Perhaps more interesting is the question of whether low oil prices can help overcome the hostility between Saudi Arabia and Russia and Iran. There were at least some rumblings in November 2014 about the possibility of a deal between Saudi Arabia and Russia that would link efforts to shore up oil prices with the end of hostilities in Syria. With oil prices beginning to soften that November, Saudi foreign minister Saud al-Faisal visited Moscow for talks with his Russian counterpart, Sergei Lavrov. In speaking to the press after the talks, Lavrov vehemently denied that a deal over oil would compel Russia to alter its policy toward Assad. Immediately after a news story suggesting just such machinations, Alexei Pushkov, the head of the Foreign Affairs Committee in the Russian State Duma, rejected the idea that any such pact was discussed. He blamed the rumors on fake news, saying, “The New York Times distorted information so many times, especially since the Ukrainian crisis started. I wouldn’t advise you taking it as a reliable source. There were no talks of such exchange.” Speaking anonymously, a Saudi diplomat at the talks was more circumspect: “If oil can serve to bring peace in Syria, I don’t see how Saudi Arabia would back away from trying to reach a deal.”
Since this time, low oil prices have in fact spurred some modicum of greater cooperation between Saudi Arabia, Russia, and Iran. The economic duress resulting from the price plunge helped the three countries overcome tensions at least enough to agree to an oil production cut in 2017. There is, however, not yet any strong evidence that such limited cooperation will translate into a meeting of minds on Syrian policy. In fact, by agreeing to a production cut, the Saudis gave away some of the leverage they would have in convincing the Russians to alter course on Syria. While Russia appears to be interested in building a more strategic relationship with Saudi Arabia, Riyadh has thus far remained cool, preferring instead to focus on forging a new relationship with the United States under the Trump Administration.
Iran: Hoping for More
Finally, Iran. As described in Chapter Five, the new energy abundance played an important role in paving the way for the international sanctions that eventually brought Iran to the negotiating table—and ultimately to the signing of an agreement with the P5+1 in July 2015 to curb its nuclear pursuits. Yet however instrumental the new energy abundance was in the conclusion of a deal, it is likely to be distinctly unhelpful in upholding the very same agreement. As was already evident by mid-2017, many Iranians feel disappointed over the fruits of the deal, potentially jeopardizing the durability of the accord. The lifting of sanctions in January 2016 did lead to greater oil production and exports and did allow Iran to garner foreign interest in many nonoil sectors of its economy. But central government revenues and expenditures have lifted only marginally, thanks to lower oil prices.
For this reason, many Iranians feel less optimistic about the country’s trajectory in general and economic situation in particular in 2017 than they did before the deal was signed. In the words of Ebrahim Mohseni, a research associate at the University of Maryland who conducted a poll of one thousand Iranians one year after the deal, “Iranians were expecting a lot but feel that they have received nothing tangible in return for Iran’s nuclear concessions. . . . Unless Iranians see real economic gains from the nuclear deal, the nuclear agreement, those who negotiated it and the foreign policy approach that made it possible will all be in jeopardy.”
Iran is likely to continue to struggle to deliver significant economic gains to its population. The new energy abundance will be, at least in part, to blame. It adds to the myriad of existing obstacles to attract greater foreign investment to develop Iran’s oil fields—a prerequisite to Iran reaching its goal of producing 4.8 mnb/d by 2021. Corruption, lack of transparency, and continued unilateral U.S. sanctions have tempered the enthusiasm of many outside investors; low oil prices have piled on by cutting the investment budgets of many companies and forcing countries that do want to attract foreign investment to offer more attractive terms. Whereas some international companies were clamoring for access to Iranian oil in the late 2000s, the advent of unconventional resources means that companies can now be highly selective about where they invest their money. As long as prices stay at moderate levels, the international oil companies are capital constrained, not opportunity constrained.
In the realm of natural gas, the story is similarly downbeat. With the second largest conventional gas reserves in the world, many expected that Iran could quickly move from its current position as a marginal supplier of gas to Turkey to be a major global gas player. While Iran had a larger window to realize that status in the 1990s, the advent of unconventional gas calls into question the feasibility of some of Iran’s big gas projects, not to mention the possibility of Iran emerging as a global LNG provider in the near term. The combination of U.S. and Canadian shale gas exports, along with the completion of gas projects in Australia, Israel, the countries of east Africa, and elsewhere, could mean that Iran will miss the boat and need to wait until the LNG market tightens many years down the road before making its splash.
* * *
In a region beset with bad news and worrying trends, the new energy abundance was expected to spell nothing but doom and gloom for the big powers in the region. In an era of copious oil and gas supplies, many inside and outside the Middle East thought the people of the region could only look forward to more state weakness, political marginalization, and increased conflict to add to their already substantial woes. Such developments would further pile on today’s challenges, increasing the possibility of economic collapse or political turmoil. But such negative outcomes are not inevitable, nor necessarily the ones most likely to materialize.
