Azerbaijan, Turkmenistan, Kazakhstan,
and Iran are estimated to be 3100 ej, which is almost as much as the combined
proven gas reserves in Europe, the us and the Middle East.
785
The Middle East has substantial gas reserves, but they remain largely
untapped. This is due to the difficulties and costs involved in developing and
bringing these gas reserves to market. Compared to the international oil market, the international gas market is still very much a regional one, divided into
Asias lng market, the Russian-European market and the North American
market.
The Caspian Sea region holds one of the worlds largest oil and gas reserves,
making them very significant in global markets. Iran and Russia are the
two main powers in terms of oil and gas reserves in the Caspian region and
have the largest energy reserve in the world (36 per cent of global natural
gas reserves and 15 per cent of oil reserves). Iran is the worlds largest owner
of proven natural gas reserves and ranks fourth in world proven oil reserves.
Russia ranks eighth in the world for proven oil reserves and is second for
proven gas reserves.
5.2.2
Oil and Gas Production, Consumption and Net Exports
Table 6 shows oil production, consumption and net exports for the years 2002,
2007 and 2012 in key oil and gas producer countries. It shows the development
of production, consumption and the resulting exports in the last decade. In
comparison to 2002, the increased net exports of the Caspian Sea Region are
clearly visible. These increases occur mainly due to increased production in
Azerbaijan, Kazakhstan and Russia. Furthermore, increases in United Arab
Emirates, Iraq, Kuwait and Saudi Arabia are notable. The largest oil exporting
countries in 2012 were Saudi Arabia and Russia, together supplying 25 per cent
of oil consumption.
To meet growing global oil and gas demands, iea projections indicate that
world oil supply from outside the opec, which was less than 97 ej in 2011, will
reach its plateau, up to more than 105 ej per year, in the mid-2020s and then
drop back to 99 ej by 2035 (iea 2012). The increase is mainly expected to come
from a surge in unconventional energy production in the us and Canada and
deepwater production offshore Brazil. It is expected that a large share of the
Middle Easts oil export in 2035 will reorient towards newly industrializing
Asian countries, mainly China (iea 2012). Nonetheless, the market share of
opec countries in oil supply is expected to increase from 43 per cent in 2012
to 46 per cent in 2030, and continues a longstanding growth trend (bp 2012).
According to iea (2012), Iraq is an important resource-rich country that can
become a geopolitical issue in the oil market. Iraqs projected oil production
will rise from 6 ej in 2012 to 12 ej in 2020 and to over 16 ej in 2035. This would
mean exports of over 8 ej in 2020 and of over 12 ej in 2035, up from more than
4 ej in 2012.
786
table 6 Caspian Sea Region, Persian Gulf Region and North Africa oil production,
consumption and exports 2002-2012
Country
ej
Production
Consumption
Production 2002 Production 2007 Production 2012 Consumption 2002
Caspian Sea Region

Azerbaijan
0.6
Kazakhstan
2.0
Turkmenistan
0.4
Iran
7.1
Russia
15.3
Persian Gulf Region
United Arab
4.8
Emirates
Iraq
4.2
Kuwait
4.0
Oman
1.8
Saudi Arabia
17.6
North Africa
Algeria
3.3
Egypt
1.5
Libya
2.7
Tunisia
0.1
World Total
148
1.7
2.9
0.4
8.5
19.8
1.7
3.4
0.4
7.3
21.0
0.1
0.3
0.2
2.9
5.0
5.9
6.7
0.8
4.2
5.2
1.4
20.2
6.1
6.2
1.8
22.7
1.0*
0.6
0.1*
3.3
3.9
1.4
3.6
0.2
162
3.3
1.4
3.0
0.1
170
0.4
1.0
0.5*
0.2*
155
Sources: Based on data from us eia (2013c), * based on data from bp (2013).
Iran, on the other hand. shows decreasing levels of oil production. For the past
several years, Western governments have imposed economic sanctions on
the Iranian regime designed to pressure Irans ruling elite into giving up its
uranium enrichment program. Until 2012, these sanctions were not targeted
at Irans petroleum sector, which accounted for well over 70 per cent of Irans
government revenues during the past decade. Reasons can be found in the reliance by some European and Asian countries on Iranian oil supplies, investment by international oil companies in Irans oil and gas sector, and the role of
Iranian oil production in an era of rising emerging market demand and slow
non-opec supply growth. This began to change in 2012, when relatively low
global oil demand growth and strong increases in non-opec liquids production
787
Net export*
Consumption 2007 Consumption 2012 Net Exports 2002 Net exports 2007 Net Export 2012
0.2
0.5
0.2
3.7
5.5
0.2
0.5
0.2
3.9
6.3
0.4
1.5
0.2
4.3
9.9
1.5
2.4
0.2
4.7
14.2
1.7
2.7
0.2
3.6
14.2
1.1
1.4
4.0
4.9
5.1
1.1*
0.8
0.2*
4.3
1.5*
0.9
0.3*
5.8
3.0
3.4
1.7
14.1
3.0
4.5
1.2
16.0
4.4
4.8
1.5
17.1
0.6
1.3
0.5*
0.2*
171
0.7
1.5
0.3*
0.2*
177
2.7
0.4
2.3
0.0
3.3
0.0
3.1
0.0
3.0
0.2
2.6
0.0
created an opportunity for the international community to tighten sanctions

targeting Irans oil sector. As a result of stronger sanctions implemented by the
United States and many of its eu member states allies, Irans oil production
fell to 6 ej, its lowest level since 1989 (bp 2013). New us sanctions, which took
effect in February 2013, are likely to begin removing additional Iranian barrels from the market soon. However, the window of opportunity in which the
market can comfortably withstand the loss of additional Iranian oil while
minimizing oil price volatility and damage to the global economy is small,
extending no farther than mid-2014. While non-opec supply growth in 2014
is currently expected to meet or exceed growth in 2013, global oil demand will
likely accelerate, leading to a tighter oil market. For example, while an estimate
788
table 7 Caspian Sea Region, Persian Gulf Region and North Africa natural gas production,
consumption and exports 2002-2012
Country
ej
Production*
Consumption*
Production 2002 Production 2007 Production 2012 Consumption 2002
Caspian Sea Region

Azerbaijan
0.2
Kazakhstan
0.5
Turkmenistan 1.8
Iran
2.6
Russia
19.3
Persian Gulf Region
United Arab
1.5
Emirates
Iraq
0.0
Kuwait
0.1
Oman
0.3
Saudi Arabia
0.5
North Africa
Algeria
2.7
Egypt
0.9
Libya
0.2
Tunisia
0.1
World Total# 87
0.4
0.3
2.4
3.9
21.1
0.6
0.4
2.3
5.2
23.3
0.3
0.5
0.4
2.7
13.3
1.7
1.8
1.3
0.0
0.1
0.4
0.8
0.0
0.0
0.5
0.9
0.0
0.1
0.3
0.2
2.9
1.6
0.5
0.1
81
2.9
2.1
0.3
0.1
116
0.7
0.9
0.2
0.1
0.9
Sources: * BP, 2013 and us eia, 2013c.
is not yet available, the eia-doe currently expects global demand to grow by
2.6 ej in 2014 compared to 2.0 ej in 2013. The presence of a nuclear Iran in a
Middle East region already fraught with instability will likely lead to long-term
risks to oil markets and costs for the United States and the global economy.
Table 7 shows natural gas production, consumption and net exports for the
years 2002, 2007 and 2012. Russia is currently the worlds second largest natural
gas producer, after the United States (bp 2013). In terms of net exports, Russia
is largest, supplying 20 per cent of world natural gas consumption.
Non-oecd Europe, Eurasia and the Middle East accounted for approximately 40 per cent of global natural gas production in 2012 (bp 2013). These
789
Net export*
Consumption 2007 Consumption 2012 Net Exports 2002 Net exports 2007 Net Export 2012
0.3
0.4
0.7
3.9
14.9
0.4
0.4
0.7
5.3
17.4
0.1
0.1
1.5
0.1
6.0
0.1
0.1
1.7
0.0
6.2
0.2
0.0
1.6
0.1
6.2
1.7
2.6
0.2
0.0
0.4
0.0
0.1
0.4
0.4
0.0
0.0
0.5
0.6
0.0
0.0
0.0
0.3
0.0
0.0
0.0
0.5
0.0
0.0
0.0
0.3
0.9
1.1
0.2
0.1
80
1.1
1.8
0.1
0.1
115
2.0
0.0
0.0
0.1
2.0
0.5
0.3
0.0
1.8
0.4
0.1
0.1
regions are expected to account for 80 per cent of the increase in production
between 2005 and 2030 (bp 2011). At the same time, oecd countries will see
a decline in their share of global natural gas production from 39 per cent to
27 per cent. Hence, it is estimated that by 2030 supplies of gas to the world
market will originate in fewer countries than today because some of the existing sources will dry up.
To conclude, import dependence in the eu is expected to further increase
in the coming two decades. However, global trends show that fossil fuel production is likely to be more concentrated in fewer countries, while at the
same time global demand for energy is expected to substantially increase.
790
This combination could impact energy supply security severely in the eu,
depending on the situation in supplying countries and geopolitical factors. We
will examine these issues in section 6.
6
eu Energy Security and Geopolitics
As shown in sections 5-7, global oil and gas markets look bleak as a result of
ever-growing energy consumption, an increasing exhaustion of conventional
reserves and an increasing geographical concentration of production. Against
this background, it is likely that state and corporation actors will assign more
significance to economic and resource concerns and energy relations will
increasingly politicize. On the one hand, the growing energy imports of countries such as China and India can be added to those of the eu and the us. In
addition, the anticipation of future supply disturbances is reflected in generally rising oil and gas prices and, in particular, their increasing volatility and
the inelastic demand by major consumers. On the other hand, based on the
location and increasing scarcity of world oil and gas reserves, a geographical
concentration of energy supplies is expected to materialize in the politically
unstable countries of the Persian Gulf and the Caspian Region.
This section provides an overview of the main domestic and geopolitical
factors that threaten energy supply security for the European Union with a
primary focus on the Persian Gulf resource-rich countries. In relation to
the eus Energy supply security, there are three concerns to be taken into
consideration:
1.
A main domestic concern is the way in which the state and connecting
society is constructed and led. Almost all Arab resource-rich countries
belong to a type of patrimonial rentier-state and society. Following Weber
(1968), this regime type has the following characteristics: i) personalistic
rule based on loyalty to an individual; governments do not have a professional, career-oriented view; ii) loyalty based on bonds between persons
at different levels of power in a network of patron-client relations determine the distribution of rents; iii) personal authority of individual leaders by virtue of traditional status. These types of state and society rely on
the surplus of natural resources. This results in poor and uneven economic development, a centralized power structure, corruption and violent conflict. Offshoots of these consequences have proven to cause civil
unrest, such as the Arab Spring and pose future threats to the Persian
2.
3.
791
Gulfs oil-producing countries (Anderson & Slahsen 2012; Meissner 2010;

