Report

Pakistan’s Energy Crunch Fuels Little But Outrage

Shortages of fuel and power have long plagued the country, and could pose as big a long-term risk to stability as terrorism.

PAKPETROL

The latest Pakistani energy crisis, an acute shortage of motor fuel, is sparking nationwide protests and undermining support for the fragile government, itself elected in large part to tackle the country’s endemic shortages of fuel, power, and gas.

Pakistan’s spasms this week are a reminder that energy shortages can present almost as big a risk to government stability as higher-profile threats like terrorists, even as chronic blackouts and sputtering factories are themselves a deadweight on the economy that make it harder for the government to defuse popular unrest and radicalization. Other countries in the region, including Iraq, Yemen, and Egypt, have also grappled with the consequences of energy shortages that exacerbate pre-existing economic and social challenges.

That matters for the United States because all four of those countries are vital — if flawed and unsteady — allies in the American-led fight against militants ranging from the Islamic State in Syria and Iraq to al Qaeda in the Arabian Peninsula in Yemen, whose government effectively collapsed this week in the face of a Houthi rebellion supported and fueled by Iran.

In Pakistan, the energy crisis is arguably a bigger long-term threat than periodic outbreaks of Taliban-led violence because it affects so many more people, Michael Kugelman, a South Asia expert at the Wilson Center, told Foreign Policy.

“If you have masses of people who are laid off because they can’t work their factory jobs because the factories can’t run because there’s no power, you really have to worry about the long-term consequences, and whether they’ll become more vulnerable to the temptations of radicalization,” he said.

Pakistan’s woes this week boiled over as the country’s biggest oil company was unable to buy as much fuel as it normally does, even though global crude oil prices are at near six-year lows. Prime Minister Nawaz Sharif cancelled his trip Thursday to the World Economic Forum in Davos, Switzerland, due to the spread of popular ire, including protests, long lines at gas stations, and irate consumers. The opposition PTI party, founded by former cricket star Imran Khan, called this week for Sharif’s resignation, arguing that he had not done enough to address the energy problem.

Some frustrated Pakistanis even appear to yearn for a return to military government in Islamabad after the first peaceful government transition in the country’s history.

“The army should impose martial law, and then we will get everything,” one angry motorist told the Washington Post.

The fuel crisis appears to be at heart a financial crisis: Energy companies and government ministries don’t have enough cash to buy the energy they need, or pay for what they’ve used. Power companies that sell electricity and gas rarely collect all their outstanding bills from customers — even from the government — which means they can’t pay their own debts at other energy companies, ministries, foreign suppliers, and so forth.

That so-called “circular debt” has long been a feature of Pakistan’s energy sector. It is especially acute in the electricity market, where cash-strapped generators simply don’t have the funds to buy the fuel they need to keep power plants operational, which leads to blackouts and power rationing, which breeds plenty of public anger.

Defense Minister Khawaja Asif, who is also Pakistan’s water and power minister, has warned that the country’s chronic energy crises top Islamist radicals as a security threat. “It is a bigger menace to our economy, to our existence, than the war on terror,” he said in August 2013, while touring a power station near Islamabad with U.S. Secretary of State John Kerry.

The economic impacts of spotty power supplies are serious. The International Monetary Fund has said that the energy sector is the biggest drag on the economy, and figures output losses cost the country about 2 percent of GDP annually, or almost $5 billion. Some Pakistani analysts say it could be twice as large — or more than what was lost due to the ongoing rampage of terror groups like the Pakistani Taliban. Power outages are hammering Pakistani textile makers, the country’s largest manufacturing sector, leading to lost orders and lost jobs.

Irfan Ali, a Pakistani-born investor who’s spent years trying to develop a massive coalfield to provide cheap power in the southeastern part of the country, sees a clear link between energy and security.

“It is my view that the crux of the problems being faced in many Islamic societies is directly correlated to unemployment, which in turn is linked to electricity,” he said. “Poverty drives hopelessness, which in turn opens the door for fundamentalists to recruit unemployed youth.”

The link between energy shortages and domestic instability is not limited to Pakistan, of course. In Iraq, shortly after the U.S. invasion, widespread looting and sacking of power stations aggravated an already tenuous electricity-supply situation, sparking an early wave of popular anger at the Coalition Provisional Authority that over time helped spur on the full-blown insurgency led by Sunni extremists and Iranian-backed Shiite militias.

In Yemen, even before Iran-backed Houthi rebels toppled the government this week, U.S. officials had worried about the nexus between the country’s lack of power and water, sluggish economic growth, and the rise of radicalism among Yemeni youth. In late 2012, State Department officials in Sanaa took big Yemeni businessmen on a five-city road show in the United States to try to drum up much-needed investment that could jumpstart the economy and forestall anti-government feeling.

In Egypt, the lack of natural gas and chronic blackouts have plagued the governments of both former President Mohamed Morsi and current leader Abdel Fattah al-Sisi. Power shortages led to widespread public anger, especially in the summer, and have hamstrung key industries like the cement sector. Egypt’s crushing need for immediate supplies of energy apparently outstrip its need for cash, and led it this month to forgive $1.7 billion in Iraqi debt in exchange for much-needed oil.

For Nawaz Sharif’s government, this week’s dramatic energy crisis is particularly ironic — and dangerous. His Pakistan Muslim League party won the 2013 general elections in large part because of popular disaffection with the mangled energy policy of his predecessor, Asif Ali Zardari, which Sharif pledged to quickly put right.

Last year, he hopped on a plane to China and quickly touted billions of dollars in planned Chinese investments in the energy sector–an annual rite, it turns out, of Pakistani leaders.

But that is a long-term solution, at best. Simply adding more energy capacity, as China promises and as the United States has helped to do in recent years with billions of dollars in aid, won’t fix what ails the country. Pakistan’s existing energy infrastructure, from power plants to power and gas lines, is underutilized. Financial problems, artificially low retail prices, theft, corruption, and a hydra-headed government approach to energy policy create, Kugelman says, “an unholy mess” with no easy solution.

“I really do worry about the political impacts from the crisis. Sharif ran his campaign on the promise to solve Pakistan’s energy crisis, and he really has not done that,” he said.

ARIF ALI/AFP/Getty Images

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

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