June 1, 2026
Arab News
By Hafed Al-Ghwell
History has handed Algeria an improbable second chance. Four years after the Russia-Ukraine war elevated Algerian hydrocarbons into a strategic European necessity, the closure of the Strait of Hormuz has again pushed Algiers into the center of global energy politics. Nearly 20 percent of global oil flows and a comparable share of LNG shipments normally pass through the waterway’s narrow corridor. Once maritime traffic through the Gulf became constrained, Europe immediately rediscovered the value of geography.
Few producers sit in a more advantageous position during such a disruption. Algeria exports hydrocarbons from the western Mediterranean, insulated from Gulf chokepoints and protected from the insurance shocks, naval risks, and shipping delays now punishing LNG exporters depending on Hormuz. Pipelines linking Algeria directly to Europe have suddenly become strategic infrastructure rather than ordinary commercial assets. For instance, the TransMed feeds Italy. Medgaz supplies Spain. Neither depends on vulnerable Gulf shipping lanes.
Geography, however, only creates opportunities. Institutions determine whether those opportunities prosper.
Brent crude surging past $100 per barrel alongside rising European gas prices, will likely push Algeria’s annual hydrocarbon revenues toward the $61-71 billion range, approaching or exceeding the post-Ukraine boom of 2022.
With the closure of the strait and disruptions in the Red Sea, European diplomacy reacted with unusual speed. Energy security now outranks nearly every other Mediterranean concern. Rome has since deepened cooperation between Eni and Sonatrach, while Madrid accelerated talks over expanded Medgaz deliveries. Algeria has once again become indispensable to southern Europe’s industrial stability. Italy already sources roughly 30 percent of its gas from Algeria, while generating more than 40 percent of its electricity from gas-fired power.
Reliability matters more than volume during crises. European policymakers understand that distinction clearly.
Yet Algeria’s significance is frequently misunderstood abroad. Algiers cannot replace Gulf exports at scale. Production ceilings, aging fields, and rising domestic demand prevent what Europe is really searching for: a replacement of the Gulf on the Mediterranean. Instead, Europe can only settle for a politically safer supplier capable of reducing exposure to volatile chokepoints.
Such dynamics create a rare opening for structural reform. A rash of new capital inflows could revitalize mature basins such as Hassi R’Mel and Berkine while financing Sonatrach’s enormous multi-year investment program. After all, foreign investors calculate that proximity to Europe largely compensates for Algerian administrative friction. What is more, international majors now perceive regulatory inconvenience as manageable compared with geopolitical supply insecurity elsewhere.
Longer-term potential may prove even more consequential.
Existing gas infrastructure positions Algeria to become part of Europe’s future hydrogen economy. Projects tied to the SoutH2 Corridor could eventually repurpose sections of Mediterranean gas infrastructure for green hydrogen exports into European markets. Few African countries possess Algeria’s combination of solar potential, pipeline connectivity, industrial scale, and geographic proximity to Europe.
Nevertheless, every optimistic scenario collides with Algeria’s deepest structural weakness: the rentier reflex.
Energy windfalls historically strengthen the state, while weakening reform urgency. Previous booms financed social peace rather than economic transformation. Following the 2022 energy surge, authorities expanded subsidies, public wages, and social transfers to calm lingering tensions from the Hirak era. Roughly 9-15 percent of Algeria’s gross domestic product now goes toward subsidies spanning electricity, fuel, housing, food, and water. Domestic gas prices remain among the world’s lowest, encouraging rapid consumption growth that increasingly cannibalizes export capacity.
Internal demand represents the silent threat beneath Algeria’s apparent energy strength. Domestic gas consumption exceeded 53 billion cubic meters in 2025 and continues growing rapidly due to population growth, industrial expansion, and heavily subsidized electricity generation. Gas dominates more than 97 percent of Algeria’s power mix. Every subsidized cubic meter consumed domestically reduces future export earnings.
Such trends create an unusual head-scratcher for Algiers’ policymakers. Export revenues rise because Europe needs Algerian gas. However, export capacity lessens because Algerians consume more gas at home each year.
Moreover, infrastructure deterioration hobbles Algeria’s quest for enduring transformation. Aging LNG facilities at Arzew have already suffered recurring technical disruptions. Hassi R’Mel, the backbone of Algeria’s gas system, faces declining reservoir performance after decades of extraction. Some industry forecasts suggest production could plateau by 2027 without major efficiency gains and accelerated field development.
Shifting climate policies introduce another pain point. European decarbonization targets are no longer theoretical ambitions. The EU’s Carbon Border Adjustment Mechanism will gradually punish carbon-intensive exporters lacking credible transition plans. Algeria also ranks among the world’s largest gas flarers, exposing its exports to future methane-related penalties in European markets.
