The global economy, international geopolitics, and intra-national security have hinged upon oil production capacity and petrol markets so thoroughly that it’s easy to forget that it wasn’t always this way. As the Brookings Institution once wrote of oil, “In the modern era, no other commodity has played such a pivotal role in driving political and economic turmoil, and there is every reason to expect this to continue.” Furthermore, it’s easy to forget that all of this is, in fact, quite recent history. Saudi Arabia and the Middle East may be associated with oil money and petro-oligarchs now, but it hasn’t even been 100 years since Saudi Arabia struck first oil.
What happened after that 1938 discovery was a stunning restructuring of global power structures largely based upon a region that was once economically barren as it is physically. The United States, in particular, through a combination of diplomacy and military strong-arming, established a powerful and enduring presence in the gulf states that shifted the geopolitical power map throughout the second half of the 20th century. “For four decades, U.S. energy policy was dominated — and its foreign policy hobbled — by the specter of shortage and vulnerability, going back to the 1973 oil embargoes and then the 1979 Iranian Revolution, which toppled the Shah and brought the Ayatollah Khomeini to power,” recounted the Dallas Morning News in an article outlining the shifting relationship between oil and geopolitics.
All of this changed seemingly overnight, however, with the U.S. shale revolution. The gush of cheap shale oil and gas out of the West Texas Permian Basin greatly decreased the entire world’s dependence on Middle Eastern oil and allayed fuel shortage anxieties. As with any shift in power dynamics of this magnitude, the shale revolution has had massive repercussions and largely unanticipated externalities for players across the globe.
Related: Why DoorDash Was The Hottest IPO Of The Year In the Gulf States, it has not only translated to a massive loss in economic and political might, it’s also meant a loss of security and protection provided by other countries that previously had a vested interest in protecting the global oil supply flowing out of the Middle East. While the shale revolution and its geopolitical power are now on their last legs, the legacy of this destabilizing of power dynamics in the Middle East endures.
One of the side effects of this shift is an escalation of tensions between actors in the area that have historically been held in check by foreign military presence. Now that that presence is dwindling, however, tensions between Iran and nearly every other Persian Gulf State are now threatening the region’s security. In an opinion piece published by Al Jazeera this week, Gulf Studies Center of Qatar University professor and research associate Nikolay Kozhanov makes the argument that thanks to the U.S. shale boom and Middle Eastern oil’s disappearance from the Western powers’ list of priorities, gulf countries are becoming increasingly “vulnerable to Iran.”
Indeed, recently we have seen a series of escalating attacks that have been either directly or indirectly attributed to Iran. In fact, Iran’s agitations in the Strait of Hormuz have even pushed outgoing U.S. Energy Secretary Dan Brouillette to travel to the Middle East to smooth things over with U.S. allies in the Middle East and to brainstorm strategies for minimizing the importance of the ever-vulnerable waterway. These talks, however, have not done much to ease tensions or anxieties in the region. “As Brouillette leaves his post, Gulf leaders are questioning how Joe Biden will engage with the region on issues like Iran,” CNBC reported earlier this month. “Middle East allies still don’t know how the United States, a primary external foreign policy actor in the region, will guarantee security and stability of supply to key markets in Asia and beyond.”
Related: Low Oil Prices Force Saudi Arabia To Cut 2021 Budget Plan
According to Kozhanov, however, the Strait of Hormuz is old news. Iran is unlikely to jeopardize the flow of oil through the passage due to the risk of triggering a war, he says, and has instead recently turned to “infrastructure terror” tactics. And without U.S. backing, he argues, states like Israel and Saudi Arabia are sitting ducks. This dynamic is, of course, greatly exacerbated if not created by continuing U.S. sanctions on Iran, which has left the nation unstable, broke, and desperate.
In short, 50 years after the United States muscled its way into Middle Eastern oil markets and oil security, they’re more entangled than ever in a fraught geopolitical powder keg. While the U.S. no longer holds much of an interest in gulf oil thanks to its own shale revolution and what’s now the fading importance of oil, the nation is still a long way from being able to back out of the mess it’s helped to create.
By Haley Zaremba for Oilprice.com
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The first example is that the emergence of the United States as the world’s leading power in the twentieth century coincided with the discovery of oil in America and the replacement of coal by oil as the main energy source. As the age of coal gave way to oil, Great Britain the world’s first coal superpower, gave way to the United States, the world’s first oil superpower. 1
A second example is that the United States’ invasion of Iraq in 2003 was undoubtedly about oil according to Dr Mamdouh G Salameh in his book “Over a Barrel”. 2 This view is shared by the former chairman of the US Federal Reserve Bank for 17 years Dr Alan Greenspan in his book “The Age of Turbulence”. 3
Two important facts will continue to dominate the global oil market. The first is that both at present and for the foreseeable future, the Middle East will continue to occupy the driver’s seat in the global oil market in terms of volume of exports, proven reserves and production capacity. The second fact is that oil will continue to fuel the global struggles for political and economic primacy. Much blood will continue to be spilled in its name. The fierce and sometimes violent quest for oil and the riches and power it conveys, will surely continue so long as oil holds a central place.
The United States will never achieve energy independence particularly oil self-sufficiency. The US shale oil revolution has failed to secure oil independence for the United States. In the 60th year of its anniversary in 2020, OPEC at last achieved a decisive victory over US shale oil. The Covid-19 pandemic has led to a virtual collapse of US shale oil production and the importance of shale oil to the global oil market.
China’s launching of its petro-yuan in March 2018 was aimed first and foremost to dethrone the petrodollar as the oil currency of the world. By undermining the petrodollar, China hopes to also undermine the US financial system.
The United States’ presence in the Gulf region and the escalating tension with Iran as well the simmering tensions between Iran and some of the Arab Gulf States principally Saudi Arabia are all aspects of the struggle for oil that are threatening the Gulf region’s security.
These are my first comments in 2021. They come with my good wishes to the journalists and readers of articles posted by oilprice.com for a happy New Year and an end of the pandemic.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
1-Salameh, Mamdouh G, “Over a Barrel” published by Joseph D. Raidy, Beirut, Lebanon in June 2004.
3-Greenspan, Alan, “The Age of Turbulence”, published by Penguin Books Ltd in December 2007.