Overall risks to Saudi Arabia’s operating environment are improving. Windfall oil revenues are providing a boon to the Saudi economy, and it continues to implement sweeping economic and social reforms, with the Vision 2030 initiative remaining at the center of its diversification plans. Geopolitical risks are declining as diplomatic efforts bear fruit and some of Riyadh’s cooler relationships improve, and a ceasefire with the Houthis in Yemen holds. Riyadh’s transition efforts are also taking greater shape, with significant additions to renewable capacity coming online between 2022-2024 and economic diversification efforts gathering steam.

Namibia is likely to see an E&P boom following major offshore finds by Shell and TotalEnergies. The country possesses a favorable investment regime, with attractive fiscal terms and relatively low aboveground risks. Yet, it faces several growing threats, such as rising voter dissatisfaction and government debt levels amid its long-running economic slump. It also faces risks from unstable trading partners and attempts to balance relations between China, the US and Europe. In Energy Intelligence’s Country Risk Index, Namibia is a relatively low risk country, scoring 4.1 out of 10, ranking 22nd out of 71 oil and gas jurisdictions worldwide.

Energy Intelligence’s latest Macroeconomic Outlook examines economic headwinds—such as inflation and recession fears—and their impact on the global recovery and aboveground risk. Europe’s energy crisis may trigger a recession, while US interest rate hikes threaten to exacerbate capital outflows and debt crises in emerging markets. In Asia, inflation is a key driver of South Asian political volatility, while concerns about China’s economy proliferate. In Latin America and sub-Saharan Africa, these developments are weighing on what was a strong recovery. For major producers, high oil prices are a boon, but many cannot fulfill their Opec-plus quotas, limiting upside.

Food and fuel inflation—exacerbated by the war in Ukraine—is dramatically increasing aboveground risk as public discontent grows. Economically weaker Mideast and Sub-Saharan African producers are particularly vulnerable given their reliance on imported food and fuel and weaker overall macroeconomic and fiscal outlook. Stronger, commodity exporting Asian and Latin American producers are also being impacted. For the energy sector, these dynamics are weighing on the aboveground risk in several ways, ranging from political upheaval and increased labor strife to fiscal and regulatory changes. These dynamics will likely get worse as the war drags on and global macroeconomic conditions deteriorate.

Gustavo Petro’s election as Colombia’s first left-wing president is raising aboveground risks and uncertainty for the oil sector. Elected on a platform to eradicate inequality and embrace the energy transition, Petro wants major reforms to the tax code and the agriculture, health, education and energy sectors. Facing a minority in Congress and strong judicial checks, compromise will likely prove necessary. Despite moderating his tone, Petro’s goal to raise taxes and wind down oil exploration threatens Colombia's supportive fiscal and regulatory environment. Proposed policy changes may also prompt further downgrades in Colombia’s Country Risk Index scores if his more radical proposals are enacted.

US relations with key Mideast players are evolving. Strained relations with Saudi Arabia and the UAE look set to improve. US President Joe Biden’s July Mideast trip, originally limited to Israel and the West Bank, will also visit Saudi Arabia, while a new US-UAE defense agreement is likely in the works. This shift is largely due to the likely failure of the JCPOA talks and the recent Opec-plus decision that speeds up quota tapering. As a result, much of Biden’s trip, as well as the “GCC+3” summit in Jeddah, will focus on regional security, especially Iran-backed missile and drone programs.

This memo examines producers in the Middle East and North Africa—focusing on Iraq, Algeria, Libya and Kuwait—that lag in formulating and implementing energy transition strategies, but which are all now making some effort to accelerate. Renewed investor interest amid high prices and the Ukraine war is presenting opportunities for increased investment in their energy sectors. This may offer one of the few remaining opportunities to narrow the gap with peers that have made greater progress on transition strategies. Hybrid projects, linking utility-scale solar to upstream decarbonization, are a possible model. Political risk factors are the biggest impediment.

This Quarterly Risk Outlook examines the major investment, geopolitical and energy transition-related risks shaping the global oil and gas operating environment in Q2’22 and beyond. The aboveground investment risk impact of intensifying disputes about the governance of the Kurdistan Regional Government’s (KRG) oil sector and the death of UAE President Sheikh Khalifa bin Zayed al-Nahyan are both highlighted. Elsewhere, the latest iteration of Libya’s long-running political saga, Hezbollah’s losses in Lebanese elections, Brazilian regulatory instability and Romania’s changes to its offshore law, among others, are key risk drivers. Geopolitically, the knock-on effects of the war in Ukraine—ranging from Caucasian stability and Russia’s Africa strategy to Chinese and India foreign policy—are a key focus of this quarterly. The impacts of the war in Ukraine—alongside Colombian and Australian elections—is also one of the main drivers of transition risk this quarter.

The fallout from the war in Ukraine is transforming Russia’s risk environment, elevating long-term investment, geopolitical and transition risks. While public support for President Vladimir Putin is holding steady, mounting war casualties and failure to achieve key military objectives will elevate risks associated with political instability, especially as the full brunt of economic pain sets in. Russia faces a deep contraction this year and next due to sanctions and capital controls. The Kremlin’s desire to maintain a stable ruble suggests the appetite for further inflationary fiscal support packages may prove limited. The energy sector also faces long-term challenges. Crude output levels may face permanent declines, while Russia will struggle to replace European gas markets with Asian ones. Geopolitically, the crisis is creating a prolonged nadir in Russian-Western relations. However, Moscow’s decade-long global diplomatic engagement proved prudent, with many Latin American, African and ostensible US Mideast allies striving to preserve neutrality and their ties to Russia. Russia’s dependence on Western and East Asian capital and critical tech imports may undercut hydrocarbon adaptation and long-term economic diversification efforts, complicating is ability to meet its nascent transition goals.

Russia’s invasion of Ukraine is set to impact global transition risks through major energy policy shifts and rising geopolitical tensions. This Transition Risk Outlook also examines the impact of major commodity price increases in oil, gas and many key low-carbon energy inputs. These changes may lead some producers to de-prioritize energy transition goals in the short term, but it will also provide more breathing space and resources to invest in energy transition initiatives as well as economic diversification efforts. Private oil and gas investment may also grow, which increasingly is bringing new low-carbon activity as well. We have also added five new producers—Congo (Brazzaville), Ecuador, Equatorial Guinea, Gabon and Suriname—to the Transition Risk Index. Adding these producers rounds out coverage of Opec and helps expand the index’s coverage geographically and by producer type.