Ross 2001, 2011; Schwarts 2008).
The second concern is the Sovereign Wealth Funds (swfs) managed by
patrimonial rentier state systems with domestic and global impacts.
swfs have proven to be an asset in both developing and developed economies that manage these assets by applying them to buffer the Dutch
Disease or to encourage industrialization, economic diversification and
eventually the development of civil society. In patrimonial states, however, swfs are undermined by corruption and the diverting of assets
away from long-term socioeconomic development to benefit political
elites. In fact, Arab swfs are now a source of the persistence of Arab patrimonial rentier state system.
Finally, the post-Cold War, me and cea geopolitical landscape is shifting.
The emergence of China and other Asian economies has increased their
presence in the Middle East due to a growing need for energy and the
expansion of Asian markets. The recent finding of energy resources in the
us has led to speculation that there will be less us presence in the region.
This would pose serious risks to eu energy security if Asian emerging
economies were to increase their presence in the Middle East as us interests recedes. This has long been a concern to their allies in the European
Union and Asia.
These three domestic and geopolitical issues potentially threaten eu energy

supply security as well as overall trade and investment in me and cea. The
following three sections will discuss and outline the risks associated in dealing
with mainly patrimonial resource-rich states and societies. Lastly, we discuss
structural challenges for enhancing energy security in eu in section 6.4.
6.1
The Patrimonial Rentier State and Society
6.1.1
Patrimonial Power Structures
Patrimonialism is a type of absolute authority in which all power flows directly
through the leader and the ruling elites. The Arab rentier states located in the
Persian Gulf belong to this type of (semi) traditional power. In such a state
type, the ruler exercises his power without restraint and at his own discretion. The binding norms and relations of bureaucratic administration are
constantly subverted by personal and arbitrary decisions by the ruler, who
does not feel constrained in ideological terms. In some respects, the organization of power and the staff of the ruler is similar to traditional patrimonialism as described by Max Weber (1968). Society in a patrimonial rentier state
792
is demoralized and unproductive for a number of reasons. Emancipation of

society against the state is no variable for growth when a public is stripped of
power. Arab Patrimonial rentier states have agreements with society in which
the state provides material benefits for a less or non-democratic structure;
the prevailing governance structures in the Arab resource-rich states have led
to two mutually reinforcing processes: no public accountability of the state
and an ever increasing concentration of political and economic power in the
hands of few (see undp 2011). The ultimate risk of such a policy is that it paves
the way for gradual social uprising and civil unrest. The lack of jobs, current
demographic shift and a growing population of educated youth, among others,
has caused revolts and regime changes and civil unrest and war in other Arab
states in the so-called Arab Spring.
6.1.2
The Resource Curse
Arab resource-rich countries in the Middle East can be classified as a type of
patrimonial rentier state or states in which the economy is dependent on the
export of natural and mineral resources. In the Arab resource-rich countries,
oil-led economic growth has led to premature de-industrialization and reinforced the subordinate position of the region in the global economy. According
to the undp Arab Development Challenges Report, this economic structure
is responsible for the failure of the Arab region to generate decent and productive jobs for its people (undp 2011). An alternative to this structure would
be diversified economic sectors emphasizing occupational specialization that
produces a more autonomous workforce equipped with specialized skills. This
would ideally enhance bargaining power against ruling elites and form a setting that allows self-regulating interest groups (Mahdavy 1970; Schwartz 2008;
Ross 2001, 2011; Carlos 2013).
The Dutch Disease, as it is called, attracts policy to one sector of a lucrative
economy. In this case, the focus is resources, while attention is lacking in other
sectors like agriculture, non-oil manufacturing and services. The problem with
depending too much on the resources sector is that the commodity is increasingly volatile.
In the case of the resource-rich Arab patrimonial states of the Persian
Gulf, organized at the Gulf Cooperation Council (gcc): Saudi Arabia, United
Arab Emirates (uae), Kuwait, Qatar, Oman, and Bahrain, the economy has
been shaped by the exportation of oil and gas. Table 8 illustrates the dependence of state revenues as well as gdp on exports of oil and gas in Arab
resource-rich countries of the Persian Gulf. Despite the volatility, fuel exports
comprise more than 80 per cent of merchandise exports in many of these
resource-rich states, making their economies dangerously fragile without support from other sectors.
793

table 8
Export Earnings and State Budget based on Oil and Gas in gcc-countries (%)
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
uae
Export earnings (%)
State Budget (%)
gdp (%)
69
90
65
91
85
69
86
93
77
80
85
77
24
45
41
46
50
32
Source: Martin Hvidt (2014).
6.1.3
The Lack of Economic Diversification
As discussed above, a rentier economy is limited in supporting multiple
economic sectors due to the reliance on marketing resources. Non-oil sectors are underdeveloped, and even those sectors become inherently linked
to resources; construction and services, for instance, are dependent on oil
revenues in most Arab Middle East countries because these funds shape the
building of infrastructure (undp 2011). Other manufacturing categories like
rubber, plastic, chemicals and food are also volatile due to the strong connection to petroleum (undp 2011). Innovation and industrial capacities are
underdeveloped and the current path leads to a more rudimentary economic
structure relative to what one would expect for the level of gdp per capita
(undp 2011).
In other words, the gdp per capita is high, but in no way reflects the modernization of industry. Keeping in mind the high gdp per capita is the price
regimes pay in order to keep society out of policymaking and eliminate most
accountability for regimes. It is therefore a misleading generalization to use
when judging the condition of the economy. Table 9 indicates the strength
of per capita gdp in the region and is linked to the resource exports in
table 8. The following numbers are therefore a response to resource export
earnings and are thus as precarious as the commodity these high figures
rely on.
Despite the numbers above, the Arab states in the Middle East (not exclusive to resource-rich states) have been described as the least industrialized
region in the world, which is confounding considering the wealth some of
these states have at their disposal to increase growth in agriculture, manufacturing and services (Looney 1994; Shochat 2008; Hvidt 2014; see also Karshenas
& Hakimian. 2005). These economies could have a head start in modernizing
794
table 9

gdp Per Capita 1980-2011 (usd)
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
uae
1980
1990
2000
2011
8,538
20,882
5,182
34,990
16,692
42,964
8,529
8,947
6,455
15,446
7,206
28,066
11,928
19,787
9,062
29,914
9,354
34,476
22,467
51,497
23,133
89,736
24,416
39,058
Source: World Bank (2013)
their economic structure but have so far chosen not to; political elites are
overwhelmingly concerned with personal power rather than strengthening
the overall structure of their economies.
With a lack of investment in socioeconomic development as a condition
for an emerging civil society, the risk of social revolts and revolutions will
increase. The majority of Arab regimes, mainly the patrimonial rentier states,
have failed to develop and diversify their economies and develop human capital (accompanied by democratization of domestic societies and institutions).
Consequently, government budgets rely too heavily on oil and gas income,
leaving the countries vulnerable to fluctuations in global oil prices. Before the
Libyan uprisings, which began in February 2011, the share of income from oil
exports contributed to 70 per cent of the countrys gdp and about 85 per cent
of government revenues. Moreover, as a result of declining oil prices, funding
for social welfare programs in the region is diminishing. This long-term reality
could well result in permanent political unrest in the region (Heritage 2011;
Amineh & Yang 2012; see also table 1).
Large-scale oil income generates multiple political incentives that affect an
authoritarian regime type and its domestic and foreign policy. At least four
distinct incentives can be identified (see Amineh 2010; Colgan 2011).
First, oil generates financial resources that can be used to finance military
capabilities and campaigns.
Second, oil income generates significant financial incentives to avoid any
international conflict that would interrupt the states oil export sales.
795
Third, oil income increases a states propensity to use financial resources to

