Spain Faces Energy Blowback, As Its Largest Natural Gas Provider, Algeria, Breaks Commercial Ties

“Seldom in the history of Spanish diplomacy… has a foreign policy initiative had such disastrous results,” as Spain loses its grip on diplomatic relations with Algeria at the worst possible moment.

The quote above, from the Spanish financial daily El Confidencial, pertains to Spanish premier Pedro Sanchez’s unilateral decision, in late March, to endorse Morocco’s plan for “limited” sovereignty over Western Sahara, in the process putting an end to 47 years of Spanish neutrality on the issue while also poisoning relations with Spain’s biggest provider of natural gas, Algeria. On Wednesday, after Sánchez ratified the new policy in congress, Algeria announced it was severing its commercial ties with Spain.

It’s a decision that will hurt both economies. In 2020, the last year with full data available, when business activity was sledgehammered by the pandemic-induced lockdowns and travel restrictions, Algeria exported just over €2.5 billion of goods and services to Spain. Spain, for its part, exported just under €2 billion to Algeria.

More importantly, the two countries’ bilateral trade includes a very large amount of natural gas, a commodity that right now is extremely scarce due to the fallout from the ongoing war in Ukraine and the US and EU’s ratcheting sanctions on Russia, the world’s second largest producer of natural gas. Last year, Algeria provided 41% of all the natural gas consumed in Spain.

Big Blowback

When, in March, Pedro Sánchez’s government called an abrupt end to Spain’s 47-year position of neutrality over the disputed territory of its former colony, Western Sahara, by publicly recognizing Rabat’s “autonomy” plan for the region, diplomatic and commercial blowback was all but inevitable. Morocco and Algeria are direct rivals in the rule of Western Sahara, 80% of which is controlled by Morocco. Algeria is the main supporter of the Polisario Front independence movement, which controls the remaining territory.

As I warned at the time, Madrid’s diplomatic u-turn risked torpedoing Spain’s commercial relations with its biggest energy provider, just as Europe faces its biggest energy crisis in at least half a century. Since then Algeria has gradually intensified its retaliation. First, it recalled its ambassador to Spain. Then it announced it would refuse the return of African migrants intercepted at sea on their way to the Spanish coast. It has said it will increase natural gas prices for Spain while maintaining prices for everyone else. It has also struck new energy deals with Italy and China.

But this week, the blowback went ballistic. On Wednesday (June 7), Algiers announced it was pulling back from a 2002 cooperation treaty with Spain that established the legal framework for bilateral relations between the two countries. The treaty is also meant to control immigration and human trafficking between the two nations. The reason cited for Algiers’ drastic move was Madrid’s “unjustifiable” reversal of its long-standing policy of neutrality on the Western Sahara conflict.

“The current Spanish government has given its full support to the illegal and illegitimate form of internal autonomy advocated by the occupying power, and has worked to promote a colonial fait accompli using spurious arguments,” the Algerian president’s office said, as quoted by Spanish news agency EFE.

At the stroke of midnight on Wednesday Algeria’s banking association (ABEF) announced it will block all bank direct debits for foreign trade operations to and from Spain, a move that will affect all economic sectors. As Reuters reports, Spanish exports to Algeria include iron and steel, machinery, paper products, fuel and plastics, while service exports include construction, banking and insurance. Algiers already banned imports of live Spanish cattle in April, a trade that was worth €55 million alone in 2021.

Sánchez has already set up a “crisis cabinet” to oversee Algerian relations and has even put Josep Borrell, a former Spanish socialist politician who is currently serving as the EU’s foreign minister, on standby, just in case the EU’s assistance is needed. Spain’s foreign minister José Manuel Albares said Thursday that the Sánchez government is analyzing the potential implications and impact, at both the national and European level, of Algeria’s severance of banking ties.

The EU Foreign Affairs Spokeswoman man Nabila Massrali said Thursday that the suspension of the friendship treaty with Spain is “extremely worrying” and called on Algeria to “reconsider” its decision. She also described Algeria as an “important partner of the European Union” in the Mediterranean and “key to stability in the region”.

As the Spanish journalist Ignacio Cembrero said in an interview on Thursday, “These measures that Algeria took yesterday (…) in my view contravene the association agreement that is still in force between the EU and Algeria.”

The biggest concern, of course, is that Algiers ends up cutting off natural gas supplies to Spain…

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