Extractives sector: How civil unrest impacts physical operations
PGI offers our geopolitical expertise to support organisations operating in either a particular geography or within a sector specific focus. In a four-part series, we explore the risks and challenges facing the extraction sector. In this piece, we take the example of how physical operations can be impacted by civil unrest – something we support our clients with by offering triage analysis around their assets.
Case study: South Africa
The risk of violent and disruptive unrest remains high in the short-term in South Africa, which is likely to disrupt oil and gas operations if even indirectly.
The risk of violent and disruptive civil unrest remains high in the short-term. In July, the arrest of former president Jacob Zuma on corruption charges triggered ten days of rioting and looting in Gauteng and KwaZulu-Natal (KZN) provinces, leaving more than 350 people dead and costing the economy USD 3.4 bn. Authorities subsequently deployed thousands of troops to restore order and have launched investigations to apprehend the ringleaders of the violence.
There is a high risk that Zuma’s next court date, currently scheduled for 24 October, will trigger further unrest in major towns and cities, particularly in Gauteng and KZN. The controversy-hit municipal elections on 1 November is another potential flashpoint. Unrest is unlikely to be on the same scale as July, as authorities will be better prepared for potential disorder. However, local dynamics such racial tensions, police action, and social media posts could cause disorder to escalate at short notice.
Further unrest is likely to disrupt oil and gas operations, at least indirectly. Protesters in South Africa frequently burn tires and erect roadblocks, causing supply chain disruption. During July’s violent unrest, interruptions to supply routes into and out of KZN caused the country’s largest oil refinery, Sapref, in Durban, to temporarily close and declare force majeure, reducing the country’s oil refining capacity by a third. Police are also likely to erect checkpoints along main roads in response to further unrest, further increasing the risk of delays to oil and gas operations in the coming weeks.
There is a moderate risk that protesters may target oil and gas operations directly. The looting and rioting in July targeted commercial premises, including petrol stations. South Africa has also experienced sporadic outbursts of xenophobic unrest since 1994, in which white, Indian, and foreign-owned businesses have been looted and vandalised. There is no indication that oil and gas infrastructure was deliberately targeted during July’s unrest. However, recurrent electricity, oil, and gas shortages are major grievances in the country, making oil and gas infrastructure potential future targets of unrest.
South Asian nationals employed in the extractives industry may face an elevated risk of harassment and violence during episodes of future unrest. Clashes broke out between black and Indian South Africans in Durban’s Phoenix suburb during the riots in July, after claims that Indian South African vigilantes shot black looters. PGI social media intelligence monitoring also noted pro-Zuma social media accounts sharing footage of ANC activist Jackie Shandu shouting “one Indian, one bullet” after the clashes.
Durban in KZN is likely to be the epicentre of future unrest related to Zuma’s legal proceedings. The city is a major population centre for Zuma’s Zulu ethnic group and was the focal point of July’s unrest. Unrest in the city could cause delays at or near the port of Durban, South Africa’s largest container port, impacting the ability of firms to import and export vital goods and materials.
Unrest related to Zuma’s trials is likely throughout the rest of KZN, Gauteng, and other places with large Zulu populations. Potential unrest related to the upcoming municipal elections on 1 November are unlikely to constrained by South Africa’s ethnic geography in the same way.
Civil unrest remains a key threat to business continuity in the medium to long-term. Though the catalyst for July’s unrest was Zuma’s arrest, the protests were motivated by deeper structural problems including poverty, unemployment, poor public service delivery, and crime. The COVID-19 and ANC’s factional infighting have exacerbated these problems and frustrated President Cyril Ramaphosa’s efforts to implement reforms. In August, South Africa recorded the highest unemployment rate in the world, 44 percent, rising to 75 percent of young people. This underlines PGI’s assessment that civil unrest driven by socioeconomic grievances is likely to remain a significant risk to commercial operations in the future.
Xenophobic violence and unrest are also likely to remain a persistent threat to commercial operations in South Africa. As well as targeting foreign-owned businesses, including petrol stations, there has been a sharp increase in xenophobic attacks against foreign haulage drivers in KZN in recent years. In March 2019, the Road Freight Association (RFA) estimated that more than 200 lives and 1,200 vehicles had been lost to such attacks over the previous year. Xenophobic attacks on foreign haulage drivers are likely to remain a risk in the medium to long-term, increasing the risk to oil and gas personnel and local supply chains.
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