achieve foreign policy objectives, such as providing direct foreign aid for
allies, support for foreign insurgents, and funding for ideological instruments such as religious or educational institutions. Saudi Arabia, Iran and
Russia are three concrete examples of this phenomenon.
The fourth and perhaps most subtle of the political incentives generated by
oil income is that it encourages leaders to take risks. A significant body of
existing research illustrates how an authoritarian resource-rich economies
can have negative political consequences (Karl 1997; Ross 2001, 2010; Hertog
2010). The ruling elites of the resource-rich authoritarian regimes often have
a high degree of political autonomy, and thus a low risk of being removed
from office by risky and potentially unpopular actions. The ruling elite of
oil-based authoritarian regimes can use the states oil income to purchase
political support, thereby allowing for significant risks, including those
involved in aggressive foreign policy adventurism. The oil revenues also
enable a number of authoritarian resource-rich regimes to finance the stateled industrial development (see Amineh 2010).
6.1.4
Economic Structure of Rentier States in the Middle East
Whereas exports from the region are quite limited in category, the variety and
magnitude of imports here are overwhelming. From manufacturing, services
and agriculture, an unbalanced amount of goods are depended on from other
states. This signifies the inability to standalone in certain sectors of the domestic economy. In the world market, patrimonial resource-rich Arab states have
been predominantly asked for one commodity, energy. Table 10 indicates the
versatility and magnitude of goods that these states import, including everything from computers, cars, foods, textiles and luxuries. The use of imports
is unsteady, contributing to over half of each respective states amount of
consumption.
As diversified industrial sectors in most resource-rich Arab countries are
non-existent, any attempt to immerse into the global economy benefited
mostly industries with static comparative advantage, particularly those linked
with petroleum (undp 2011). While the services sector has blossomed in other
developing economies in Asia, it has done little to benefit the Middle East
economies where services fall at the low end of the value chain, contribute
little to local knowledge development and lock countries into inferior positions in global markets (Looney 1994; see also Karshenas & Hakimian 2005;
Shochat 2008; Hvidt 2014). Unguided sectors have been left to weaken.
796
table 10

gcc Imports of Goods and Services, 1990-2010 Average
Country
Percent of gdp
Percent of Consumption
Bahrain
Kuwait
Oman
Qatar
Saudi Arabia
uae
gcc Average
67
29
41
30
31
54
42
125
53
76
86
56
79
79
Source: imf Middle East and Central Asia Department (2011) Including food, other non-durable
consumption goods, intermediates, and durables.
6.1.5
Domestic Challenges and Political Risks for Investment in

Resource-Rich Arab States
Future involvement in the region does not come without increasing obstacles.
A primary problem with investing here is the volatility of resources. A social
aspect to consider is the instability in these countries due to the persistence of
a patrimonial rentier system and a lack of a role for civil society. The growing
younger populations may not be as easily bought as older generations, as we
have experienced in the Arab revolutions in 2011. Currently, patrimonial states
have the capabilities to buy-out or suppress dissatisfied populations, but for
how long is uncertain.
Political motives are yet another consideration. The region does not exist
without corruption and it should be considered that ruling political elites will
primarily benefit from the existing policies. The future, therefore, is unpromising. Rentier states lead to backward development and cover their shortcomings by constructing modern metropolises and concealing poverty, which does
nothing more than distract observers from a weakened economic structure.
Perhaps making it worse, there are no current actions being taken to remedy a
problem of such magnitude.
State-sponsored terrorism is another unattractive feature for these countries. These states have funded terrorist groups: Qatar was accused of funding
Islamic fundamentalism in Mali; Saudi Arabia was quoted in a secret memo
exposed by WikiLeaks as being a significant financial supporter of Al-Qaeda
and other terrorist groups (Walsh 2014).
797
Adding to these concerns is another form of regime empowerment. One of

the temporal reasons for the persistence of such states and societies is the control of huge wealth collected in the so-called Sovereign Wealth funds (swfs)
through oil surpluses. These assets will be discussed in more detail in the following section.
swfs and the Persistence of the Arab Patrimonial Rentier State
System
swfs are powerful political tools existing in global markets. These funds allot
assets to meet different criteria according to the interest of the state possessing them. swfs have existed in one form or another for the last two centuries, developing from banking systems that were created to lend finances for
economic development. Such funds are state-run investment pools funded
by foreign exchange assets. Depending on the source of assets, they can be
divided into commodity fundsmainly oil fundsand non-commodity
funds. In March 2014, the total of financial assets stored within these swfs is
estimated to amount to usd 6,357 trillion of which usd 3,808 trillion or 59 per
cent is oil and gas related (Bahgat 2009:283; swf Institute 2014). Table 11 illustrates the strength of oil and gas based funds and the array of actors directing
them related to the Middle East and Central Eurasian resource-rich countries.
Currently, the swfs of Gulf Cooperation Councils (gcc) countries hold about
usd 2 trillion in assets, accounting for approximately one third of the total
global swf assets. Within the gcc, the Abu Dhabi Investment Authority has
secured usd 773 billion in assets and manages the largest swf. Abu Dhabi is
followed by sama Foreign Holding of Saudi Arabia and Kuwait, which controls
an investment pool of usd 675.9 billion and usd 410 billion, respectively. Arab
resource-rich countries form a large part of the top ten of the biggest swfs in
the world.
As Herman Schwartz (2012) points out, swfs fall into three categories:
6.2
1.
2.
3.
In the first category, swfs serve as a buffer to the problems that occur in
resource-rich exporting states that are threatened by an undiversified
economy and the Dutch Disease.
The second type of swfs are implemented to finance industrial development as well as the private sector with related forces.
Finally, swfs can be used as a means of patrimonial rent extraction via
political capitalism (Schwartz 2012). Individuals seeking personal gains
are in control of swfs in this category, directing finances back towards
political elites.
798
table 11
Country

Top 20 oil and gas related Sovereign Wealth Funds, 2014
Sovereign Wealth Fund
uaeAbu Dhabi Abu Dhabi Investment

Authority
Saudi Arabia
sama Foreign Holdings
Kuwait
Kuwait Investment Authority
Qatar
Qatar Kuwait Investment
Authority
Russia
National Wealth Fund
Russia
Reserve Fund
Algeria
Revenue Regulation Fund
uaeDubai
Investment Corporation of
Dubai
Kazakhstan
Kazakhstan National Fund
Libya
Libyan Investment Authority
uaeAbu Dhabi International Petroleum
Investment Company
Iran
National Development Fund
of Iran
uaeAbu Dhabi Mubabala Development
Company
Azerbaijan
State Oil Fund
Kazakhstan
National Investment
Corporation
Iraq
Development Fund for Iraq
uaeFederal
Emirate Investment Authority
Oman
State General Reserve Fund
Oman
Oman Investment Fund
Saudi Arabia
Public Investment Fund
Assets
$Billion
Inception
Origin
$773
1976
Oil
$676
$410
$170
n/a
1953
2005
Oil
Oil
Oil & Gas
$88
$88.4
$77.2
$70
2008
2008
2000
2006
Oil
Oil
Oil & Gas
Oil
$68.9
$66
$65.3
2000
2006
1984
Oil
Oil
Oil
$58.6
2011
Oil & Gas
$55.5
2002
Oil
$34.1
$20
1999
2012
Oil
Oil
$18
uae-10
$8.2
$6.0
$5.3
2003
2007
1980
2006
2008
Oil
Oil
Oil
Oil
Oil
Source: Sovereign Wealth Fund Institute. http://www.swfinstitute.org/fund-rankings/.
799
Although the label of swfs is used to explain these three types, it can be argued
that the motives behind these assets are not always similar.
6.2.1
First Two Types of Sovereign Wealth Funds: Buffer for Resource

