COVID-19 and civil unrest: the impact on the energy industry

Introduction: sounding the alarm
Throughout history, pandemics - such as the plague - have driven economic crises, political upheavals and social unrest. They have fuelled and re-fuelled poverty, exacerbated wealth gaps, fostered crime, seen the overthrow of governments, amplified existing social fissures, localised trade and fomented nationalism and exceptionalism. It is abundantly clear that with persistent and pervasive disease there exist economic and societal costs that increase the threat of insecurity over both the short and long term. COVID-19 is no exception, and multilateral organisations are sounding the alarm.The pandemic as a political stress testOn 21 Jan 2021, Rosemary DiCarlo, Under-Secretary-General for Political and Peacebuilding Affairs, said at The UN Security Council that ‘The sweeping and devastating effects of the COVID-19 pandemic are continuing to grow, and so too are the risks of instability and tension amidst glaring inequalities in the global recovery’. Observing that the pandemic has served as a political stress test as much as a structural and public health one, she elaborated on the effects noting: ‘…the pandemic’s impact on peace and security has intensified — exacerbating inequality and corruption; breeding misinformation, stigmatization and hate speech; and creating new flashpoints for tension and increased risks of instability’.¹Driving geopolitical and security risksNon-militarized crises such as pandemics, famines and natural disasters are often neglected by scholars and practitioners in the field of international security. However, they share the same crisis characteristics of threat, uncertainty and time pressure² and consistently act as principal or secondary drivers of geopolitical and security risks. The energy sector extracts, processes and transports among and between developed countries, emerging markets, developing countries (EMDCs) and less developed countries (LDCs). For most of 2021 and beyond, it is to be expected that their operations will take place within territories and sea routes in varying states of crisis, presenting a kaleidoscope of uncertainty and threats. The nature of these crises will depend on diverse drivers, ranging from the geostrategic to the local and tactical, and their impact will extend well beyond 2021.But many energy companies are accustomed to managing their risks in uncertain environments. Why should the situation at the tail end of COVID-19 and its aftermath demand a change in the management of risks to people, supply chains and assets? Many of the answers to this question will be found in the aggregation and breadth of threats old and new, thrown up by the uncertainties and pressures of one of the top five debt crises of the last 120 years.

COVID-19 related insecurity - the realities
Social unrestAccording to the ILO and EY, there already exists evidence to substantiate the theory and support these statements. The ILO’s Social Unrest Index predicts a level of unrest in 2021 matching that of 2011, the year of the uprisings known as the ‘Arab Sping’. Assessing the risk of disruption to business caused by the mobilisation of societal groups in response to economic, political, or social factors, analysts claim that unrest has exceeded the pre-pandemic era, with this trend expected to continue well into the next decade³.Government debtThe historical patterns of general government debt (see Figure 2 on the next page) show the profound stresses that two world wars, the 2008 global banking crisis and the COVID-19 pandemic placed upon advanced and less developed economies. Much of the phenomenal debt seen in both categories is attributable to fiscal stimuli, which will eventually give way to fiscal tightening. Willis Towers Watson’s report ‘Political Risk in the Natural Resources Sector 2021⁴’ highlights strong, proven correlations between fiscal tightening and political instability, including riots, strikes, political assassinations, and violent overthrows of governments.Social and political repercussionsWhen the unprecedented increase in fiscal stimulus by EMDCs is reversed, there may be serious social and political repercussions. Furthermore, in emerging and less developed economies, the sustainability of emerging market debt will likely hit a tipping point in 2021, with more governments seeking debt relief or entering default, thereby compounding the stress⁵. Consequently, tight budgets after the pandemic could foster a political environment in which austerity, including restructuring and cuts in subsidies, becomes an economic requirement, thereby triggering a rise in social unrest.⁶ Turning back to the ‘Arab Spring’, it should not be forgotten that the withdrawal of fuel and food subsidies were primary drivers of the unrest.Expect more protests after lockdownLockdowns have served to keep many people from gathering to protest peacefully or otherwise, nor have the full financial and social effects of the lockdown yet been realised or felt. When the realities of post-COVID-19 lives and livelihoods become apparent, it is reasonable to expect a rise in resentment, protests and civil disorder. Verisk Maplecroft observe that, against a backdrop of painful economic recovery, the increase in protests is expected to be primarily driven by food insecurity and the erosion of mechanisms and institutions that have historically defused tensions such as freedoms of assembly and the press, and an independent judiciary⁷. Where public security has been weak, inadequate or rapacious in the past, budgetary constraints are likely to exacerbate insecurity, corruption and crime, together fuelling further dissatisfaction with governments.

