Assessing key political risk indicators for authoritarian states : the case of Libya and the petroleum industry

[摘要] ENGLISH ABSTRACT: For multinational oil corporations (MNOCs), increasing worldwide demand for energy combinedwith greater competition in the international petroleum market necessitate continuous search for newareas rich in hydrocarbons – and the greatest oil reserves have in many instances been located inauthoritarian states with challenging investment environments that often imply great uncertaintywith regard to return of investment (ROI). In such cases, proper political risk analysis is aninvaluable decision-making tool in determining whether the risk of a negative ROI is too large tomake an investment. The Libyan market appeared highly promising for MNOCs from the mid-2000s, and oil companies decided to return to Libya despite a large degree of uncertainty aroundregulatory, contractual and political stability issues. Once the Arab uprising surfaced in 2011,eventually turning into a brutal civil war between the Quadhafi regime and the opposition to his rule,the levels of political risk in the Libyan market increased dramatically.A model of political risk analysis can only be as good its components, and the start of 2011 onceagain manifested the importance of proper political risk analyses in order to minimise potentiallosses resulting from unexpected events. Thus, in the context of the Arab Spring revolution, themain purpose of this research is to assess the forecasting ability of key political risk factors andindicators. The central question asked is whether political risk analysis as a discipline can besuccessfully applied as a tool to forecast a political situation within authoritarian states. Specifically,and by analysing the case of Libya, the aim of this study is to determine whether the political eventsof 2011 and the concurrent extremely high levels of political risk could have been anticipated bycompetent political risk analysis. This study builds on the 1999 work of Professor Albert Venter andhis vindication of key political risk indicators for authoritarian states. Additionally, the study seeksto contribute to existing research by adapting the indicators to an industry-specific political riskcontext, namely the petroleum sector. The research study concludes that a forecast for Libya,conducted with information available in 2009, would have given the market a medium high level ofpolitical risk, with several points of great concern for MNOCs. The research study argues thatcompetent political risk analysis, as far as it is possible to predict such an event as the Libyanuprising, identified several signs of an imminent revolution. The analysis could not forecast when, oreven if it would happen, but the fact that several indicators pointed in the direction of increasinglevels of political risk signifies that it could have been too early for MNOCs to return to the countryin the mid-2000s.

[发布机构] Stellenbosch University