The Role of Oil in Algeria’s Economic Future
Algeria’s economic future looks bright as its role as a supplier of liquid crude oil has expanded amidst the shifts in European sourcing due to the Russian invasion of Ukraine. Algeria typically provides only 8% of natural gas for the European Union. However, the country is already taking steps to provide more oil as nations look to lessen their dependence on Russian oil. Such a change in supply could mean an economic boost, enabling Algeria to build future long-term renewable energy and labor markets.
Historical Context
Algeria is a country with a deep history of relying on its own resources and people to power its economy. Having internationally-recognized independence since 1962, Algeria has had to resort to its oil exports, internal agricultural labor and deals with neighbors such as Morocco and Spain in order to stay afloat. After former president Abdelaziz Bouteflika resigned in 2019, the old guard of Algerian leadership faced a new era in which the country’s non-oil industry required expanding and strengthening in order for its economy to have a bright future.
How Algeria’s Role is Currently Changing
Countries such as Spain, Italy, Greece and France are weaning off of Russian oil, while capital cities such as Madrid, Athens and Rome are currently setting up new energy provisions with Algeria. In its most recent report, the World Bank noted that Algeria’s economy grew 3.9% bigger due to the extra demand for European oil alongside new construction and industrial activity. To maintain this continued growth Algeria’s leaders need to pay close attention to the possible obstacles.
In order for Algeria’s economy to find the funds to diversify its future economy, it must be able to provide more oil to European countries in the first place, an increase estimated at 12% to 38% of its current rate by the fall and winter of this year. However, the state-run oil company Sonatrach is facing bureaucratic slowdowns, hacking to the refinery operations, and complications maintaining its already existing contracts.
In addition, there is a geopolitical complication in Algeria’s current status as a primary buyer of Russian weapons and arms, according to Modern Diplomacy. If Russia can mitigate some of its lost oil revenue by increasing weapons sales to a growing Algerian economy, then European nations may turn away from contracting more oil supplies from Algeria. These are complications that make Algeria’s economic future a tricky path of policy and economic landmines.
Possible Solutions
The primary solution for longer-term economic growth is to focus on building non-hydrocarbon industries with the profits from oil exports that could take place in the coming months. One major way to do this is for the World Bank to support further private sector projects related to agriculture, construction and development. In addition, Algeria could create stability in its current leadership by funding social programs, human rights protection and anti-corruption legislation. These measures could help prevent the widespread political uprising from citizens and extremist groups while keeping the leadership needed to maintain the centralized economy going.
According to Council on Foreign Relations, the U.S. role in Algeria’s economic future should be kept to a minimum of interference. Algeria is a nation that is very insistent on being self-sufficient and sovereign. In order for political and economic stability to succeed, U.S. measures need to include not sending more troops or intelligence to Algeria and instead diplomatic peers in order to better understand the needs and wants of the nation, CFR stated.
Algeria’s economic future looks bright when taking into account the post-COVID-19 recovery and the opening avenues for revenue to which Algeria can build a stronger, more diversified economy. This serves two primary purposes: keeping intact its sovereignty and forging a new path forward to end its long-tenured instability.
– Albert Vargas
Photo: Flickr
