Why Washington Needs Friendlier Approach To Major Gas Producer

In September, a bipartisan group of United States Representatives called on the United States Secretary of State to impose sanctions on the People’s Democratic Republic of Algeria, claiming that a $7 billion arms deal with Russia violated the 2017 Countering America’s Adversaries Through Sanctions Act (CAATSA).
The group’s action followed a similar initiative by Senator Marco Rubio, also in September. Why Algeria, and why now?
Algeria is a former French colony and a major oil and natural gas producer that exports 85% of its gas to Europe. The country charts an independent course, doesn’t meddle in local affairs, and has close ties to Russia and China.
Algeria is a harsh critic of Israel, opposed the U.S. invasion of Iraq in 2003 and 2011 NATO intervention in Libya, decried the Abraham Accords, which recognized neighboring Morocco’s claim to the Western Sahara, and maintains relations with the Assad government in Syria.
Algeria fought two wars of independence: the 1954-1962 war against the French colonizers, and the 1991-2002 war against the Islamists, led by the Armed Islamic Group.
According to the U.S. Congressional Research Service, “Algeria has the world’s 11th – and 16th -largest proven reserves of natural gas and oil, respectively, and was the 10th-largest natural gas producer as of 2019. It is also estimated to have the world’s 3rd -largest recoverable shale gas reserves.”
Algeria has the fourth-largest economy in Africa with a 2021 GDP of $167.98 billion. Oil and gas income increased by 70% in the first half of 2022, and energy income is expected to total $50 billion by the end of the year.
The World Bank reported that Algeria’s economy “expanded by 3.9% year-on-year during the first nine months of 2021, after contracting by 5.5% in 2020,” largely due to increased European gas demand.
Hydrocarbons account for 95 percent of export revenues and about 40 percent of government income.
State-owned enterprises reportedly comprise over half the formal economy, and are a drag on growth, but the private sector is hoping the government stays the course on reforms to attract foreign direct investment (FDI) to the non-energy sector, and doesn’t backslide due to increasing hydrocarbon revenues.
The government has an uphill climb as Algeria ranks 157 of 190 in the most recent World Bank ease of doing business ranking, and it will be challenging to advance as it recovers from the pandemic
The plan to attract FDI to grow the non-energy sector is needed to cope with a rising unemployment rate, and a dangerously high youth unemployment rate of almost 32%.
The plan eliminates the “51/49” requirement for majority Algerian ownership of new businesses, though it remains for “strategic sectors,” that is energy, mining, defense, transportation infrastructure, and pharmaceuticals manufacturing
Key is the government not trying to “buy social peace” via social security payments, while oil and gas prices are high, as eventually prices will come down and angry youth without jobs may foreclose temporizing options for the government and force a new government, hopefully nonviolently.
Algeria’s relationship with the U.S. got off to a slow start in the 1960s but has generally been positive. In the 1950s, the Truman and Eisenhower administrations supported France in Algeria, but President Kennedy endorsed Algerian independence.
Algeria mediated negotiations between the U.S. and Iran that resulted in the freeing of the 52 American hostages after 444 days in captivity. Algeria also offered support to the U.S. in the wake of 9/11 and cooperated in counterterrorism operations, even offering the U.S. use of an airfield in the country – a major concession.
So, then, why the agita about Algiers?
America’s “You are either with us, or with the terrorists” mentality fails to take account of past cooperation and positive relations. Washington is apparently unable to believe a nation may prefer to look after its own interests first and sees any reluctance to place oneself in thrall to America as siding with the enemy du jour.
For example, the Pentagon failed to recruit Vietnam as a military ally against China, forgetting, or choosing to ignore, that Vietnam’s recent fights for liberation, first from France, then from America, might incline the country against military alliances, especially with the guys it defeated.
More recently, the Minister for Foreign Affairs of Singapore, speaking on behalf of ASEAN about the U.S and China, declared, “We are not interested in dividing lines in Asia. Don’t make us choose. We will refuse to choose.”
Even close friends of Washington are seeing the value of belonging to a forum independent of the Americans: the BRICS (Brazil-Russia-India-China-South Africa) group may soon welcome Argentina and Iran which have applied to join, and Egypt, Saudi Arabia and NATO member, Turkey, have expressed interest. (Algeria has formally applied to join the bloc.)
One observer noted that BRICS may become the “world’s commodity alliance” with China as the manufacturing center and India as the service center.
So, who are the U.S. congressmen working for?
They may have a legitimate concern about the revenue Russia is getting from Algeria, though a $7 billion dollar arms deal pales next to the unlimited cash Washington is handing Kyiv.
It could be they are promoting U.S. defense contractors to capture Algerian sales, though expecting Algiers to junk its entire Russian-supplied inventory is the same wishful thinking that decided that Vietnam would be a U.S. ally against neighboring China.
Algeria’s relations with Moscow go back to the 1950s when the Soviet Union provided assistance to Algeria in its war for independence, and, in 1960, the Soviets were the first to recognize the Provisional Government of the Algerian Republic.
Algeria no doubt noted that the U.S. recently threatened to cut off Saudi Arabia, its biggest weapons customer, when it disagreed with its tactics in Yemen. And in 2013, Washington slowed down the delivery of helicopters to the Egyptian military government that ousted the Muslim Brotherhood government headed by Mohamed Morsi.
So, they must be thinking in the El Mouradia Palace, If this is how the Americans treat their friends…
The U.S. politicians may think they are defending Israel, though Algeria’s advocacy of the Palestinian cause isn’t news in Jerusalem.
At the recent Arab League summit, hosted by Algeria and the first since Israel normalized relations with several league members, Algeria brokered a reconciliation deal between rival Palestinian factions Fatah and Hamas.
The reconciliation may not last, and Algeria won’t offer material support, i.e., weapons, to the Palestinian fighters, so it may have been an exercise in virtue signaling to the eventual winner of the then-ongoing contest for control of the government in Jerusalem.
Hopefully, cooler heads will prevail and Washington won’t alienate a country with which the European Union seeks a “long-term strategic partnership” for natural gas and electricity. And France is seeking to repair relations via economic cooperation, though China is now Algeria’s biggest trade partner.

By: James Durso
Durso reports for oilprice.com.