Export and Strategy for Economic Development
There are valuable uses of swfs that help aid developing- or advanced economies. In resource-rich states, the task of the first type of swf is to avoid the
resource curse and prevent the Dutch Disease. These include single-sector
economies facing rising exchange rates and poor competition in an undiversified market. According to Schwartz (2012), swfs can aid in economic diversification and they can also assist in preventing the Dutch Disease by sterilizing
sudden increases in export revenues.
The Netherlands (hence the name, the Dutch Disease) relied heavily on
newfound gas reserves in the second half of the twentieth century and quickly
found that their reliance on a single-sector/market was volatile and weakened
the structure of the economy. Norways exploitation of oil since the 1960s has
benefited the Norwegian economy, but the government used swfs to ensure
this was the case, becoming an exemplary case in how to manage these assets.
Instead of using finances procured from oil to further produce it, assets can be
placed in swfs in the hopes of more dependable returns. The method involves
keeping finances offshore instead of holding them idly or investing locally.
This, Schwartz (2012) claims, raises the political and economic salience of the
raw materials sector and it diversifies a countrys income sources outside of
that country and away from concentrated local risks.
In support of the claim that swfs are by no means a new idea, swfs working
historically in developmental states have taken over the role of international
and state-owned banks or the old development banks sailing under new colors
(Schwartz 2012). In this second category of swfs, developing economies such
as China, now, or Germany and Japan in the nineteenth century and the Four
Asian Tigers (Hong Kong, Taiwan, South Korea and Singapore) in the second
half of the twentieth century, are prevalent examples of exploiting assets for
the state-led industrial development. States therefore work in ways to develop
the economy and activate the business class. Therefore, developmental states
are ideally working to develop their civil society with related forces through
industrialization and institution-building.
6.2.2
Third Type of swfs: Patrimonial Ruler
Due to the incomplete separation of the state budget from the private wealth
of rulers, the combination of patrimonial rentier power structures and swfs
800
lacks transparency and the motives are often questionable and corrupt.
Patrimonial rentier states are independent of society, and thus direct finances
to benefit political elites with little emphasis on structural economic development. This makes up the third and by far the most effective type of Sovereign
Wealth Fund.
One third of the worlds Sovereign Wealth Funds (swfs) are controlled by
the Arab gcc-patrimonial rentier states. The question is, do swfs play a role in
economic development and the diversification of the rentier based state and
economy in these countries? Theoretically, all these states agree by investing
oil revenues both in local or international industries. The gcc countries could
convert the volatile and exhaustible oil incomes into a more stable financial
stream of wealth that could be used to develop and diversify their economy in
the long term (El-Kharouf et al. 2010). A lack of long-term economic development strategy in patrimonial rentier states, however, hampers the restructuring of an oil dependent state-society and economy.
From table 10 it is obvious that, after nearly forty years of diversification policies, the contribution of the oil and gas sectors to the gcc economies remains
almost the same. The Arab gccs ruling elites have been involved with some
domestic and, more recently, cross-border economic activities. According to
the imf, between 2000 and 2009, financial services, construction services,
non-hydrocarbon manufacturing and tourism increased in the region (2011).
Financial institutions and banking investment have increased their presence and no longer rely on the West to watch resource revenues. Furthermore
Qatar, Dubai and Abu Dhabi hold percentages of the London Stock Exchange,
nasdaq and Citigroup, respectively, and in 2009 Saudi Prince Alwaleed Bin
Talal became the single biggest shareholder in Citigroup (Harris 2009; see also
Bernstein, Lerner & Antoinette Schoar 2009). Resource-rich Arab states have
met some success in other areas, such as commercial and public transport
and transportation hubs by air (United Arab Emirates, Qatar Airways, Etihad)
and sea (Gulf shipping lanes and ports). Other categories trending in terms
of diversification include healthcare; in early 2014 the Dubai Health Authority
(dha) aimed to become one of the top destinations for medical tourism in
the world (Saberi 2014). World Sports like motor racing, professional golf and
tennis competitions and the 2018 Fifa World Cup in Qatar will continue to promote the region to visitors with the hope of attracting future investment or
other global interests. Sport, alas, offers only temporary operations, and even
Qatar is importing labor to build the stadiums hosting the World Cup. Despite
all the attempts of these states, they have failed to transfer from a rentier state,
economy and society. Data shows that the countries remain in a position
801
where the oil sector continues to dominate the economy. So, the gcc states
continue to be in the situation where they sell their oil and gas on the world
market and use the proceeds to import almost all of their living requirements
and large parts of their labor force (see Looney 1994; escwa 2001; Belawi 2011).
The impact of the emergence of swfs on a domestic level presents an
interesting paradox. As we have discussed above, in theory, the swfs in
resource-rich countries in the Persian Gulf and the Caspian region can be
used to put some assets aside to counter the negative effects of the resource
curse and volatile oil prices, or to invest in domestic social-economic development programs. Oil wealth could be used to ensure the economic development and political stability (and thus enhance the legitimacy of the regimes)
as well as to preserve the prosperity of future generations, even after the
depletion of the existing resources (Baghat 2009; Amineh 2010; Karshenas &
Hakimian 2005).
The way swfs are managed in patrimonial states, however,with great
involvement of ruling elitescan undermine sustainable economic development and growth, as well as the establishment of an autonomous business
class and a strong civil society. Berstein, Lerner & Schoar (2009) argue that
the swfs politically motivated investment strategy in these countries leads
to misguided policy attempts to support underperforming but politically connected local industries rather than build a savings buffer for the long run.
Thus, the wealth accumulated in the swfs creates political lineages between
the political leaders already involved in leading the swfs and the investment
targets of the funds on the domestic level. The establishment of an autonomous business class, focused on economic success instead of political motivations, is thus undermined (see Chang 2002; Hinnebusche 2006; Kamrava 2007;
Amineh 2010).
swfs in no way signify the transformation of patrimonial rentier states into
sustainable development and political stability based on democracy. Instead,
swfs contribute to strengthening the patrimonial rulers and the rentier system while the resource curse remains unaddressed. swfs are not being proactive, in which case they could offer stability through buffering, diversification
of economy, and/or developing civil society forces. In the case of patrimonial
societies, swfs act alone and mainly in the interest of ruling elites. This is
merely a supplement that seeks to strengthen and maintain regimes and to
further empower the political elites of these states. The system is perceptive
to the formula that those who control the money control the power. swfs are
just another means of perpetuating a damaging patrimonial state system for
rentier states in the Arab Gulf region.
802
6.3
Energy and Geopolitics in the Middle East
In the last decade the resource-rich countries of the Middle East and Central
Eurasia have been gradually transforming their political, economic and security relationship from the West towards Asia in general and China in particular.
China is emerging as a potential geopolitical actor beside the United States in
the me and cea. Several crucial political and economic developments have
paved the way for this geopolitical shift:
(a) economic globalization (mainly the transnationalization of finance and
manufacturing and the internationalization of the function of the states
(Cox 1987; Ikeda 1996; Hoogvelt 1998; Nayyar 1998).
(b) The nationalization of oil companies in the Middle Eastern resource-rich
countries (Yergin 1991; Diwan, 2007).
(c) the rise and transnational activities of Asian industrializing countries
accompanied by the decline of the American hegemony (Ramu 1995;
Chang 2002; Schwartz 1994; Ramu & Shiva 1995; Chang 2002; ChinChiuan, Hsin-Yi 2010; Victor, et al. 2011).
(d) the victory of the Iranian Islamic Revolution in 1979, and
(e) the disintegration of the Soviet Union (Castells 1997; Cox 1998).
These political and economic developments are transforming the patterns
of economic interdependenceincluding the energy sectoracross Asia.
Complementary political, economic and (even security) networks through
transcontinental trade and investment, especially in the energy sector,
have intensified to a remarkable level (see Calder 2012; Jiang & Sinton 2011;
Dannreuther 2011; Downs 2009; Leung 2011; Dittmer & Yu 2010; Victor et al.
2011). The rising oil and gas demand in the Asian industrializing countries,
mainly China and India, and the lack of hydrocarbon energy sources, means
that resource-rich countries of me/cea will continue to be an important
partner in the energy activities of these countries. At the same time, emerging China forms a serious strategic competitive force to the interests of the
European Union and the us in these regions.
In the following sections we discuss the geopolitical implications of usChina involvements in the Middle East and the impact on eu-energy supply
security.
6.3.1
The United States Hegemony and the Middle East
The new global politics that have emerged in the post-Cold War era is characterized by unipolar (us) military power, economic tri-polarity, bound together
by triadic activity of multinationals, including tnoc and state-owned oil
803
companies (i.e. North America, the European Union and Southeast Asia). Since
the dissolution of the Soviet Union, the United States has remained the main
geopolitical military actor in the Middle East, while at the same time reducing
its energy imports from the Gulf. In this part of the world, the us pursues three
primary strategic, geopolitical and geo-economic priorities:
(a) The first interest is continued support of their greatest strategic ally in
the region, Israel.
(b) Second to this is the long relationship that the us has with the Arab main
resource-rich countries located around the Persian Gulf.
(c) And lastly, their geostrategic efforts to contain the emerging contender
states, including China, Russia, Iran and India, much how the us contained the former Soviet Union, including the creation of energy connections between ca and Afghanistan, bypassing Iran. The us aims to create
its own silk road on the Northern Distribution network, bypassing Russian territory in its Southern part through Uzbekistan, Kazakhstan, the
Caspian Sea, Azerbaijan and Georgia.
The relationship between the us and the Middle East has not proven to be
effortless (Anderson 1981; Pollack 2002; Bromley 2005; Haass & Indyk 2009;
Roy 2009; Stokes & Raphael 2010; Lesch & Haas 2011; Michaels 2011; Atlas 2012;
Byman 2012). In the post-Cold War era, American activities in the region have
intensified and have created some serious problems for us interests. America
supported Saddam Hussein in its long war against the Islamic Republic of Iran
during the 1980s. Afterwards, the us sought the expulsion of Iraq from Kuwait
in 1991. This led to an impoverishment of the Iraqi people and a diminution of
the Iraqi states ability to serve as a buffer against future Iranian influence in
the Middle East. Furthermore, the us-led invasion of Iraq in 2003, while toppling the Saddam Hussein regime, impoverished Iraq and gave Iran an even
stronger strategic advantage in the Middle East. During the 1980s, the United
States armed, equipped and trained Sunni Islamic forces to fight the Soviet
army in Afghanistan. Amongst these was Osama bin Laden. The United States
welcomed the Taliban to power in Afghanistan in 1996. On the one hand, the
United States hoped that the Taliban regime could contain the influence of
the Shiite-based Islamic Republic of Iran in the region. On the other hand, it
hoped that it would open the way for a centralized government in Afghanistan
crucial to the CentGas consortium (Pipeline News, 12-18 October 1996; see also
Amineh & Houweling 2003; see further Callari 2002; Almaty, Financial Times, 25
December 2001). After the war in Afghanistan and the expulsion of the Taliban
regime at the end of 2001, the Bush administration discussed the composition
804
of a new Afghan government. Oil diplomacy and company interests largely

