Expert Analysis: Political Instability & Business Continuity in the Oil Sector

Drum Cussac's Arthur Michelino takes a closer look at the challenges to organisational continuity in the oil industry in the face of political and social unrest, with a particular focus on the Iraqi protests of summer 2018.
oil field iraq

I. Introduction

On Sunday, 2 September, Drum Cussac reported an incident at the main entrance of the Nahr Bin Omar oilfield operated by the state-run Basra Oil Co.

Security forces used tear gas to disperse around 150 protesters threatening to break into the oilfield if authorities would not meet their demands to improve basic services and notably address their complaints about Basra’s drinking water.

Following the incident, the organisers of the protest stated their determination to resume their actions and disrupt activities at oilfields in order to force the Iraqi government to solve the water supply issue:

“We will not allow the oilfield to operate unless we get clean water. No services, no jobs and now no clean water. We are fed up.”Hassan Ali, a protest organiser


II. Objective

Actions against oil sites show that petroleum resources are a key variable in the protest equation when lacking access to conventional channels of institutional change.

As shown by the case study below, disrupting oil production can be a useful tactic employed by aggrieved locals to exert an immediate influence on the political process. For oil companies, popular uprisings can cause severe disruption to production and endangers workers’ safety and security. This can result in important financial losses and reputational damage if the risk is not adequately understood and mitigated.

The purpose of this article is to briefly analyse the protest movements threatening operational continuity at oil sites in Iraq by shedding light on protest dynamics and explaining how Drum Cussac can assist security managers in the oil industry to identify threats and mitigate security risks.

iraq oil field


III. Case Study: Iraq

Drum Cussac can trace the beginning of the protest movement in Basra Governorate back to Sunday, 8 July when residents gathered on a highway near the southern oilfield perimeters of West Qurna-1 and West Qurna-2, 60km (37 miles) north-west of Basra town. Since then, we’ve reported at least 16 incidents that help to dynamically map the deteriorating security situation in the governorate.

Basra Governorate, also known as Al-Basrah, is located 550 km (341 miles) south-east of Baghdad, on the Persian Gulf bordering Kuwait and Iran, houses 70 per cent of the country’s proven oil reserves, and is the unique hub for oil exports.

More than 95 percent of Iraqi state revenues are generated by oil exports from Basra, meaning that any potential disruptions to production in the governorate can severely impact the entire Iraqi economy. Furthermore, if protracted political instability in Basra Governorate can negatively impact the national economy, it can also destabilise the global oil market by driving up prices.

On Drum Cussac’s RiskMonitor platform, Basra Governorate is assessed to have a high level of political instability due to the perceived relative deprivation of local residents, which underlines a potential risk of social uprising in both the short and long terms.

The standard of living for locals is affected by the continuous breakdown in the provision of basic services such as power and water supply, as well as underinvestment in education and municipal services in the governorate. Standards are further squeezed by oil companies employing foreign workers, who are – somewhat unsurprisingly – perceived as being detrimental to the local economy and a contributing factor to high levels of unemployment.

This only serves to further solidify Basra-based oil companies as a focal point of discontent for locals.

The purpose of the Sunday, 8 July demonstration was to protest against a shortage of jobs, water, electricity, and basic public services illustrating the solid disruptive power of social issues in Basra Governorate. The location of the protest is interesting as protesters decided to conduct their actions in the close vicinity of oil sites.

Oil sites are a symbolic catalyst of discontent. As they are deemed critical infrastructure, threatening these sites appears to be an effective way to attract attention from local authorities as well as to publicise grievances to an international audience via the global media.

iraq risk alert oil

The death of a protester in the Sunday, 8 July protest resulted in an escalation of tensions in the governorate. On Tuesday, 10 July, thousands protested in the vicinity of the West Qurna oilfields, the largest Iraqi oilfields, blocking the main roadway into the oilfields.

If the fatality was a trigger to this new demonstration, discontent remains at the heart of the social movement, as protesters threatened to paralyse operations at oil facilities if the companies running them failed to employ local residents and does not financially participate in the development of infrastructure in local communities.

Following this incident, foreign oil companies activated their contingency plans and relocated senior staff to other facilities, notably Rumaila oil field, in order to mitigate the operational and security risks.

One day after, on Wednesday, 11 July, for the sake of easing tensions, the Iraqi government released a statement where it approved measures to improve the delivery of essential public services in Basra province and to apply new visa and residency fees for foreign nationals seeking to enter Iraq.

This reaction from the Iraqi government serves to show that targeting oil production is an effective tactic for local residents to voice their grievances and weight in the protest equation.

iraq risk alert oil

Following extended protests throughout July, the protesters’ position hardened between 20 and 30 August when thousands fell ill after consuming drinking water. On Monday, 20 August the Department of Public Health declared that more than 1,000 were reported sick with colic, diarrhoea and symptoms of cholera following the suspected contamination of drinking water in Basra Governorate.

On Thursday, 30 August, in another statement, the Department of Public Health declared that 17,000 were admitted to hospital for the same reason. Tests conducted on the drinking water indicated that the contamination was chemical-based and not bacterial-based, driven by chemical and industrial waste poured into the river by the petroleum industry.

iraq risk alert oil

This incident turned out to be a powerful mobilising factor in Basra Governorate, with activists opting for a strategy of relentless protest to voice their grievances and force authorities to solve the problem of the water filtration among others.