Algeria, therefore, faces a narrow strategic window rather than a permanent geopolitical elevation. Disruptions in the Strait of Hormuz created breathing room, not immunity from structural decline.
Several encouraging signs distinguish 2026 from 2022. President Abdelmadjid Tebboune now governs with greater policy continuity. Investment frameworks have become more operational. Digital trade reforms improved port logistics. Non-hydrocarbon exports, although still small, have tripled since 2017 to roughly $5 billion, led by fertilizers, steel, cement, and agricultural products. Accreditation reforms and export digitization are slowly improving competitiveness.
Even so, Algeria’s diversification challenge remains enormous. Hydrocarbons still account for roughly 90 percent of export revenues. Informal economic activity approaches nearly half of GDP by some estimates. Youth unemployment exceeds 30 percent. Renewable energy contributes less than 3 percent of installed electricity capacity despite immense solar potential.
Political incentives also remain misaligned. Windfalls reduce pressure for painful reforms precisely when reforms become most necessary. Cutting subsidies risks social unrest. Expanding private-sector competition threatens entrenched interests. Bureaucratic opacity still discourages many investors despite recent reforms. Sonatrach itself has cycled through multiple CEOs within a decade, weakening institutional continuity.
Global energy transitions will not wait for Algeria to resolve those contradictions at its own pace. Europe’s gas demand is expected to decline structurally over the coming decades as electrification, hydrogen adoption, and renewable deployment accelerate. Algeria’s geopolitical relevance currently rests on Europe’s insecurity. Permanent strategy cannot rely on recurring international crises.
Future historians may ultimately judge the Hormuz crisis less by oil prices than by whether Algeria finally escaped the logic of emergency economics. Another decade of using hydrocarbon revenues to preserve consumption without expanding productive capacity would carry severe consequences. Domestic demand could eventually absorb exportable surpluses by the mid-2030s, gradually eroding the fiscal engine that sustains the Algerian state itself.
A rare alignment of geography, geopolitics, and market timing has delivered Algeria an opening few nations receive twice. Successful states treat windfalls as temporary capital for future resilience. Fragile systems treat windfalls as permanent income.
Algeria must now decide which category it belongs to.
Arab News
By Hafed Al-Ghwell
History has handed Algeria an improbable second chance. Four years after the Russia-Ukraine war elevated Algerian hydrocarbons into a strategic European necessity, the closure of the Strait of Hormuz has again pushed Algiers into the center of global energy politics. Nearly 20 percent of global oil flows and a comparable share of LNG shipments normally pass through the waterway’s narrow corridor. Once maritime traffic through the Gulf became constrained, Europe immediately rediscovered the value of geography.
Few producers sit in a more advantageous position during such a disruption. Algeria exports hydrocarbons from the western Mediterranean, insulated from Gulf chokepoints and protected from the insurance shocks, naval risks, and shipping delays now punishing LNG exporters depending on Hormuz. Pipelines linking Algeria directly to Europe have suddenly become strategic infrastructure rather than ordinary commercial assets. For instance, the TransMed feeds Italy. Medgaz supplies Spain. Neither depends on vulnerable Gulf shipping lanes.
Geography, however, only creates opportunities. Institutions determine whether those opportunities prosper.
Brent crude surging past $100 per barrel alongside rising European gas prices, will likely push Algeria’s annual hydrocarbon revenues toward the $61-71 billion range, approaching or exceeding the post-Ukraine boom of 2022.
With the closure of the strait and disruptions in the Red Sea, European diplomacy reacted with unusual speed. Energy security now outranks nearly every other Mediterranean concern. Rome has since deepened cooperation between Eni and Sonatrach, while Madrid accelerated talks over expanded Medgaz deliveries. Algeria has once again become indispensable to southern Europe’s industrial stability. Italy already sources roughly 30 percent of its gas from Algeria, while generating more than 40 percent of its electricity from gas-fired power.
Reliability matters more than volume during crises. European policymakers understand that distinction clearly.
Yet Algeria’s significance is frequently misunderstood abroad. Algiers cannot replace Gulf exports at scale. Production ceilings, aging fields, and rising domestic demand prevent what Europe is really searching for: a replacement of the Gulf on the Mediterranean. Instead, Europe can only settle for a politically safer supplier capable of reducing exposure to volatile chokepoints.
Such dynamics create a rare opening for structural reform. A rash of new capital inflows could revitalize mature basins such as Hassi R’Mel and Berkine while financing Sonatrach’s enormous multi-year investment program. After all, foreign investors calculate that proximity to Europe largely compensates for Algerian administrative friction. What is more, international majors now perceive regulatory inconvenience as manageable compared with geopolitical supply insecurity elsewhere.