answer to whoever will govern the Afghans (The New York Times, 15 December
2001; see also Rashid 2000). Thus, sponsoring the Mujahedin in Afghanistan in
the 1980s against ussr intervention transformed into a cause for a us invasion
in 2011 of Afghanistan that will predictably leave it in the same condition as
Iraq, which has now become an ideal setting for Islamic extremists to operate
in. At the same time, the war against Iraq and Afghanistan had made it possible
for the us to create a long-term military presence in the Persian Gulf. Whether
or not the us succeeds, its effort is including responses from other actors both
near and far. If it is successful, a long-term American military presence will
open the door to American (as well as their allies) enterprise and (non-)faithbased non-governmental organizations to gain a foothold in the region, which
might empower the us to shape its host societies and set conditions for outside access to the regions oil and gas. This, in turn, would give the us indirect control over the economic and technological development of potential
contenders such as China, India, Russia and even Iran. Despite its position of
global military dominance since the Soviet collapse and its expanded powerbase in the region, the us has so far failed to realize its policy power projection
in me and cea in general and victory in the global War on Terror in particular.
The lack of policy success in the region has no doubt damaged the American
image of competence and credibility as a hegemonic power.
6.3.2
The Arab Spring and the us Interests in the Region
During the Arab Spring in 2011 the United States watched authoritarian regimes
they viewed as allies fall from power one after another, leaving the us to quickly
decide on new actors they would prefer filling the vacated political positions.
Such replacement actors included the controversial Muslim Brotherhood in
Egypt, (see for instance Salloukh & Bassel 2013; Bassam 2013; Burnell 2013;
Mitchell et al. 2013; Byman 2012; Brown 2013; Bayat, 2013). With Morsi behind
bars, the us found a new liberator friend in the person of dictator Sisi. Syria has
especially complicated the region because of a drawn-out civil war; it has not
been atypical when considering the relatively express regime changes in Egypt
or Libya. Furthermore, the situation in Syria has essentially revealed the role of
the us being one of fickle observers in contrast to the active involvements of
Iran and Russia to support al-Assad. The region is tumultuous and unrest has
invited some potentially undesirable actors in future relations.
The American allies Arab resource-rich countries, i.e. Saudi Arabia, Qatar,
uae, are becoming uneasy with us policy (see Blanchard 2012). These states
have been witness to the civil implosions in the region around them involving monumental social movements and regime changes. So far, the Arab
805
patrimonial resource-rich states have been able to pay-off their societies in

order to prevent such unrest and revolts. The us understands it cannot please
one party without harming the other. Take Bahrain, for example. The regime
has the support of Washington (in cooperation with Saudi Arabia and the
gcc), which negatively impacts the protestors. Additionally, it offers support
to the Muslim Brotherhood in Egypt, which both Saudi Arabia and the uae
see as a political threat. Perhaps most importantly, as the United States stood
by and watched ally-dictators fall, other Gulf resource-rich countrieswho
appear to be mounting a counter-revolution against the Arab revolts to their
west and southconsider the possibility of it happening to their regimes.
These episodes reflect the us policy failure mainly in the me.
6.3.3
Speculation of Dissolution of American Hegemony
The deposit, extraction and export of me and cea energy resources are the
primary economic sources of interest to the major state powers and corporations. American hegemony might decline further due to their uncertain future
reliance on oil in the Middle East (see Mercill 2008). Despite the so-called
American shale energy revolution, which predicts that the United States
will become the largest global oil producer by 2020 and be fully energy selfsufficient by 2035, the us will remain dependent and the protector of oil from
the region for both themselves and their allies, mainly the European Union.
All us presidents since Roosevelt agreed that the policy of domestic energy
security of America extends beyond the legal borders of the country. Between
the end of the 1960s and the oil price hike of 1973, energy security moved to the
top of the American agenda. At that time, oil prices had become volatile after
decades of stable and low prices. American oil production from us legal territory reached its peak in 1970, with the number of drilling rigs down to one third
of its 1955 level (Deffeyes 2001). Up to that time, us domestic high-cost producers had been able to get protection by quotas against low-cost site producers
operating abroad (Yergin 1991). In the early 1970s, a buyers market had turned
into a supplier-dominated market. In April 1973, Nixon cancelled the quota system of imports: the United States consumer had made its entry into the world
oil market. The us also entered as a strategic actor, overruling domestic interest groups that, in the past, had succeeded in getting protection from political
entrepreneurs against low-cost foreign producers. As we have discussed above
in all industrial economies, gdp growth and fossil energy consumption are
strongly correlated. That is still true today. The global business revolution has
not changed that. However, due to outsourcing parts of industrial manufacturing to late-industrializing countries, the contribution of energy use to gdp
growth in high-income economies has substantially decreased.
806
Some concluded that America can finally leave the Persian Gulf, but it is
far more complex than merely vacating the Middle East. The importance of
oil, among others, will continue to play a key role in the us power projection
towards the Greater Middle East (Amineh 2007; Haass & Indyk 2009) and the
Persian Gulf region in particular. Despite the shale energy revolution in the
United States, which led to a dramatic change in the us domestic energy landscape, the country remains, and will remain, far from energy independent.
According to the eia-ieo 2014, over the next two decades, as shale oil production peaks, the us will still import over 25 per cent of its total oil consumption. As result of the shale oil surge us oil import dependence has enormously
reduced over the last five years, from 56 per cent in 2008 to 32 per cent in 2013
(us eia 2014). Although the huge increase in Canadian oil importsfrom 16
per cent in 2004 to 32 per cent in 2013has significantly altered the composition of the us imports portfolio, Saudi Arabia and the wider Persian Gulf
today still contribute around 20 per cent of us oil imports. Increased shale oil
production, together with increasing imports from both Canada and Mexico,
will lead to the relative reduction of the Persian Gulf oil supply in the mediumterm, but as the shale oil surge is expected to decline in the second half of the
next decade this supply will rebound. Even during this medium-term downturn the Persian Gulf will remain one of us top three oil suppliers. The costprice benefit that the Persian Gulf suppliers enjoy means that there will always
be a significant market for their oil in the us. These trends have prompted
speculation about future us military behavior in the Persian Gulf and what
it could mean for energy supply security for the eu. The eu will continue to
rely on energy from the region. Despite breakthroughs in domestic supplies
at home, the us will not completely disengage from the Middle East. Even if
Washington chooses to import little or no oil from the region, there is still the
matter of energy supply for allies, counterterrorism and nuclear proliferation.
If, however, us military presence in the region is downgraded, Beijing (and
perhaps India and Japan) could see their countries assuming larger roles in
securing their own energy interests. This would involve removing any threats
they see against their energy security.
Current bilateral agreements between China and Russia, China and Iran,
and Russia and Iran, but also regional cooperation such as the Shanghai
Cooperation Organization (sco),6 are stepping-stones to such a development.
The rift between the us, on the one hand, and China and Russia, on the other,
6 The member countries of the sco are Russia, China, Kazakhstan, Kyrgyzstan and Tajikistan.
Iran, India and Pakistan have observer status in the organization.
807
is set to become the main geo-strategic reality in Central Asia, with the eu,
Japan and India having a secondary role. The sco is well on its way to becoming an integrated Asian economic, political, military and energy network capable of counterbalancing us regional influence.
It must be borne in mind, though, that energy is not the only determinant of
geopolitical relations, and that the pursuance of other vital interests will also
impact energy relations around the world. For instance, the Cold War has been
a dominant factor in international relations and in the way certain regions were
approached in the past. During the Cold War period, the Soviet gas campaign
met with substantial resistance from the us, which feared Europes vulnerability as a result of such structural import dependence. Similar dependencies on
other suppliers did not meet with this kind of resistance. Indeed, geopolitics
is a multifaceted arena in which energy is only one of the many political, military, economic, and ideological agendas pursued.
The objective of us policymakers is not only to obtain oil and gas from me
and cea but also to control its flow to oil and gas markets in the West and in
Southeast Asia. us economic interests are combined with strategic interests to
weaken Chinas, Russias and Irans influence in the region and also to ensure
better control over both resources and the shipping lanes in the Persian Gulf.
The us reflects its current interest in the region by its continued control of
the Straits of Hormuzan avenue that boasts 20 per cent of all oil trade. The
us supplies the majority of military assets that allow the free flow of ships
through the straits. 85 per cent of this trade travels to Asian markets, while only
10 per cent is directed to the us (see us eia 2013d). Thus, American security
presence in the region will continue as long as threats are perceived.
One of the major obstacles and concerns for the us and their hegemony
are the increasing influence of a number of contender states, mainly China,
Russia and Iran in me and cea. American priority in the region is to ensure
Iran does not develop a nuclear weapon and its geopolitical ambitions, which
includes supporting Israel. The role the us takes in this is detrimental to global
oil trade because us-led sanctions intended to cripple Iran end up disrupting oil for other actors. China is the largest global energy consumer and currently imports the majority of its oil from the Middle East. Recently, Russian
influence is increasing in the region. In 2013, the Russian Federation calmed an
increasingly tense situation in Syria regarding the use of chemical weapons.
Russias diplomatic mediation prevented us and nato military intervention in
Syria by establishing an agreement to put the disputed weapons under international control. This move empowered the influence of Russia and undoubtedly
prevented the us from further involvement in a predicament that Washington
created (see Ghils 2013).
808
The main strategic concern for us hegemony and its global interest is China.
To secure its increasing energy needs China must also increase presence and
influence in the region. China is now one of the key geopolitical actors in the
me and cea and the main consumer of Persian Gulfs crude oil. Chinas diplomatic, economic and even security relationship to the key regional resourcerich countries increasingly threatens the position of the us in the region.
6.3.4
Chinas Oil Dependency and its Geopolitical Implications
Rapid capitalist state-led industrial development in China createdas in
other advanced and emerging economiesin particular a dual result: it generates, on the one hand, increasing wealth and power and, on the other, domestic resource scarcity and the social pressure of unfulfilled energy demands.
These developments create a condition for Chinas cross-border economic
activity to get access to resources and markets beyond state borders (see the
first chapter of this special issue). As discussed in section 5, global primary
energy demand, according to the International Energy Agency-World Energy
Outlook 2012, is projected to increase by over one third over the period 2012 to
2035. Sixty per cent of this growth is expected from rising living standards in
China, India and the Middle East. According to bp (2013), it is predicted that
in 2035 more than 30 per cent of world energy demand will come from developing countries and specifically from China, which is now the largest leading
global energy consumer. China has already overtaken the us as the worlds biggest energy user since 2010, whose total share of energy consumption is 22 per
cent in 2012, compared with 18 per cent of the us (bp 2013). Table 12 highlights
Chinas increasing dependence on the supply of oil from resource-rich countries. Approximately half of their imports in 2013 are from the resource-rich
countries of the Persian Gulf.
In the last ten years, the Middle East is the main supplier of oil and gas
to China. This puts China in the role of one of the main strategic competitive forces for the us and eu energy supply security from this region. The
Chinese state class and their state-led companies, mainly the Chinese National
Overseas Oil Company (cnooc), and other large Chinese companies (including PetroChina parent Chinese National Petroleum Company, cnpc, and
Sinopec parent China Petrochemical Corporation, cpc) are engaged with the
oil and gas reserves of research-rich countries of the Middle East and Central
Eurasia.
It is therefore no longer a question of whether and when Chinas global
expansion transforms into a formidable presence in the Middle East; the question now is what role China will play in the region in the future. Chinas growth
is dependent on securing resources and Washingtons hegemony is contested.
The current rate of growth in trade places China ahead of the us and the eu.
809

