Algeria Attack Poses a Dilemma for Western Oil Companies

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Louafi Larbi / Reuters

Algerian gendarmes escort a freed Norwegian hostage at a police station in In Amenas, Algeria, on Jan. 19. 2013

With this week’s hostage debacle in Algeria — which killed 23 oil workers and 32 hostages, and ended in a fiery assault on Saturday — international energy companies operating in the region are left grappling with an urgent question: Can they keep their personnel safe amid the region’s political upheaval amplified by the conflict in Mali, where French forces have intervened to stop government forces being overrun by jihadist militants?

At stake are billions of dollars in investment in the wider Maghreb and West Africa by dozens of Western companies. The assumption that energy installations in the region were safe from terrorist attacks collapsed before dawn on Wednesday, when armed militants invaded the living quarters of Algeria’s In Amenas gas facility in the remote southeastern part of the country, seizing hundreds of hostages, both local and foreign — among them American, British, Japanese, French and Norwegian oil workers. The impact of that attack, for which Algerian jihadist commander Mokhtar Belmokhtar claimed responsibility, will likely be felt for years.

“Oil companies will have to factor in completely different security measures,” says Fadel Gheit, a senior energy analyst at the New York City–based investment bank Oppenheimer & Co. “These facilities are absolutely naked.”

(MORE: Algeria’s Hostage Crisis: What Was Behind a Shadowy Militant Leader’s Plot?)

The biggest impact of the hostage debacle will be on Algeria itself, which relies on energy production for 95% of its exports and more than 60% of its total revenues. The In Amenas plant, a joint venture with BP and Norway’s Statoil, accounts for more than 10% of the country’s natural-gas output. Foreign companies began evacuating their staff from Algeria immediately after the kidnappings, and on Friday, British Prime Minister David Cameron told Parliament that security had been beefed up around Western commercial and diplomatic facilities elsewhere in the region too.

There is no knowing when oil companies will deem it safe to return expatriate staff to Algeria, let alone risk plowing billions into new energy projects; Algeria has been courting Western investment, not only in its hydrocarbon sector but also to finance such renewable-energy plans as solar plants in the vast Algerian Sahara. At minimum, potential investors will now drive a harder bargain, given the additional expenses they would have to incur on security in order to expand their infrastructure in Algeria. “Operating in Algeria has just become more expensive,” Eurasia Group’s Africa director Philippe de Pontet says in a memo sent to clients on Friday. “Assets sold in the coming 12 to 18 months with have a significant discount applied.”

The new threat to their economy’s economic lifeline has shaken ordinary Algerians. “People are very worried,” Hocine Lambriben, a reporter at Algeria’s al-Watan newspaper, told TIME on Friday from Algiers. “For many years, these facilities were presented to us like impregnable fortresses where site security was guaranteed,” he said. “It would be catastrophic if other facilities were targeted by jihadists. Foreign oil companies would likely reconsider their presence in Algeria.”

(MORE: Westerners Kidnapped in North Africa — but Is France the Real Target?)

For now, oil companies are not disclosing their plans. Still, a glance at the map of North Africa is enough to show the depth of the security challenge they face. Western oil companies involved in Chad and Nigeria could now be more vulnerable, since each country has deployed hundreds of troops to join the French-led war in Mali, against which the jihadist kidnappers in Algeria claimed — possibly opportunistically — to be retaliating. And Nigeria is already fighting a domestic battle with the violent Islamist Boko Haram movement, an ideological fellow traveler of the Mali insurgents.

The dangers expand elsewhere, with huge oil reserves attracting Western companies to set up production across the vast Sahel. South of Algeria and Mali sits Niger, a dirt-poor desert country with the world’s fourth largest output of uranium, which supplies France’s crucial network of nuclear power stations. East of Algeria is Libya, where a number of Western companies exploit some of Africa’s biggest oil reserves, but where security remains plagued by militant groups like the one that killed four Americans in an attack on the U.S. consulate in Benghazi last September.

(MORE: The Crisis in Mali: Will French Air Strikes Stop the Islamist Advance?)

As more countries are drawn into the French-led operation, the dangers could proliferate. “The risk of additional kidnappings and asymmetrical reprisals against French and allied-country targets in North Africa, the Sahel and beyond will rise sharply,” de Pontet warns.

On Friday, Libya’s Petroleum Faculty Guard announced that it had beefed up its military presence in and around the country’s energy facilities. The new measures, it said, include the creation of “a special operations room” to monitor oil-and-gas plants. Such measures are late in coming. Gheit says he has been shocked at what he perceives to be inadequate security in a country awash in weapons and with weaker central authority since the fall of Muammar Gaddafi. “These sites are very, very vulnerable,” he told TIME, hours before Libya announced its increased security measures. “If somebody targets these sites, they will get them, there is no question in my mind.” It has taken the deaths of a number of foreign and Algerian oil workers to jolt governments into taking long overdue security precautions. Oil companies and the governments that host them will be hoping those actions will be enough to keep oil workers safe and their Western partners from leaving.

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