2024-05-20 7:46 AM

The Peak Oil Crisis: Chaos in the Middle East

Nearly everywhere one looks in the Middle East these days, troubles are growing and new wounds are opening that seem unlikely to heal in the foreseeable future. Now all this would be academic except that most of the world’s readily exploitable oil comes from the region. Despite the hype of “energy independence” the world’s advanced economies would quickly grind to a halt without a steady flow of Middle Eastern oil. If one looks at all the ongoing hostilities and growing animosities in the region as a whole, it is difficult to conclude there will not be major disruptions in oil exports within the next five to ten years.

Indeed, some of these interruptions have already begun. Last year the Libyan uprising sent oil prices considerably higher as 1.6 million barrels a day (b/d) of oil production was halted for several months. Production in Syria and Yemen is minimal due to domestic conflict. Iranian production is now down to 2.4 million b/d from its normal 4 million and its exports are half normal due to its intransigence in the ongoing dispute over nuclear weapons.

Even though Iraq has been increasing its production of late, with the help of foreign oil companies, there are many dark clouds on the horizon. As an ersatz state made up of Sunnis, Shiites, and Kurds and without any real political arrangement, a low level civil war has been simmering between Sunnis and Shiites ever since the U.S. invasion in 2003. Bombs go off somewhere in the country almost every day usually targeting security forces on which stability depends.

In recent months the prospects for major increases in Iraqi oil production have taken a turn for the worse as several western oil companies have decamped for Iraq’s semi-autonomous province of Kurdistan where conditions are more conducive to turning a profit. Although Kurdistan has only about one third as much oil as the rest of Iraq, foreign companies are permitted to earn a more normal profit than working for Baghdad – and the long run security situation is better.

Drilling in Kurdistan without Baghdad’s blessing, however, has launched another round of problems. In a major political shift, the Turks have decided, at least for now, to side with the Iraqi Kurds and are discussing building a pipeline from Iraqi Kurdistan into Turkey. This would allow the Kurds to export their oil and earn large export revenues without reference to Baghdad. Although landlocked, they could even afford to declare independence. This incipient secession has already led to some massing of troops along the ill-defined Iraqi-Kurdistan border. Although few expect hostilities, it is never a sure bet when armies confront each other.

The major question for the coming year is what post-Assad Syria will look like and just how far the religious and tribal hatreds engendered by the brutal civil war will spread across the region. With dozens of heavily armed groups representing a multiplicity of causes running around in the post-Assad era, and having access to the remains of the well-armed Assad war machine, there is little telling where this will go in the next few years.

We are already seeing some fighting in Lebanon, but Sunni-Shiite divided Iraq is far more worrisome. With a Sunni-dominated Syria and possibly a large supply of weapons behind them, Iraq’s Sunnis will have every opportunity to step up opposition to the Shiite-dominated government which would likely turn increasingly to Iran for support. Where the oil goes in all this is anybody’s guess.

Egypt, with 83 million people, has already been through one revolution overthrowing the Mubarak government, has elected an Islamist President, and is now absorbed with the approval of a new Islamist-tilting constitution. Thousands are already protesting the new constitution which seems likely to be approved soon. Egypt no longer exports much natural gas after the pipeline to Israel, Jordan and Lebanon was blown up last year, but does control the Suez Canal and pipeline through which much of the oil transiting from the Gulf oil states to Europe passes.

The country is clearly split over the new Islamist constitution which the secularists claim was drafted in a rush to ensure that the Islamist party will dominate the government indefinitely. This is not a formula for enduring political stability. Throw in the nearby Palestinian confrontation with Israel and there are sure to be considerable troubles.

The biggest problem, from the perspective of oil exports, remains Iran who admitted publicly this week that the sanctions already have caused a 50 percent drop in its oil revenues and the worst is yet to come. Despite the fact that a prolonged outage of its aging oil fields would likely cause permanent damage to the country’s biggest asset, Tehran continues on a course of defiance rather than actively searching for a solution to the nuclear weapons issue. Unnoticed in all this is that power in Iran is gradually slipping away from the nominally-in-charge clerics and into the hands of the “revolutionary guard” — the armed forces.

The next election is scheduled for June and is likely to result in power shifting still further towards the guard leaving the clerics closer to figureheads in terms of real power. With the downfall of the Assad government, its chief ally in the region, still tighter economic sanctions, a deteriorating economy, and the continuing threat of Israeli airstrikes on nuclear facilities the Iranian situation is fraught with dangers that could interfere with oil exports in many ways

On top of the more prominent instabilities in Syria, Egypt, Iraq, and Iran, minor disturbances, mostly in the form of demonstrations are taking place in Kuwait, Bahrain, and Algeria. All of these countries are oil exporters.

Considering the rapidly accumulating troubles in the region as a whole, it is difficult to imagine that the bulk of the world’s oil supply will be as safe for the next 20 years as it has been for the last 50.





On Key

Stories that may interest you

New Briefs: May 16-22, 2024

F.C. Mayor Hardi Greets 500 on NAIOP Bus Tour Falls Church Mayor Letty Hardi greeted the more than 500 participants in the annual NAIOP commercial