Drill, Baby, Drill: The Fueling of Oil Production by Conflict in the Middle East

February 1, 2016

 

 

Judging by the tone of today’s political discourse, the Middle East exists as a series of failed and unstable nations engaged in a morass of war that the United States would be wise to stay out of. The term “on fire” has become a favorite of Republican presidential candidates, analogizing the Middle East to an uncontrollable blaze. While predictions of imminent danger to American interests are overblown, perhaps the most severe impact of growing violence in the Middle East has been critically overlooked – the plunging price of oil, which will extend conflict beyond the Middle East to a wide array to rentier states and petrostates.  

 

American politicians may be correct in asserting that the Middle East is more chaotic than any time in recent memory. While several interstate conflicts have taken place since the Second World War, like the Iran-Iraq War in the 1980 and America’s invasion of Iraq in 2003, military and intrastate conflict are now taking place across the entire region, driven by a combination of two factors. First, the Arab Spring of 2011 has fostered a series of political transitions and civil wars across Middle Eastern states. While Tunisia, Egypt, and Libya may appear too far removed from Iran and Saudi Arabia to significantly affect regional power politics, Yemen, Iraq, and Syria have served as incubators for a proxy conflict between those two juggernauts.

 

Instead of the Arab-Israeli conflict, which drove violence in the Middle East through much of the Cold War, Saudi Arabia and Iran have been drawn into competition because of both the Sunni-Shia divide and their emergence as the two largest military powers in the region. While Iran and Saudi Arabia have never gone to war, each has openly sponsored armed factions across the Middle East to promote various regional interests, i.e. Iran’s patronage of Hezbollah in Lebanon. Civil war has opened up new avenues for the extension of power, with the two nations funding opposite sides of conflicts in Syria (Iran to Assad and Saudi Arabia to the opposition), Yemen (Iran to the Houthis and Saudi Arabia to the fallen government), and Iraq (Iran to the Shia government and Saudi Arabia to Sunni militias). The materiel flowing into these conflicts from external sources has escalated the violence, allowing factions to continue their campaigns with fresh supplies.

 

Second, the domestic politics of Iran and Saudi Arabia have pushed both nations into further conflict. Since the death of King Abdullah in January 2015, Saudi Arabia’s military power has been consolidated under Mohamed bin Salman, the deputy crown prince and defense minister, who was responsible for Saudi Arabia’s direct military intervention in Yemen against the Houthis. Rumors even suggest that King Salman, the current monarch, may soon abdicate to the prince, who would inherit absolute control over the armed forces, leaving him free to pursue an even more aggressive military strategy. In Iran, the lifting of international sanctions on the country as a consequence of last year’s landmark nuclear deal have emboldened conservatives. Iran’s Guardian Council has exercised its authority to disqualify moderate candidates running for the Majles, Iran’s parliament, amassing more power in the hands of hard-liners, who have sponsored ballistic missile tests and further deployment of Revolutionary Guard forces across the region.

The competition between Iran and Saudi Arabia is not restricted to merely military affairs. Since the founding of the Organization of Petroleum Exporting Countries (OPEC) 65 years ago, Iran and Saudi Arabia have collaborated to manipulate global energy prices. OPEC has set yearly production quotas for each of its thirteen member states, altering supply in order to keep oil prices high. However, even the purely economic cooperation that OPEC facilitated is falling apart, driven by two factors. First, Iran’s relief from sanctions has given it new access to oil consumers. Thus, Iran is preparing to blast past its quota and release vast amounts of oil onto the market, because it values economic strength above OPEC. Second, the proliferation of cheap energy owing to the rise of fracking technology in the West along with America’s lifting of its decades-old oil export ban means that Saudi Arabia and Iran are getting edged out of the global market, creating a strong incentive to produce as much as possible to retain market share. These two structural incentives have put Iran and Saudi Arabia into direct competition. The two nations are also competing with one another for customers and economic resources and no longer trust each other amid a proxy war. Thus, oil prices will likely remain low for the foreseeable future.

 

This will have great economic benefits for manufacturing and developing nations whose burdens will be relieved by low oil prices. But for oil-dependent states, the results will be devastating. In Nigeria, over 90 percent of national revenue comes from oil exports. With oil scraping just $30 per barrel, Nigeria and similar states like Venezuela, Libya, and Sudan, all of whom depend on oil money to fund civil services and provide welfare, will see their available capital shrink drastically for years on end. Without the economic infrastructure to quickly diversify, it is likely that these nations will see their public debts balloon over time – a particularly pernicious consequence since many of them face persistent national security crises. Nigeria is reliant on oil money to sustain its campaign against Boko Haram, an ISIL affiliate that has been growing in strength for a decade. Libya is in the midst of a civil war. These states will be the ones most acutely affected by a glut of oil, and odds are likely that they will experience elevated domestic unrest and economic deterioration until the restoration of cooperation between Saudi Arabia and Iran, a faint dream at best.

Though Americans might enjoy cheap energy prices, there is a very real cost to the low price of oil. Geopolitical conflict has fueled oil’s fall, and that decline will itself create more conflict in the nations least able to adapt.

 

 

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