Certainly, the Middle East is in the early innings of coping with the effects of a much altered energy environment. In future years, Middle Eastern governments and citizens could need to grapple with the demand-dampening results of a stronger global push to address climate change. Those with ample oil and gas reserves could face the real prospect of “stranded assets”—where their once valuable resources no longer contain significant worth in a world moving away from fossil fuels.
While it is not too early for Middle Eastern leaders to contemplate and prepare for such eventualities, the news for the next five or ten years is not all bad. Those who view the U.S. presence in the region as a stabilizing one can be heartened by the notion that America will not curtail its engagement there due to its new energy prowess. Moreover, given the possibility that in a continuously low-oil-price environment Middle Eastern oil will be more important to global markets than ever, those in the region can be confident of continued international efforts to build relationships and to better understand the countries and cultures there. Finally, the new energy abundance has created some intriguing possibilities on the positive side of the ledger—even if their realization is far from assured. It has spurred serious and long-overdue efforts to reform economies in the Gulf—initiatives that may, perhaps inadvertently, also lead to political and social change. And it has opened the door for steps toward peace if not across the region, than at least in some parts of it desperate for good news.
Conclusion
From Serendipity to Strategy
Energy has been a key driver of many of the most important events of the past hundred years. For example, in 1913, Winston Churchill, then First Lord of the Admiralty, decided to shift the British naval fleet to run on oil instead of Britain’s plentiful coal reserves. The decision gave the Royal Navy much greater range while simultaneously making it dependent on access to an energy source thousands of miles away. As a result, the oil-rich lands in the Middle East, including Persia (now Iran), catapulted to strategic importance. Soon thereafter, World War I emerged out of a complicated series of events, of which the competition between European countries for access to oil was a significant, if underappreciated, factor.
Following the war, oil became more and more important to economies—and militaries—around the world. By World War II, access to oil influenced military s
trategy as much as any other single consideration. In 1941, for example, the United States embargoed oil sales to Japan. Tokyo, desperately in need of oil to fuel its war efforts and fearful U.S. forces would disrupt its access to the oil-rich East Indies, made the fateful decision to bomb Pearl Harbor. The attack drew the United States into the war on both fronts. A year later, Germany’s drive through southern Russia to capture the Baku oil fields stalled, and ultimately failed, at Stalingrad. These two events, both prompted by the overwhelming need for oil, were among the most important ones in determining the eventual outcome of the war. Even the Marshall Plan of the late 1940s and early 1950s—one of the most well-intentioned foreign policy initiatives of the twentieth century—had a major energy component. The plan helped consolidate postwar Europe’s move away from coal by providing funds to build a pipeline connecting American-run oil fields in Saudi Arabia to Western Europe.
In 1973, Arab nations embargoed oil exports to the United States as retribution for its military support of Israel in the Yom Kippur War. The global economy, now more oil-dependent than ever, slumped in response to sharply higher prices before moving into an economic malaise that lasted throughout the 1970s and early 1980s. Many countries also attempted to make their economies less vulnerable to an oil price shock, investing in fuel economy and alternate fuel initiatives. Japan accelerated its move toward less fuel intensive electronics manufacturing and honed its automaking until its more efficient vehicles finally cracked the huge U.S. market. In the 1980s, low energy prices weighed heavily on energy producers and ultimately contributed to the collapse of the Soviet Union and the global order that had endured for decades.
In more recent decades, geopolitical events in the oil-rich Middle East have been prominent. In 1990, after accusing Kuwait of “slant drilling” across its border, Iraq invaded Kuwait, seizing its oil fields. Iraq was subsequently challenged by a coalition led by the United States, driven out of Kuwait, soundly defeated, and placed under sanctions and the U.N. Oil-for-Food Program that traded Iraq’s oil for humanitarian supplies for years. The decade’s low oil prices also created the poor economic conditions in Venezuela that helped pave the way for Hugo Chávez’s leftist Bolivarian Revolution in Latin America.
In the first decade of this century, Russia used its natural gas trade to express unhappiness with Ukraine’s political trajectory through a mix of coercion and disruptions of energy supplies. In the Middle East, another U.S.-led coalition used force against Iraq; this time Saddam Hussein did not survive. Since then, volatile politics and religious extremism have been contributing factors to the decade or more of turmoil in the region. Alas, it is no coincidence that, a century after World War I, the most oil-rich region of the world is once again the setting for direct military action by some of the world’s most powerful militaries, including those of the United States, France, England, and Russia.
Energy will continue to be as important in shaping the world as other geopolitical events that receive a lot more attention. Yet in one important way, the past will not be a harbinger of the future. Whereas, particularly in the last thirty years, energy scarcity and the fear of energy shortages have shaped the relationship between energy and international affairs, abundance, not scarcity, will be the defining feature of the coming years. The combination of technological advances, politics, and policy has already made possible the production of vast quantities of new energy resources. Understanding the new global dynamics created by energy markets awash in oil and gas—and eventually renewable sources—could be as important as discerning the role of radical extremism, infectious disease, nuclear proliferation, or climate change on global affairs.