Global examples of civil unrestThese dynamics are already at play across the globe. The list is long and varied but to illustrate:

In Chile, reduced government spending during early months of pandemic (May 2020) led to major disruption in the food supply chain leading to significant increases in starvation and poverty sparking violent protests⁸.

In Guatemala, protesters torched the Guatemalan Congress building in Nov 2020, due to budget cuts to education and health⁹.

In Iraq, unrest has spiked, due to civil servants and government workers being left unpaid amidst an already insecure environment¹⁰. Furthermore, job losses, price rises, and cuts in spending have caused increased poverty levels, leading to unrest amongst the economically marginalised¹¹.

In South Africa, major protests have occurred over job losses and wage curbs, supported by unions, due to government-imposed measures to limit economic damage¹².

The rise of petro-piracyImportantly for the oil industry, we are seeing a pronounced increase in petro-piracy. Data from the International Maritime Bureau (IMB) Piracy Reporting Centre shows that 2020 saw more piracy incidents than 2019, and it is likely this trend will continue into 2021¹³. Lack of spending and increased insecurity amongst populations in West Africa fuels this activity, as the poor or destitute turn to criminal activity to make up for lost income, especially when security forces’ attention is diverted elsewhere¹⁴. As such, oil tankers travelling shipping routes in the Gulf of Guinea are increasingly vulnerable to piracy.Poor governanceSocial and economic insecurity and inequality will be joined, in some territories, by threat catalysts such as poor governance, including a lack of transparency, crime, corruption and inefficiency in dealing with COVID-19. In numerous countries, drivers of dissatisfaction and dissent will feature rumbling ethnic tensions, a priori ‘frozen conflicts’ as well as environmental degradation and the loss of rights. The economic disruption and damage to people and property resulting from civil unrest should not be underestimated; they can be costly, and severely damage both reputations and share prices. For example, the protests in Chile during October-November 2019 led to an estimated $1.5 billion in business losses¹⁵.Vulnerabilities and impacts in the energy sector
Energy companies will likely be most vulnerable to protests, violence or other forms of coercion (such as bribery and kidnap) in countries where:

debts are high

institutions of governance (including rule of law) are weak

the company is seen as being ‘in bed’ with national elites

the licence to operate has been eroded by perceived or actual corruption, ethnic partiality or environmental degradation

Inconsistent promisesAt a time of crisis, poverty and dissent, political entrepreneurs may seek to gain political traction through the rhetoric and legal instrumentation of resource nationalism. A common aspect of this, seen at local level, is where communities identify inconsistencies between what companies and the host government have promised the local population - in terms of environmental safeguards, revenue, employment opportunities, housing and infrastructure - and the realities on the ground. At a global level, there will be escalations in demand from civil society, investors and some political groups for post-COVID transparency and accountability in terms of corporate ESG footprints which link, in turn, to local and supply chain activities.The threat from the disenfranchisedThe immediate impacts for energy companies will differ and range from the inconveniences and costs of business disruption - due to strikes, riots, protests and their collateral - to situations where they become deliberate targets. Those who may seek to do harm will include political groups or their associated ‘enforcers’, the disenfranchised – who may see them as intolerable totems of foreign capital across an unbridgeable gap in wealth – or criminals (including cyber criminals) who are guaranteed to thrive in times of uncertainty.“Show us the benefits”Significant social and political unrest inevitably brings either change or a backlash - nothing truly remains as before. Post-pandemic, the greater strategic challenges and opportunities that social and political unrest pose to the energy sector will be radical shifts in a host community or nation’s social disposition or political leadership that can adversely affect demand and/or the prevailing regulatory and legal environment the company operates. Globally, demands are growing for companies themselves to respond to the underlying causes of social unrest. Rising inequality has sharpened demands for companies actively to provide visible benefits of acceptable value for all stakeholders; failure in this may erode trust and reputation¹⁶.Conclusion: understand and adapt!
What can energy companies do to anticipate, mitigate and respond to these threats, old and new? It is impossible here to describe the myriad potential scenarios of threat, uncertainty and time pressure ahead in both the current crisis and coming recovery. However it is a given, dictated by the nature of crisis, that there is never enough information to allow for fully informed decisions; what we do know is that dithering usually results in failure. Logical timely and well - communicated initiatives, tested against ‘group-think’ and harnessing the best information available at the time, generally foster success.We recommended that energy companies adapt their information gathering and interpretation capacity with alacrity:

