Middle East Oil Realism

Shlomo Ben-Ami, a former Israeli foreign minister who now serves as the vice-president of the Toledo International Centre for Peace, is the author of Scars of War, Wounds of Peace: The Israeli-Arab Tragedy.

by Shlomo Ben-Ami
TEL AVIV – No matter how important rising oil powers outside the Middle East are becoming, the region will continue to be the world’s main source of energy for years to come. Unlike Russia, the Middle East’s OPEC members act as a cartel that produces well under capacity. At current production rates, Russia will be out of the running by 2020. The conditions are not radically different in Africa.

20090927amiThis means that energy security will remain highly dependent on Middle Eastern politics, with the region’s oil producers continuing to seek to dictate terms to the world market. Of special concern are the links between military ambitions and the transfer of wealth that oil exports can bring. Iran’s nuclear weapons programme and Iraq’s formidable military build-up of the 1990s exemplify the lethal link between hyper-militarization and energy-market power.

Politically-driven threats to oil supplies, as always, dominate energy-security debates. As the Iraqi case shows, wars and domestic upheavals can not only affect the short-term level of oil supplies, but also undermine the long-term productive capacity of a country by hindering maintenance and investment.

Yet, the potential threat to Middle Eastern oil supplies is nonetheless over-stated. Against all odds and predictions, regimes in the Middle East have survived both the failures of pan-Arab nationalism and the challenges of Islamic extremism. Nor are the concerns that terrorist attacks can force the oil industry to its knees very plausible. So far, the damage from such attacks has proven to be short-lived.

And the doomsday scenario of an Israeli-Iranian showdown leading to an Iranian blockade of the Straits of Hormuz is not especially credible, either. It is doubtful that Iran has the military capacity to block the straits, and, were it to try, it would confront a truly global coalition in response. Moreover, closing the straits would amount to a self-imposed blockade that would hit Iran’s own domestic energy needs hard, owing to its lack of refining capacity.
So, although the mystic power of the oil weapon still prevails, it has proven to be an impotent tool. Some continue to see oil as “the energy equivalent of nuclear weapons.” But the truth is that the 1973 Arab oil embargo was a colossal failure.

Had it been successful, President Anwar Sadat of Egypt would not have rushed to Jerusalem to strike a peace deal with Israel just a few years later. The oil weapon did not force Israel to withdraw to its 1967 borders, nor were the oil powers capable of absorbing for very long the costs to their own economies of the drop in revenues.

A massive use of the oil weapon along the lines of the 1973 oil embargo is out of the question nowadays.

Nevertheless, some people, like former CIA Director James Woolsey, predict that a radical seizure of power in Saudi Arabia might usher in the use of the oil weapon against the West. But to be radical is not tantamount to being irrational, and whatever its religious or political colour might be, no Saudi state could forfeit its means to hold the reins of power. The colossal wealth that comes from oil makes producers no less dependent on oil than consumers.

The real threat is not that a radical Saudi Arabia might cease exporting oil, but that it would continue doing so even if the country turned radical. Billions of petrodollars would then become the financial firepower behind global Wahhabi designs.

But is this really a scenario much different from the one we face today? After all, Saudi oil wealth has been underwriting terrorism for quite some time now. Conspicuously, al Qaeda is happy with Saudi power in the oil markets. In one of its pronouncements, it even admitted that Saudi Arabia “must remain safe… because it is the primary source of funds for most Jihad movements.”

If energy security means the availability of sufficient supply at affordable prices, then the real security problem comes from market power, from a cartel-based price system that dictates artificially high prices that could never exist in a competitive market.

Indeed, the aspiration to maintain market control explains OPEC’s opposition to the Kyoto Protocol, whose implementation might reduce global oil demand by as much as 20%, and its fear that the US might follow Europe’s example and fight oil addiction by a drastic increase in energy taxes.

President Barack Obama has repeatedly warned that the transfer of wealth to hostile oil producing countries is a major threat to US national security. His plan for a substantial cut in US oil consumption to meet lower carbon emission targets and a ten-year plan to develop clean energy are commendable aspirations. But policies aimed at reducing oil consumption are bound to clash with the urgent need to revive America’s economy.
Maintaining stability in the Middle East for the sake of energy security has now become secondary to the pressing need to deal with the challenges posed by the problems in Iran, Iraq, and Afghanistan. But, even if the US managed to reduce oil consumption by as much as 17%, it would still have to depend on Gulf oil, and hence on energy security in the region.

Copyright: Project Syndicate, 2009.

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