What lesson should we draw from this tension between Algeria and Spain?

El futuro de las relaciones económicas entre Argelia y España

PHOTO/REUTERS - The gas pipeline linking Spain, Morocco and Algeria

More than ever, we are entitled to ask ourselves: what are the reasons, the elements, the events and the failures that have led to the current situation?

First of all, to put things in context, let's look at this table, which summarises the evolution of trade between the two countries:
argelia españa

argelia gas

argelia españa

In these two tables we observe that the trade balance was always favourable to Algeria, taking into account the nature of the product exported to Spain and the project that materialised it. As a general rule, energy exporters in an organised and structured way in the medium and long term are always the beneficiaries, as we can see today in the structure of trade between the United States and Spain, which imports large quantities of LNG gas. It is also important to note that investment remains very timid or sometimes non-existent.

Historical perspective

The Spanish-Algerian relationship has always been cordial since Algeria's independence. It was accelerated with the arrival of the major GME gas pipeline project, a structuring project for the region, generating great business prospects between Spain and Algeria. This project has changed the structure of economic exchanges between the two countries, supporting the potential and creating new exchange reflexes.

The GME project: the idea was to develop an ambitious project, imagined by both countries, under the leadership of its promoter, Pedro Durán Farell, whose objective was to create a territorial environment capable of boosting the growth of the entire region through the potential for exchanges that would be generated in a cross-cutting manner, involving other sectors of activity. This approach would make it possible to open up the scope for development, change economic behaviour and thus free up initiatives.

The regional dimension brought to this promising project was welcomed by all actors and worked well at a time when Algeria was going through a very difficult situation in its history, during the 1990s. The project became operational at the end of 1996, with an initial capacity of 8.5 billion m3/year, increased to 13.5 billion m3/year in 2005. In fact, it has managed to achieve all the objectives assigned to it, to the point that Algeria negotiated with Spain a more ambitious perspective, so that Spain would become a gas hub, irrigating a part of Europe, but France has blocked any new gas connection. Russian gas was predominant at the time.

The Medgaz project: Algeria had just closed a very painful chapter in its history, the dark chapter of the 1990s, which coincided with a financial upturn due essentially to the revaluation of hydrocarbon prices from 2004 onwards, so long awaited for reconstruction. The first reflex was to increase its gas production capacity, and this effort materialised, allowing it more possibilities for supply in its natural market.

Spain was informed, as were Italy and France, of these new Algerian gas capacities, and was the only one interested in this new agreement at the time. As a result, the two countries launched the Medgaz project in 2007, which became operational in 2011, with a capacity of 10.5 billion m3/year.

This project was a conclusive response to the Spanish-Algerian collaboration and consolidated the relationship between the two countries. Therefore, great prospects opened up for Spanish companies that could participate in the major infrastructure projects launched by Algeria in its 2010-2014 five-year plan.

Towards the end of 2014 and the beginning of 2015, hydrocarbon prices experienced downward trends, mainly due to an economic slowdown in Asia. China has started to change, favouring inclusive development and supporting a local growth model, among other things.

This new situation would allow Spain to reorient its energy strategy, thus accessing other markets. It could thus diversify its sources of supply, as Algerian gas accounted for 58% of its needs in 2015, relying mainly on US shale gas, which had begun to progressively penetrate the European market.

Yacimiento de gas en Argelia REUTERS/LAMINE CHIKHI
Reasons for Spain's new position

Three fundamental elements in my opinion:

  • ● The closure of GME
    ● The Spanish-Moroccan crisis
    ● The war in Ukraine and the new world order in gestation

GME Closure

Could the closure of GME be one of the reasons for the Spanish decision? This closure comes in the midst of the COVID-19 crisis, with a year 2021 where the winter was particularly harsh; Spain returned to its former Algerian gas supply volumes, more than 53% of its needs. On the other hand, it would be legitimate to think that Spain was beginning to nurture some suspicions as to Algeria's reliability in its commitments, even though Algeria has always honoured these commitments and would make this performance its hobbyhorse.

In fact, it is true that there have been technical problems related to the expansion of the Medgaz pipeline's capacities. These foreseeable technical problems were subsequently normalised thanks to the mastery of turbocompression techniques, with the result that transport became more than 10 billion m3/year and the flow has returned to constant, reflecting the commitment that Algeria has always maintained to satisfy all its customers.

However, it appears that Spain had begun to look for alternative means, in case Algeria failed to provide the necessary quantities. The closure of the GME also calls into question the model conceived during its launch by Spain and Algeria, including Morocco, a transit country.

At the same time, Algeria was not going to maintain the supply of very cheap gas to Morocco while the political conflict continued, especially since the contract expired at the end of October 2021. Political considerations put a definitive end to this project and Algeria officially refuted the tacit renewal of the GME operation. The pipeline was taken out of service on 1 November 2021.

Spanish-Moroccan crisis

Spanish-Moroccan relations have always been tumultuous, due to the Spanish enclaves of Melilla and Ceuta. This did not prevent an intense economic exchange between the two former neighbours, with 1,400 Spanish companies active in Morocco in 2021, with Spanish investment of 5 billion euros and thousands of Moroccan workers established in Spain, mainly in the agricultural sector; hence this extrapolation in this sector, as well as that of processing on Moroccan soil by Spanish companies.