table 12
Chinas crude oil imports by source, 2005 & 2013
Oil exporting states

Year
China
2005
2013
Persian gulf
Saudi Arabia
Kuwait
Iran
Iraq
Oman
UAE
42%
19%
< 0.5%
11%
0.8%
10%
< 0.5%
51%
19%
3%
8%
8%
9%
4%
Other countries
Angola
Russia
Sudan
Yemen
Republic of Congo
Indonesia
Kazakhstan
Venezuela
Brazil
Other countries
58%
14%
7%
5%
5%
4%
3%
1%
< 0.5%
< 0.5%
18%
49%
14%
9%
< 0.5%
< 0.5%
2%
< 0.5%
4%
6%
2%
12%
Source: The Observatory of Economic Complexity, The Massachusetts Institute for Technology
Media Lab. (results 2005); EIA U.S. Energy Information Administration (2013d).
6.3.5
us, eu Concern for Chinas Activities in the Middle East
At the moment, the eu depends on oil and gas imports mainly from Russia and,
to a lesser extent, from the Caspian Region (see section 4). Thus, non-Russian
resources are crucial for the eu in order to balance energy dependence by not
relying heavily on a politically unreliable Russia. China, together with other
Asian industrializing countries, form a new competitive geopolitical force for
the European Union energy supply security. China is on the path to becoming
an even stronger economic partner for the me and cea.
Chinas diplomatic, political and economic activities in the Middle East as
well as in Central Eurasia have underscored Chinas increasing presence in
the vast area stretching mainly from Kazakhstan to the Persian Gulf. In turn,
with Chinas stature in the region growing, some me and cea countries are
810
responding by looking East for alternative alliances. The increased Chinese

footprint gives smaller regional powers an additional partner to their traditional ties with the United States and European Union and their major member states. In this context, China has rapidly expanded its diplomatic, political
and economic ties with the resource-rich countries of the Caspian- and the
Persian Gulf countries. Between 2005 to 2009, Chinas total trade volume with
the Middle East increased 87 per cent to $100 billion and reached about $222
billion in 2012. In 2010, China surpassed the United States as the main destination for the Middle Easts exports (Chen 2011; Wood 2014).
Figure 7 illustrates the rapid growth in oil trade occurring between China
and the Persian Gulf Region, which can be perceived as a threat to both us
and eu regional interests, considering the totals for each of the regions and
the growth occurring between 2000-2012, where Chinas trade surpassed both
the us and eu.
As mentioned above, the main global oil and gas reserves are concentrated
in a few geopolitically unstable regions and countries mainly in the Middle East
and the Caspian Region. China focuses especially on four key resource-rich
250,000
uae
Oil trade (usd millions)
200,000
Saudi Arabia
Qatar
150,000
Oman
Kuwait
100,000
Iraq
Iran
50,000
0
Bahrain
2000
2012
China
2000
2012
United States
2000
2012
The European
Union
figure 14 Total Gulf Oil-Trade-Comparison (in usd millions): China, us, eu.
Note: data for the eu for Qatar, Bahrain and uae is not available.
Source: u.s. Census Bureau: u.s. Bureau of the Economic Analysis; National Bureau
of Statistics of China; eia; European Commission, Market observatory for Energy,
Registration of Crude Oil Imports and Deliveries in the European Union eu 27
811

table 13 Total Oil-Trade of selected resource-rich countries- Comparison (in millions of
dollars)
Key resource-rich
countries
China
us
The European
Union-27
Year
2005
2012
2005
Iran
Iraq
Saudi Arabia
Kazakhstan
Total
2,487
975
3,098
NA
NA
36,466
17,568
73,314
NA
NA
185.6
253
6,076.3 21,3194
20,589.8 73,639
NA
NA
NA
NA
2012
2005
2012
12,182
4,380
22,008
10,370
48,940
5.637
16,240
39,151
22,932
83,960
Source: us Census Bureau: us Bureau of the Economic Analysis; National Bureau of Statistics
of China; eia; European Commission, Market observatory for Energy, Registration of Crude Oil
Imports and Deliveries in the European Union eu 27.
countries: Saudi Arabia, Iran, Iraq and Kazakhstan in the Middle East and
Central Eurasia. In 2013, these countries accounted for 35 per cent of the total
oil export to China. Saudi Arabia and Iran are the main oil suppliers to China,
but much of Chinas existing and expanding role in the region is linked to Iran
and its larger geopolitical importance. Saudi Arabia has been of great political value to the us, but China has proven to measurably benefit from Saudi
Arabias resources. Table 13 highlights the comparison of the total oil trade of
selected key resource rich countries for this study: Iran, Iraq, Saudi Arabia and
Kazakhstan with China, us and eu.
Figure 15 and table 14 measure the magnitude of trade growth for China
and the Middle East key energy partners. These illustrate that China rose to
one of the main trading partners in all four countries, reflecting its trade and
economic involvement with me and cea countries. Chinas growing need for
resources are seen to have multiplied five times from the period of 2003-2005
to 2009-2011.
In table 14, Chinas growth has led it into the top two slots for imports from
selected countries. Note Chinas position leading the us in each one except for
Saudi Arabia, where it is only marginally behind the level of us imports from
the country.
812