On Friday, 31 August, hundreds of local residents attempted to break into the building housing the regional government headquarters in Basra town to demand better public services, specifically the water filtration service.

Media outlets reported casualties after local security services used live ammunition to disperse the crowds. A similar protest was reported on our RiskMonitor platform, on Saturday, 1 September, with protests in the streets of Basra resulting in violent clashes between security forces and protesters.

iraq risk alert oil

Following the protest actions, residents staged another series of demonstrations in the vicinity of the oil sites in Basra Governorate to mediatise the objects of contention and force authorities to take actions. On Sunday, 2 September, security forces used tear gas to scatter around 150 protesters at the main entrance of the Nahr Bin Omar oil field.

iraq risk alert oil

As a consequence of the escalation in violence, Iraqi officials deployed Federal troops to the governorate to restore order. Officials also planned to implement a curfew in Basra following intelligence reports warning of potential further attacks on official buildings. However, the curfew was cancelled hours before it was scheduled to begin following the deployment of further security forces in the governorate.

On the same day, further clashes between protesters and security forces were reported at the entrance of the Umm Qasr commodities port, closing down the main Iraqi seaport. Trucks and staff were unable to get in or out of the complex. Nevertheless, oil exports, which are handled at offshore terminals, remained unaffected by the unrest.

One day later, on Friday, 7 September, protesters stormed a water treatment facility and took two Iraqi nationals as hostages at the West Qurna 2 oilfield owned by Lukoil. The nature of this protest action is highly symbolic. A water treatment facility is a symbolic object as it represents the access to clean water (object of the grievance). Using violence to take over a water treatment facility is a symbolic interaction as it temporarily reverses the situation to the advantage of protesters – they control the symbolic object of the grievance.

On 8 September, the hostages were released. Sources working at Lukoil declared that a disruption of three days would have been enough to completely shut down West Qurna oilfield.

iraq risk alert oil

On Sunday, 9 September, international media sources reported that a precarious calm returned in Basra Governorate. Alongside a heavy security presence in Basra, markets were reopening and cleaning operations ongoing to remove the debris in the streets from the clashes. According to protest’s organisers, the decision to suspend the unrest came after receiving death threats from Iran-backed militias who accuse them of collusion with the United States, underlining the complexity of the political stakes in the region.

The chronology of the Basra uprising as of 11 September, allow determining that as the position of the protesters harden, challenging the security in the oil sector become a leverage tool to weight in the protest equation. Although the situation has eased down, political instability remains a major risk for the petroleum industry in Basra Governorate, as oil sites will continue to be used as a bargaining chip to force authorities to tackle grievances of local residents.


IV. Explanation

The Iraqi protests originated from a profound sense of exasperation among the population and were a response to social, economic and political challenges such as fighting corruption and insecurity, better redistribution of oil incomes, availability of jobs, ensuring the provision of basic services, as well as improving investments in both education and municipal services.

The proliferation of protest actions aimed at disrupting oil fields indicate that petroleum resources became a key variable of the protest equation, particularly as a strategic, economic resource that could be used as a lever for political pressure.

These social movements were triggered by a lack of access to conventional channels of social, political and institutional change. By conducting protests at oil sites, activists conducted a strategic political manoeuvre that sought to involve external stakeholders and exert pressure on authorities to find a positive solution that wouldn’t threaten their business operations.

Disrupting oil sites is a strategic choice that is perceived as being one of the most effective tools in overcoming institutional disadvantage. In the Iraq case study, this choice shows that protesters succeeded in bypassing intermediaries to directly access government representatives. However, despite gaining access to decision-makers, the situation remains volatile in Iraq.


V. Mitigation

In the oil sector, social instability is a significant political risk that can have unpredictable consequences for business continuity and cause severe reputational damages. In Iraq, social instability is nurtured by a range of risk factors (eg. insecurity, employment, lack of basic service) that expose oil companies to a multitude of potential backlashes.

Effective management of political risks allows organisation to appropriately implement mitigation measures that will protect their operations and reputation. Organisations can gain significant benefits from understanding the political landscape they are involved in, and Drum Cussac can proactively help them to do so. We can assist security managers in identifying, measuring and managing political risks, but also analyse the political dynamics underlying incidents to help you to navigate times of uncertainty.

It is paramount for security managers to understand the political dynamics that could affect business operations. In high-risk countries, being knowledgeable about the political environment helps security managers to take appropriate decisions to mitigate security risks. Our skilled analysts use advanced technologies to identify risks, map connections between incidents and interpret patterns, to red flag political risks and help you to respond appropriately to security risks.

To find out more about how we can support your operational resilience, contact us now.

arthur-michelino

Author Bio: Arthur Michelino is a Global Operations Officer at Drum Cussac and is part of the expert team responsible for monitoring and responding to worldwide threats in our Global Operations Centre. Arthur holds a B.A. in Internal Relations from the University of Geneva, an M.A. in International Security from the University of Bath and an M.Sc. in Risk Analysis from Kings College London.