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An Egyptian pipeline in Sinai supplying gas to Israel and Jordan was bombed, forcing Egyptian authorities to suspend supplies to both countries. The pipeline was previously sabotaged on 5 February during a popular uprising that forced ousted Egyptian president Hosni Mubarak from power on 11 February. Supplies of gas to Israel and Jordan from that disruption resumed eventually on 16 March.

 

The attack took place near the village of Al-Sabil in the El-Arish region, and the bomb was activated remotely.

 

Estimates say that Jordan has less than two weeks of reserves to cover its electricity needs. As a result, the Jordanian cabinet announced contingency measures to satisfy the power demands, including urgent requests to import more oil from Iraq and Saudi Arabia.

 

Jordan imports between 150 million cubic feet of Egyptian gas a day, over 65 percent of its electricity needs. The agreement with Egypt allows Jordan to import up to 240 million cubic feet a day, at substantially reduced prices.

 

The previous disruption cost the Jordan economy over US$ 5 million a day.

 

April 26-28, 2011

 

 

Analysis and Forecast: Increasing Risk


 

Jordan imports almost all of its energy needs. The disruption of the Egyptian supply is not only a temporary one. The gas deal under which Egypt supplies gas to Jordan and Israel has been widely criticized in Egypt after the fall of the Mubarak regime. It has been criticized due to offering the gas at below-market prices. The Egyptian criticism against the deal was due to its being exported to Israel, rather than Jordan. However, it is likely that the deal with Jordan may also be re-negotiated as is likely will happen with the Israelis.

 

Jordan therefore is forced to rely on more expensive energy sources, which will predominantly be oil imported from Iraq and Saudi Arabia. This will lead to substantial increases in costs, and pressure the Jordanian government, which wholly owns the National Electricity Company, to raise energy prices.

 

At this time of regional unrest, and despite mounting financial losses by the electricity company, the government will unlikely raise the prices substantially. Doing this at this time will likely lead to mass protests, as was seen in Jordan after raising prices of other subsidized commodities in the past.

 

However, with increasing oil prices, the Jordanian government faces a substantial increase in deficit, to cover the losses. The electricity company has already accumulated losses exceeding US $300 million as a result of the disruption, and the new imported supplies will add to the financial burden of the government. With the projected budget deficit for 2011 at just over US $ 1.5 billion, or 5 percent of GDP, Jordan is expected to face further economic difficulties coupled with increased risk of civil unrest as a result.