Morocco, for its part, and in order to assert its sovereignty over Western Sahara, began to tense the situation with its northern neighbour by releasing waves of migrants, provoking the Incident, and all this after the White House announced its support for the Moroccan plan in 2020.

The crisis reached its paroxysm in May 2021, would this have influenced the Spanish government's turnaround?

The war in Ukraine and the new world order

The war in Ukraine has disrupted all the protocols and in no way seems to put the situation back to the way it was before the conflict; a major energy crisis, beyond the geopolitical aspect, has settled in Europe to last at least until 2025.

Russia, Europe's main supplier of gas and oil, is waging a war of attrition against Ukraine, a country supported by the European Union and its traditional partners. The consequences of this military war between two countries, which has turned into a global currency war, must also be foreseen. The repercussions are unforeseeable and this is what logically drives the countries of this world to rally together to defend their interests.

The current gas crisis in Europe is wreaking havoc and all schemes are on the table to find quick and effective solutions. Spain seems to have taken seriously the US proposal to supply liquefied natural gas to Europe and make Spain a gas HUB and that Italy would be Algeria's privileged partner, due to the fact that it is the eastern part of Europe that needs it most in the long term, i.e. at preferential prices.

Spain will remain a customer of Algeria, thus running the risk of losing volume if Italy plans to further increase its supplies from Algeria to satisfy other European countries. Algeria cannot secure the missing quantities, but would remain a steadily developing supplier. The problem in this combination would be price, because if prices were to fall, US shale gas would become expensive despite its subsidy, due to the increase in tariffs known to the logistics sector since the advent of the pandemic.

Would the war in Ukraine and the emerging new world order be seen as one of the drivers of change?

PHOTO/REUTERS – Imagen de gasoducto
How to reinvent a fluid and uncomplicated relationship between Algeria and Spain?

It is clear that the relationship between the two countries will be difficult and unambitious in the short term. Algeria's distrust of the Spanish government is the result of the relational friction between Madrid and Algiers and the lack of communication and information between the governments.

On the Spanish side, it is argued that the relationship must be re-established at all costs, as its new position on the future of Western Sahara would not have been directed against Algeria, but to regulate its major crisis with its southern neighbour.

However, Algeria has a right to be seriously concerned about this Spanish turn, regardless of what we think. Algeria is well aware of the repercussions on its future and stability in the region, given the threats that surround it (Mali, Libya, Niger and Morocco). The lack of understanding is palpable and the Spanish change is perceived as an additional threat to Algeria's stability in its region.

It should also be noted that if Algeria continues to be misunderstood by its partners in its behaviour, in which politics takes precedence over all other considerations, it is due to the security problem, which is so difficult and burdensome to manage.

Is there a way out?

In such cases, only medium- and long-term projects with a supporting and structuring effect can alleviate the atmosphere and allow a gradual way out of the impasse. In this sense, it is recommended to give expression to the economic aspect, to deliberately restore the political relationship. The two countries are neighbours and it is inconceivable to freeze everything.

Algeria and Spain must show great imagination and flexibility to bridge this gap. The two countries need each other, given the new global geostrategic situation that is taking shape and given the trade flow that already exists.

The idea would be to launch a major project inspired by the one imagined and carried out by Pedro Durán Farell. There is a multitude of promising projects that could be launched by both sides, in the blue and green economies, industrial innovation and logistics, and industrial agriculture, without forgetting the trans-Saharan gas pipeline project, where Spain could be connected at a high strategic level.

In parallel, economic exchanges should also be intensified, to cement the bilateral relationship, allowing public and private sector actors to express themselves. Officially open the field for banks from both countries to domicile subsidiaries on both sides of the two shores and allow companies from both countries to aspire to a quality and balanced collaboration with location sharing.

AFP/ RYAD KRAMDI -  Fotografía de archivo, soldados argelinos hacen guardia en el complejo de gas de Tiguentourine, en In Amenas, a unos 1.600 kilómetros al sureste de la capital

This approach also allows for a concerted relationship between companies to optimise collaboration and emancipate them in international standards. Algeria is in the process of implementing a major reform concerning investment and the attractiveness of FDI.

To this end, it is necessary to equip itself with real tools to promote economic exchange, such as the CCIAE, the ARGELIAN-SPANISH CIRCLE OF COMMERCE AND INDUSTRY. This professional association counts among its members Spanish companies established in Algeria, joint ventures and Algerian companies. It was approved in 2013 and is currently in the process of becoming a Joint Bilateral Chamber.

The CCIAE should be considered a fundamental instrument to reinvent the relational dynamics between Algeria and Spain and to be able to generate and guide business for the benefit of companies. The project exists concretely and the exchange will never stop, it is no less true that it would now be convenient to give priority to these bodies by providing them with more support and backing to enable them to carry out the project well and create this flourishing of business between the two countries for the benefit of their respective companies.

"The dominant doctrine had totally ignored an essential fact: the total liberalisation of trade and capital movements is only possible and desirable within the framework of regional groupings of economically and politically associated countries with comparable economic and social development", Maurice Allais

Djamal-Eddine BOU ABDALLAH, President of the CCIAE and Managing Partner of SDG GROUP ALGÉRIE, a Spanish-Algerian joint venture.

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