Firstly, establish or scale up a full-spectrum, cross disciplinary and holistic threat identification and monitoring system (at country, regional and HQ level if necessary). This will enable the best possible identification and monitoring of trends and patterns in the economic, political and security environments, which envelop your activities and condition your supply chains. This is best done by engaging with the breadth of your people and ‘experts’ respected by them, your stakeholders and those who disagree with your activities. This should not be left solely to the security department. Consider combining them with representatives from corporate social responsibility (CSR), ESG, government relations and external consultants in order to acquire and maintain a level of sophisticated situational awareness and build scenarios for mitigation.

Secondly, be bold in communication. Show publicly how you are working with governments or communities to reduce inequalities, speak constantly with your people to better understand their fears, their predictions and their aspirations as well as the changing divisions and consensus that feed into local dynamics. Identify and map your stakeholders and those within the political economy in which you work. Understand their interests, their options and the threats they may engender. From this, identify audiences and ensure that consistent narratives are clearly communicated in an honest and effective manner.

Finally, never forget that it is what your people say and do on the ground that can shape or deflect the threats potentially arrayed against your activities. Sometimes a fortress may be the only option, but it is not a sustainable prospect. Far better to adapt in order to maintain a social licence to operate in an environment which you monitor and understand - and which accepts you.

The economic disruption and damage to people and property resulting from civil unrest should not be underestimated; they can be costly, and severely damage both reputations and share prices.”

Tim Holt is Senior Risk Advisor, Alert:24, Special Contingency Risks.
tim.holt@scr-ltd.co.uk

¹ https://www.un.org/press/en/2021/sc14422.doc.htm
² Lipscy, P. (2020). COVID-19 and the Politics of Crisis. International Organization, 74(S1), E98-E127. doi:10.1017/S0020818320000375 available online at https://www.cambridge.org/core/journals/international-organization/article/covid19-and-the-politics-of-crisis/CFEB29F225E5238F29C3233E873F0485
³ https://www.maplecroft.com/insights/analysis/a-dangerous-new-era-of-civil-unrest-is-dawning-in-the-united-states-and-around-the-world/
⁴ https://www.willistowerswatson.com/en-US/Insights/2021/01/political-risk-in-the-natural-resources-sector
⁵ EY 2021 Geostrategic Outlook available at: https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/geostrategy/geostrategy-pdf/ey-gbg-2021-geostrategic-outlook.pdf?download
⁶ Willis Towers Watson, Political risk in the natural resources sector, 2021 available at https://www.willistowerswatson.com/en-GB/Insights/2021/01/political-risk-in-the-natural-resources-sector
⁷ https://www.maplecroft.com/insights/analysis/a-dangerous-new-era-of-civil-unrest-is-dawning-in-the-united-states-and-around-the-world/

⁸ https://www.emol.com/noticias/Nacional/2020/05/18/986529/Protestas-incidentes-comuna-El-Bosque.html
⁹ https://www.theguardian.com/world/2020/nov/22/guatemala-protesters-set-congress-on-fire-during-budget-protests
¹⁰ https://edition.cnn.com/2020/12/08/middleeast/iraq-protests-covid-19-intl/index.html
¹¹ https://www.mei.edu/publications/iraqs-fragile-state-time-covid-19
¹² https://www.aljazeera.com/news/2020/10/7/south-africa-unions-protest-job-losses-wage-cuts
¹³ https://www.icc-ccs.org/index.php/1301-gulf-of-guinea-records-highest-ever-number-of-crew-kidnapped-in-2020-according-to-imb-s-annual-piracy-report
¹⁴ https://link.springer.com/article/10.1007/s12198-020-00218-y
¹⁵ https://www.maplecroft.com/insights/analysis/a-dangerous-new-era-of-civil-unrest-is-dawning-in-the-united-states-and-around-the-world/
¹⁶ EY 2021 Geostrategic Outlook available at: https://assets.ey.com/content/dam/ey-sites/ey-com/en_gl/topics/geostrategy/geostrategy-pdf/ey-gbg-2021-geostrategic-outlook.pdf?download