250
Saudi Arabia
usd billion
200
Kazakhstan
Iraq
150
Iran
100
Exports to China in usd

billion
Imports from China in

usd billion
2009-2011
2006-2008
2003-2005
2009-2011
2006-2008
2003-2005
2009-2011
2006-2008
2003-2005
50
Trend Trade balance
figure 15 Trend trade relations of Iran, Iraq, Kazakhstan, Saudi Arabia with China: 2003-2011.
Note: slight differences might occur due to rounding.
Source: The Observatory of Economic Complexity, Massachusetts Institute for
Technology (MIT) Media lab
table 14 Top five export destinations and import origins of case countries 2005-2013
Countries
Top 5 export
destination
2005-2007
Top 5 export
destination
2008-2010
Top 5 import
origin 2005-2007
Top 5 import
origin 2008-2010
Iran
Japan 15.0%
China 12.0%
India 6.55
Italy 6.2%
South Korea 5.9%
usa 42.3%
Italy 11.3%
India 10.8%
South Korea 5.4%
China 2.3%
Italy 11.9%
Russia 11.5%
China 11.5%
France 9.6%
Netherlands 4.3%
China 17.5%
Japan 13.29%
India 12.2%
South Korea 7.3%
Italy 4.8%
usa 30.1%
India 16.0%
Italy 9.6%
South Korea 9.0%
China 8.2%
China 15.3%
Russia 8.2%
France7.9 %
Italy 7.2 %
Netherlands 5.7%
Germany 11.6%
China 10.6%
uae 9.9%
South Korea 6.2%
Italy 5.0%
Turkey 23.0%
uae 19.7%
Iran 16.1%
usa 8.51%
China 5.7%
Russia 36.3%
China 9.5%
Germany 7.6%
usa 5.5%
Ukraine 4.0%
China 16.3%
uae 13.6%
Germany 10.5%
South Korea 7.2%
Italy 5.2%
Turkey 23.6%
China 11.8%
uae 8.1%
Germany 4.12 %
usa 4.1%
Russia 29.3%
China 14.3%
Germany 7.3%
Ukraine 5.31%
usa 4.85%
Iraq
Kazakhstan
813

Countries
Top 5 export
destination
2005-2007
Saudi Arabia usa 14.6%

Japan 14.5%
South Korea 8.3%
China 6.3%
India 5.7%
Top 5 export
destination
2008-2010
Top 5 import
origin 2005-2007
Top 5 import
origin 2008-2010
Japan 7.9%
usa 7.4%
China 6.2%
South Korea 5.5%
India 3.7%
usa 12.0%
Germany 8.3%
Japan 7.8%
China 7.9%
UK 5.0%
usa 11.05%
China 10.6%
Germany 5.2%
Japan 6.8%
India 4.6%
Source: The Observatory of Economic Complexity, http://atlas.media.mit.edu.
6.3.6
Chinas Prospect in the Middle East
Between 2005 and 2009, Chinas investment in the Middle East grew tenfold,
respectively from $1 billion to $110 billion. Chinas investment between 2005
and 2012 in Iran, Saudi Arabia, Iraq and Kazakhstan were respectively estimated to be $18.6 billion, including $13.9 billion in the energy sector; $17.3 billion including $6.8 billion in the energy sector; $14.5 billion including $14.0
billion in energy sector and $21.8 billion, including $19.7 in the energy sector.
Thus, China became the largest foreign investor in these four resource-rich
countries (Heritage Foundation 2012).
The Chinese National Oil Companies largest upstream projects in the
Middle East and the Caspian regions are in Iraq, Iran and Kazakhstan. Chinas
nocs have signed service contracts to develop several large oilfields in these
countries (these include al-Ahdab, Halfaya and Rumaila in Iraq and Azadegan
and Yadavaran in Iran). Recently, Chinas projects in Iraq have progressed
much quicker than the projects in Iran. cnpc, which moved quickly to develop
a foothold in the post-war Iraqi oil industry, is one of the largest foreign companies in terms of production operating in Iraq. One of the crown jewels of
cnpcs international upstream portfolio is Iraqs Rumaila oilfield, which cnpc
is developing in partnership with bp. Last year, Rumaila accounted for more
than one third of Iraqs oil output. It was also cnpcs top-producing overseas
project, accounting for almost half of cnpcs net overseas oil and natural
gas production (see International Oil Daily, 18 January 2013). In contrast, the
upstream activities of cnpc and its domestic peers in Iran have decreased in
recent years. The Iranians suspended the contract of cnooc for the development of the North Pars natural gas field in 2011 for lack of progress, and cnpc
withdrew from developing phase 11 of South Pars, the worlds largest natural
814
gas field in 2012 (after the Iranians threatened to void cnpcs contract for lack
of progress). cnpc is behind schedule in developing the Azadegan oilfield,
and Sinopecs work on the Yadavaran oilfield reportedly has suffered delays
(see Downs 2013; International Oil Daily, 1 April 2013; International Oil Daily
24 June 2012; Platts Oilgram News, 2 May 2012).
One benefit for China in dealing with Iran is to exploit its favorable geographic location. Bordering the Caspian Sea and the Persian Gulf, Iran can
serve as an inevitable geographical bridge for Chinas efforts to secure energy
resources in Central Asia and the Middle East, which Kaplan (2012) calls
the Iranian pivot. China imports a large amount of its energy, both oil and
gas, from the Caspian Sea to reduce its dependence on oil from the Persian
Gulf nations. As an active participant in the Caspian Sea oil and gas projects,
China has brought and channeled energy through the long pipelines that fan
out east from the Caspian Sea and snake through Turkmenistan, Uzbekistan
and Kazakhstan into Xinjiang and the rest of China (Fazilov & Chen 2013).
Chinas ambition to secure more Central Asian oil has been facilitated by the
Neka pipeline in northern Iran, constructed by a consortium of Chinese oil
companies including both cnpc and sinopec in 2003. The reasons for the
shrinking presence of Chinas oil companies in Iran include sanctions that
have made it difficult for Chinas oil companies to secure equipment and technologies needed to operate in Iran, unhappiness with contract terms, uncertainty about whether Irans nuclear program will spark a military conflict, and
reported guidance from Chinas leadership to move slowly in Iran. It seems
the China-Iran energy cooperation will be improved as a result of current
negotiation on Iranian nuclear program with the us and/or 5+1 countries. In
the 2000s, Chinas nocs were happy to negotiate contracts for projects that
would almost certainly have been awarded to major international oil companies in the absence of sanctions. However, they have not been in any rush
to actually invest large sums of money into Iran. At the same time, China is
looking to raise crude oil imports from Iran that could cause more tension
with the United States. In addition, Chinas state-owned Zhuhai Zhenrong
Corp, which was sanctioned by Washington in early 2012 to supply gasoline
to Iran, has begun talks with the National Iranian Oil Company (nioc) for a
new contract.
Structural Challenges of European Union Energy Supply Security
from the me
The European Union energy supply security mainly from the Middle East faces
a number of challenges:
6.4
1.
2.
815
Persistence of the Arab patrimonial rentier states and societies, which

are a domestic and geopolitical source of permanent political instabilities, conflict and tension.
The Asian emerging economies, mainly China, and their involvements
and impacts on the post-Cold War geopolitical shift underway in the
Middle East and cea.
The structure of power in the patrimonial rentier states and societies have
inarguably created a condition for permanent tension, conflict and instability
at domestic and regional levels. The course the ruling elites of these states have
so far chosen and the lack of sustainable development and political democratization has created a chronic developmental crisis in these regions and countries. That is a mutually reinforcing combination of a deep economic crisis
and cultural frictions, which become entrenched in the public domain, leading to militant confrontations between cultural groups within the [state and]
society [as well as between states and societies]. This crisis is the consequence
of failed attempting at nation-state-building, sustainable development and
democratization (see Amineh 2007, Ch 1; 2010; see also Berger 2011).
The population of patrimonial rentier states of the Persian Gulf is supported
by finances earned through resource exports in exchange for keeping quiet in
state affairs. Weak civil society with related forces, institutions and organizations as a result of failed development contribute to the survival and dominance of patrimonial regimes in resource-rich Arab Middle East. At the same
time, Arab resource rich countries swfs have been contributing to further
persistence of the existing patrimonial based rentier state system. swfs are
not acting as tools to implement in restructuring and diversifying economic
sectors, as experienced in some other developing countries, but further reflect
the problem of a detached state-society system in which the regimes continue
to treat the economy like their personal cash machine.
The threats to eu supply security increase when the geopolitical shift underway in the region is added. It is impossible to predict what will happen in the
coming decades. It is certain, however, that the Asian emerging economies,
mainly China, involved in me and cea will influence the future geopolitical
and geoeconomic directions. These states rely on more resources to encourage domestic development. The oil-rich countries in the Middle East have long
been a destination of acquiring such resources.
To conclude, the increasing diplomatic, economic and even security relations between me and cea resource-rich countries will influence the eu
energy supply security. Patrimonial state structure, volatility of resources and
816
emerging economies to compete againstthe region will not be a welcome

