Tunisia - Part 2: Protests (Causes)

Note: blog written up on January 12th.

As might be recalled, the Arab Spring started in Tunisia when a fruit vendor named Tarek al-Tayeb Mohamed Bouazizi set himself on fire on December 17, 2010. A month later, the country's president stepped down. To a large extent, Tunisia stands out as a success story of the Arab Spring due to democratic rule.

In Part 1 of my posts on Tunisia, I went over what was happening. This post tries to dig into the reasons why the protests are happening -- beyond the high level reason for the protests such as an increase in taxes and a reduction in subsidies.

Tunisia - Part 1: Protests (Current Events)

Note: blog written up on January 12th.

As might be recalled, the Arab Spring started in Tunisia when a fruit vendor named Tarek al-Tayeb Mohamed Bouazizi set himself on fire on December 17, 2010. A month later, the country's president stepped down. To a large extent, Tunisia stands out as a success story of the Arab Spring due to democratic rule.

Currently, there are protests in the streets again. What's going on?

Venezuela's Declining Oil Production

While reading about world affairs, I couldn't help noticing articles such as this from The Irish Times:

Opec’s crude production held steady in December as the group approached a fresh year of output curbs in full compliance with its supply deal . . . Venezuela, which has suffered a slump in output amid economic collapse and US sanctions, reduced volumes by a further 50,000 barrels a day to 1.81 million a day.

Military Control of Economies: Iran and Venezuela

I've previously mentioned in prior blogs that the militaries of Venezuela and Iran have been given influence over their economies. Specifically, in terms of Iran, this is one reason given for recent protests due to the graft/corruption that this brings.

Oil: Upstream Investments

One of the big concerns about future oil prices is the current lack of upstream investment.

In March 2017, the International Energy Agency (IEA) issued a market forecast that stated:

Global oil supply could struggle to keep pace with demand after 2020, risking a sharp increase in prices, unless new projects are approved soon . . . In the next few years, oil supply is growing in the United States, Canada, Brazil and elsewhere but this growth could stall by 2020 if the record two-year investment slump of 2015 and 2016 is not reversed.

Rystad Energy explored this more in December 2017. Sonia Mladá Passos, Senior Analyst at Rystad Energy, stated:

Global exploration expenditures have decreased year-over-year for three consecutive years now, falling by over 60% from 2014 to 2017.

I do believe IEA sees a small uptick in 2017 so there are probably different calculations going on between IEA and Rystad Energy.

Not only have exploration expenditures declined, but what's actually being found via newly discovered offshore fields are declining:

An average offshore discovery in 2017 held ~100 million barrels of oil equivalent, compared to 150 million boe in 2012. “Low resources per discovered field can influence its commerciality. Under our current base case price scenario, we estimate that over 1 billion boe discovered during 2017 might never be developed”, says Passos.

Oil Price's Nick Cunningham noted:

Because large conventional discoveries typically take years to develop, it is not as if the shortfall will be felt immediately. Even the past several years of paltry discoveries probably won’t lead to supply problems for quite a while.

To combine IEA, Oil Price and Rystad together: Oil exploration is probably holding steady, but a lot of oil discoveries will not get developed. Per Oil Price, discoveries take years to develop. So even if we're finding new oil fields, it may not do anything to avert a 2020 price jump.

As a side note, he mentioned a key fact from the IEA:

The IEA also noted that about 2.5 mb/d of supply is lost each year due to depletion, a gap that must be made up with new projects.

This is an important note as this depletion rate is a reason why OPEC doesn't believe that shale alone can offset the continued cuts that they extended into 2018.

It should be noted that upstream investments are slowly turning around. Both Barclays and Wood Mackenzie see improvements in investments. Barclays sees 2018 improving by 8%, but mentions:

Considering the past two recoveries showed materially higher growth in year 2 (+12% in 2004, +23% in 2011), operators remain cautious on oil prices and judicious with capital.

Wood Mackenzie sees growth improving "slightly" to $400 billion (note that other sources I looked through appear to indicate that 2017 is around $450 billion so this is probably another example of different experts using different calculations).