The comparatively low energy prices of the last several years have been the most pronounced expression of this new energy abundance. But they are not necessarily its most enduring, nor its most important, manifestation. In fact, an energy-abundant world is not necessarily a world free from spikes in the price of oil or gas. Given the many factors that affect price—geopolitics, natural disasters, psychology, technology, investment patterns, policy—some price spikes are still inevitable. The key difference is that such spikes are likely to be less enduring and will tend to have tactical implications—rather than being long lasting and carrying strategic consequences. Think of the eight months in 2008 and 2009 when oil prices seesawed wildly, falling from a peak of more than $140 a barrel to below $40 and back above $100. Then compare that rollercoaster ride to the steady price plunge that began in 2014 and stretched well into 2016. The first period impacted markets and businesses over the short term, but changed little geopolitically; the second had wide-ranging effects that are still unfolding. A price spike in the coming years is plausible, given the hundreds of billions of dollars cut from investment budgets of oil and gas companies in the wake of the 2014 price drop. But if tight oil does its job, responding with greater alacrity to a higher price with increased production, such a spike should moderate within a relatively short period. It will not represent a new price plateau that lasts for years.
In any case, the changes in oil and gas markets induced by the new energy abundance are even more fundamental and consequential than price. The global oil market is in new territory, with the market playing a much greater role in balancing supply and demand than has been the case for more than a century, an anemic OPEC notwithstanding. Global gas markets have been transformed even more radically by new supplies and new technologies. Greater integration among regional gas markets, while not amounting to a global market, has meant more efficient allocation of capital and greater flexibility. As explored throughout this book, these changes in the structure of oil and gas markets—and the shift in power from the producer to the consumer that has accompanied them—have already had profound effects for geopolitics. And the story is, in many way, still unfolding.
A Strategic Boon to America
Nowhere in the world have these fundamental changes in the realm of energy had so many consequences as in the United States. Most evidently, the surge in tight oil and shale gas production has fueled an economic boom that has been good for jobs, government coffers, and the economy as a whole. But it has also brought with it enormous strategic benefits. To the disappointment of some, it has not delivered—and may never deliver—the energy independence long coveted by the United States. Yet, even more importantly, the energy boom has reinforced the foundations of both hard and soft American power. The strategic benefits to the United States also go well beyond its own borders, to shaping the international environment in a way that is—on the whole—more conducive to the promotion and protection of American interests. There are many issues affecting what kind of global power the United States will be in the coming decade and beyond. The challenges it faces are significant. Internally, it needs to address its fiscal situation, divisions over race, and the dysfunctional politics that have fueled a rising populism. Externally, the United States must come to terms with a world in which power is distributed more diffusely and determine what it means to be an exceptional country given these new realities. No single issue—including energy—will in itself determine the U.S. trajectory. But there is no question that the balance sheet of American strengths and vulnerabilities has been profoundly altered by the energy boom—and overwhelmingly, if not uniformly, in the interests of the United States.
A deeper dive into the ways in which the new energy abundance has enhanced American power yields some surprising insights. Many of the conventional wisdoms that have arisen around the new energy landscape are—as so often is the case—ill-informed and incomplete. The misplaced fixation on energy independence—and the belief that the United States has or will soon reach this exalted status—is perhaps the most glaring example of such misperceptions. In addition, contrary to popular understanding, the energy boom will not significantly diminish U.S. interests in the Middle East and thereby absolve America from the difficult interventions that have marked U.S. foreign policy in the last decades. Nor will copious American natural
gas enable the United States to displace Russian gas in Europe’s energy mix and free Europeans from the specter of Russian energy embargoes and the political influence that results from this possibility. At the same time, contrary to what is commonly thought, the new energy realities are working against, not in favor of, a strategic partnership between China and Russia. And, finally, while low oil prices spell tough times for the Gulf states of the Middle East, they do not render inevitable state collapse, revolution, and greater conflict. While these commonly expected scenarios will not arise, as demonstrated throughout this book, the new energy abundance is exerting its pressure in other numerous and subtle ways, all of which add up to a changed strategic landscape for the United States and for other countries around the world. In ways that are both surprising and consequential, the new energy trends are exerting powerful influences on how the world works.
This energy-induced geopolitical reordering is just beginning. What has occurred thus far has largely been happenstance—serendipitous for some, unfortunate for others. Now that the new energy reality is established, policymakers must more consciously shape the future in light of these new trends. Some regions, such as Europe, are moving directly toward a future that—with the critical exception of Europe leaving its own shale gas largely undeveloped—harnesses many strategic benefits of the new energy environment. Other countries, where the boom in tight oil and gas has caused unwelcome dislocations, are also clear-eyed about where policy needs to go in the future, even if they have not yet traveled there successfully. Canada, for example, continues to pursue its dogged, if not yet fruitful, efforts to bring energy from its vast interior to its tidewater for export to destinations other than the United States. However, many other countries have yet to embrace the strategic benefits or weaknesses of the energy boom. Regardless of where they are now, countries including the United States, Russia, and China, as well as regions like the Middle East, Africa, and Latin America, all need to consider the new energy environment as they plan for the future.
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