supply of energy without the eus preparedness in responding to these future
threats.
7 Conclusions
As one of the worlds largest importers of oil, gas and coal, the eu is a major
player on the international energy market. However, it remains a dwarf on the
political stage as member states keep the upper hand on foreign policy. It has
been argued that the energy challenges facing Europe need a coherent external policy to enable Europe to play a more effective international role in tackling common problems with energy partners worldwide. It would allow the eu
to speak with one voice in their external relations towards common foreign
policy energy security.
Currently, the eu is still wrestling with the establishment of a common
energy policy. Although the European Commission laid down clear priorities, overlapping competences of policymaking institutions within the eu and
its member states, complex government-business ties and competing energy
priorities all hamper the effective establishment and execution of a common
energy policy. Finally, distrust among member states about which interests will
prevail has led to caution, hindering the formulation and implementation of
coherent strategies that the common external energy policy should focus on in
pursuit of the Commissions goals.
The last two decades showed decreasing fossil fuel production in eu
(from 28 ej in 1990 to 16 ej in 2012) and increasing import dependence (from
43 per cent of energy use in 1990 to 53 per cent in 2012). Main countries where
energy sources are derived from are Russia and Norway, followed by Algeria
(natural gas), Saudi Arabia (oil) and Columbia (coal). The share of Middle
East and North Africa (mena) and the Caspian Sea Region in total imports
equaled 62 per cent in 2012. Import dependence in the eu is expected to further increase in the coming two decades to 57 per cent in 2030. Proven oil and
gas reserves in eu are very limited. Estimated shale gas reserves would cover
nearly 30 times the 2012 natural gas consumption, and might contribute temporarily to security of natural gas supply. It is apparent that for oil, however,
both global reserves and own eu reserves look bleak.
At the same time, global trends show an increasing demand for energy in
the coming two decades, mainly concentrated in developing countries and
specifically China, which is the largest leading global energy consumer at
817
the moment. Fossil fuel production, on the other hand, is likely to be more
concentrated in fewer countries. The Caspian Sea region and the Persian Gulf
area hold one of the worlds largest oil and gas reserves, which will make them
increasingly significant in global markets. The combination of increasing oil
and gas consumption, diminishing reserves and geopolitical rivalry creates a
setting for the eu that can be characterized as one of demand induced, supplyinduced and structural scarcity.
The global demand for oil and gas, rising political instability in many producer countries and the approaching peak-oil situation (2010-2020) are
beginning to change the overall balance of power in the relationship between
energy producer and consumer states in a way that strengthens the first. The
European Union energy supply security, mainly from the Middle East, faced a
number of domestic and geopolitical challenges:
1.
2.
Persistence of the Arab patrimonial rentier states and societies, which

are a domestic and geopolitical source of permanent political instabilities, conflict and tension.
The Asian emerging economies, mainly China, and their involvements
and impacts on the post-Cold War geopolitical shift underway in the
Middle East and Central Eurasia (cea).
The structure of power in the patrimonial rentier states and societies have
inarguably created a condition for permanent tension, conflict and instability at domestic and regional levels. The course the ruling elites of these states
have so far chosen and the lack of sustainable development and political
democratization has created a chronic developmental crisis in these regions
and countries. That is a mutually reinforcing combination of a deep economic
crisis and cultural frictions, which become entrenched in the public domain,
leading to militant confrontations between cultural groups within the [state
and] society [as well as between states and societies]. This crisis is the consequence of failed attempts at nation-state-building, sustainable development
and democratization.
The population of patrimonial rentier states of the Persian Gulf is supported
by finances earned through resource exports in exchange for keeping quiet in
state affairs. Weak civil society with related forces, institutions and organizations as a result of failed development contribute to the survival and dominance of patrimonial regimes in resource-rich Arab Middle East. At the same
time, Arab resource rich countries Sovereign Wealth Funds (swfs) have contributed to further persistence of the existing patrimonial based rentier state
818
system. swfs are not acting as tools to implement in restructuring and diversifying economic sectors, as experienced in some other developing countries,
but further reflect the problem of a detached state-society system in which the
regimes continue to treat the economy like their personal cash machine.
The threats to eu supply security increase when the geopolitical shift
underway in the region is added. It is impossible to predict what will happen
in the coming decades. It is certain, however, that the Asian emerging economies, mainly China, involved in the me and cea will influence the future geopolitical and geoeconomic directions. These states rely on more resources to
encourage domestic development. The resource-rich countries in the Middle
East have long been a destination of acquiring such resources.
To conclude, the increasing diplomatic, economic and even security relations between me and cea resource-rich countries will influence the eu
energy supply security. Patrimonial state structure, volatility of resources, and
Asian emerging economies to compete againstthe region will not be a welcome supply of energy without the eus preparedness in responding to these
future threats.
Abbreviations
bp
ccs
cr
cea
cnooc
cnpc
cpc
eia
eu
gdp
gcc
iea
mena
noc
opec
sco
swfs
set
British Petroleum
Carbon Capture and Storage
Caspian region
Central Eurasia
Chinese National Overseas Oil Company
Chinese National Petroleum Company
China Petrochemical Corporation
Energy Information Administration
European Union
gross domestic product
Gulf Cooperation Council
International Energy Agency
Middle East and North Africa
National Oil Companies
Organization of Petroleum Exporting Countries
Shanghai Cooperation Organization
Sovereign Wealth Funds
Strategic Energy Technology
uae
us
undp
819
United Arab Emirates

United States
United Nations Development Programme
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Perspectives on Global Development

and Technology 13 (2014) 757-825

Rethinking eu Energy Security Considering Past

Programme Director: Energy Program Asia (epa) at the International Institute

University of UtrechtCopernicus Institute of Sustainable Development

koninklijke brill nv, leiden, 4|doi 10.1163/15691497-12341326

Amineh and Crijns-Graus

Rethinking eu Energy Security

Amineh and Crijns-Graus

The paper is organized as follows. Section 2 discusses concepts and data

Concepts and Data

Rethinking eu Energy Security

Amineh and Crijns-Graus

Perspectives on Global Development and Technology 13 (2014) 757-825

Rethinking eu Energy Security

Perspectives on Global Development and Technology 13 (2014) 757-825

Amineh and Crijns-Graus

The European Unions Energy Security Policy

Perspectives on Global Development and Technology 13 (2014) 757-825

Rethinking eu Energy Security

Perspectives on Global Development and Technology 13 (2014) 757-825

Amineh and Crijns-Graus

Better linking of the Baltic region with the eu,

As a follow-up, in 2008 the Commission tabled the Green paper Towards

Rethinking eu Energy Security

Import Dependence in eu: Past Trends and Future Developments

Perspectives on Global Development and Technology 13 (2014) 757-825

Amineh and Crijns-Graus

examine developments in import dependence in the last two decades in the

Total primary energy supply (pj)

Biofuels and waste

Total primary energy use in eu27 by source (based on iea, 2013).

Perspectives on Global Development and Technology 13 (2014) 757-825

Rethinking eu Energy Security

Total primary energy supply (pj)

Biofuels and waste

Primary energy use in eu27 by source (based on IEA, 2013).

Perspectives on Global Development and Technology 13 (2014) 757-825

Amineh and Crijns-Graus

deliver 62 per cent of natural gas imports, which is a decrease in comparison to

Natural gas use by country of origin (pj)

Other and non-specified

Natural gas supply in eu28 by country (based on Eurostat, 2014).

Natural gas use by country of origin (pj)

Other and non-specified

Natural gas supply in eu28 by country as shares (based on Eurostat, 2014).

Perspectives on Global Development and Technology 13 (2014) 757-825

Rethinking eu Energy Security

Crude oil use by country of origin (pj)

Other and non-specified

Crude oil supply in eu28 by country of origin (based on Eurostat, 2014).

Perspectives on Global Development and Technology 13 (2014) 757-825

Amineh and Crijns-Graus

Crude oil use by country of origin (pj)

Other and non-specified

Perspectives on Global Development and Technology 13 (2014) 757-825

Rethinking eu Energy Security

Crude oil use by country of origin (pj)

Coal supply in eu28 by country of origin (based on Eurostat, 2014).

Crude oil use by country of origin (pj)

Coal supply in eu28 by country of origin as shares (based on Eurostat, 2014).

Amineh and Crijns-Graus

Source: Based on Eurostat (2014).

Total primary energy supply (PJ)