Barclays comment may be due to the fact that everyone is talking about peak demand (be it as soon as the 2020s or as late as the 2040s). Either way, maybe this is helping curb capital expenditure enthusiasm. Maybe everyone knows that OPEC is holding 1.8 mb/d off the market and who knows if they might change their strategy again, potentially killing oil prices in the near term. Also, we know that investors are wanting to see financial improvements and spending a lot on exploration without an immediate return on investment doesn't help matters.

One things I need to explore further is what is assumed to be an appropriate level of capital investment in upstream oil.

Libya's OPEC agreement and pipeline attack

Libya and oil has been in the news recently. One of OPEC's concerns was Libya and its oil output. In the production cut agreement that was set to expire in early 2018, Libya and Nigeria were exempt from such cuts. For this extended agreement, they joined in on the caps (kind of). Per Bloomberg:

Part 2: General Soleimani of Iran: Rebuilding the Persian Empire?

Part 2: Is Iran's General Soleimani attempting to re-establish the Persian Empire? Or in modern language the Shia Crescent (Iran, Iraq, Syria, Yemen). Let's take a look.

Part 1: General Soleimani of Iran: Rebuilding the Persian Empire?

Part 1: Is Iran's General Soleimani attempting to re-establish the Persian Empire? Or in modern language the Shia Crescent (Iran, Iraq, Syria, Yemen). Let's take a look.

Protests: Iran First?

As the Western world moved towards 2018, protests started up in Iran. These protests were the biggest since the Green Movement in 2009. Though, for me, this wasn't anticipated, it doesn't come as a surprise. The question is: will they last or just follow a similar path as the Green Movement?

Both Reuters and the LA Times have interesting summaries of what is going on. The following three reasons appear to be driving the protestors:

1. Economic
2. Corruption/Graft
3. Military adventures outside of Iran

The LA Times article has an interesting note:

A rally began Thursday in Mashhad, Iran’s second largest city, much the same way as protesters, reportedly egged on by Rouhani’s arch-conservative rivals, railed against his handling of the economy. But the demonstrators quickly turned against the hardliners, led by Khamenei, whom many blame for blocking economic reforms while tolerating corruption and funding Shiite Muslim militias abroad.

What that quote is saying is that Supreme Leader Ayatollah Ali Khamenei encouraged protests against President Hassan Rouhani. This would imply not everyone in the government is on the same page. Also, wouldn't it be amusing if this protest, encouraged by government leaders, grew into something bigger that took down the government?

Well, I shouldn't get ahead of myself on a revolution in Iran. As per Time, the Revolutionary Guard has stayed on the sidelines, but they did issue a warning:

The [Revolutionary Guard] — whose mandate is to safeguard the Islamic Revolution — warned late Saturday that it would respond with “a hard punch” if demonstrations didn’t stop.


The Revolutionary Guard reports to Khamenei. To me, that's another amusing outcome from the protests. Khamenei encourages the protests, misjudges and might now need to turn to the Revolutionary Guard to keep both the Supreme Leader and the President in power.

Newsweek (via Yahoo) had this piece of speculation on why protests started up in one city:

Kermanshah, in northwestern Iran, was rocked by deadly earthquakes last month that killed 600. The widespread death and destruction in the area close to the country’s western frontier with Iraq has been blamed on poor building regulation, particularly in public housing projects.

If the earthquake is an underlying reason, the protests in Kermanshah fall under corruption/graft.

Also, falling under corruption, I previously wrote a blog post where I suggested the possibility that General Qassem Soleimani (general of Quds forces, which is a part of the Revolutionary Guard) was profiting from oil deals with Iraq.

One reason I'm calling this blog post "Iran First?" is specifically driven by the fact that protesters are mentioning the military adventures outside of Iran. I will be getting into this more in two blog posts coming up later this week and early next week. Essentially, Iran has been funding a proxy war against Saudi Arabia. Examples include Hezbollah in Lebanon, support for President Bashar al-Assad in Syria and Houthi rebels in Yemen. Oil profits driven by the nuclear deal probably helped fund these adventures versus being used to help rebuild Iran's economy. The protestors seem to be saying, "Hey, think about our economic lives first!"

As with all restriction regimes (BBC link), social media outlets have been blocked in Iran. This includes Instagram and Telegram (a social media app popular in Iran).