Longer-term potential may prove even more consequential.
Existing gas infrastructure positions Algeria to become part of Europe’s future hydrogen economy. Projects tied to the SoutH2 Corridor could eventually repurpose sections of Mediterranean gas infrastructure for green hydrogen exports into European markets. Few African countries possess Algeria’s combination of solar potential, pipeline connectivity, industrial scale, and geographic proximity to Europe.
Nevertheless, every optimistic scenario collides with Algeria’s deepest structural weakness: the rentier reflex.
Energy windfalls historically strengthen the state, while weakening reform urgency. Previous booms financed social peace rather than economic transformation. Following the 2022 energy surge, authorities expanded subsidies, public wages, and social transfers to calm lingering tensions from the Hirak era. Roughly 9-15 percent of Algeria’s gross domestic product now goes toward subsidies spanning electricity, fuel, housing, food, and water. Domestic gas prices remain among the world’s lowest, encouraging rapid consumption growth that increasingly cannibalizes export capacity.
Internal demand represents the silent threat beneath Algeria’s apparent energy strength. Domestic gas consumption exceeded 53 billion cubic meters in 2025 and continues growing rapidly due to population growth, industrial expansion, and heavily subsidized electricity generation. Gas dominates more than 97 percent of Algeria’s power mix. Every subsidized cubic meter consumed domestically reduces future export earnings.
Such trends create an unusual head-scratcher for Algiers’ policymakers. Export revenues rise because Europe needs Algerian gas. However, export capacity lessens because Algerians consume more gas at home each year.
Moreover, infrastructure deterioration hobbles Algeria’s quest for enduring transformation. Aging LNG facilities at Arzew have already suffered recurring technical disruptions. Hassi R’Mel, the backbone of Algeria’s gas system, faces declining reservoir performance after decades of extraction. Some industry forecasts suggest production could plateau by 2027 without major efficiency gains and accelerated field development.
Shifting climate policies introduce another pain point. European decarbonization targets are no longer theoretical ambitions. The EU’s Carbon Border Adjustment Mechanism will gradually punish carbon-intensive exporters lacking credible transition plans. Algeria also ranks among the world’s largest gas flarers, exposing its exports to future methane-related penalties in European markets.
Algeria, therefore, faces a narrow strategic window rather than a permanent geopolitical elevation. Disruptions in the Strait of Hormuz created breathing room, not immunity from structural decline.
Several encouraging signs distinguish 2026 from 2022. President Abdelmadjid Tebboune now governs with greater policy continuity. Investment frameworks have become more operational. Digital trade reforms improved port logistics. Non-hydrocarbon exports, although still small, have tripled since 2017 to roughly $5 billion, led by fertilizers, steel, cement, and agricultural products. Accreditation reforms and export digitization are slowly improving competitiveness.
Even so, Algeria’s diversification challenge remains enormous. Hydrocarbons still account for roughly 90 percent of export revenues. Informal economic activity approaches nearly half of GDP by some estimates. Youth unemployment exceeds 30 percent. Renewable energy contributes less than 3 percent of installed electricity capacity despite immense solar potential.
Political incentives also remain misaligned. Windfalls reduce pressure for painful reforms precisely when reforms become most necessary. Cutting subsidies risks social unrest. Expanding private-sector competition threatens entrenched interests. Bureaucratic opacity still discourages many investors despite recent reforms. Sonatrach itself has cycled through multiple CEOs within a decade, weakening institutional continuity.
Global energy transitions will not wait for Algeria to resolve those contradictions at its own pace. Europe’s gas demand is expected to decline structurally over the coming decades as electrification, hydrogen adoption, and renewable deployment accelerate. Algeria’s geopolitical relevance currently rests on Europe’s insecurity. Permanent strategy cannot rely on recurring international crises.
Future historians may ultimately judge the Hormuz crisis less by oil prices than by whether Algeria finally escaped the logic of emergency economics. Another decade of using hydrocarbon revenues to preserve consumption without expanding productive capacity would carry severe consequences. Domestic demand could eventually absorb exportable surpluses by the mid-2030s, gradually eroding the fiscal engine that sustains the Algerian state itself.
A rare alignment of geography, geopolitics, and market timing has delivered Algeria an opening few nations receive twice. Successful states treat windfalls as temporary capital for future resilience. Fragile systems treat windfalls as permanent income.
Algeria must now decide which category it belongs to.
• Hafed Al-Ghwell is senior fellow and program director at the Stimson Center in Washington and senior fellow at the Center for Conflict and Humanitarian Studies.
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