The US isn’t protecting oil supplies from the Middle East, it wants to control prices as foreign policy

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV.COM Ltd.

A handout photo made available by the US Navy shows aircraft carrier USS Abraham Lincoln in the Arabian Sea, 16 May 2019. The Abraham Lincoln is deployed in the region amid heightened tensions between the US and Iran, with both saying they don't seek war. [EPA-EFE/US NAVY]

America’s extensive use of military and economic coercion in the Middle East and other oil-producing countries around the world reflects the US’s new position as an exporter of oil and liquefied natural gas, argues Robin Mills.

Robin Mills is the CEO of Qamar Energy and author of “The Myth of the Oil Crisis.” He contributed this op-ed for the Syndication Bureau, an opinion and analysis article syndication service that focuses exclusively on the Middle East.

Following the US-led 2003 invasion of Iraq, Iran and its regional allies emerged once more as the key threat perceived by America. But the question remains why the US should be so concerned about a third-rate power in a region seemingly less central to American interests today.

The answer lies in oil – but not in the way this is conventionally understood. Washington isn’t “protecting” supplies of energy for its industries; instead, its interest lies in its ability to control oil prices and supply as an instrument of foreign policy.

Studies suggest that the US spends $81 billion annually to protect oil supplies, mostly in the Gulf. Yet even in 2005, around the peak of American oil imports, the share of the Middle East was not large: 14% from Saudi Arabia, 5% from Iraq and less than 2% from Kuwait. Since then, net US oil imports have been virtually eliminated by the shale boom.

Of course, as long as US oil markets continue to be connected to the world, the country will still see the impact of any shortfall. A disruption in the Middle East would drive up international prices, helping oil-producing Republican states such as Texas, Oklahoma, North Dakota and Alaska, but hurting Midwestern motorists in swing states that were the key to Donald Trump’s narrow win in 2016.

Today, in terms of oil as policy, disruptions at major international oil producers have turned the spotlight back to American allies in the Gulf.

Iran and the US are inching toward war

There can be little doubt now that Iran and the US are inching toward full-scale war. All attempts by either to force a change in the other’s behavior have come to nothing. Conflict now seems inevitable, writes Dnyanesh Kamat.

Venezuela’s output, 2.4 million barrels per day as recently as 2015, has plummeted to 830,000 bpd. After severe mismanagement and underinvestment, various US sanctions have pushed its industry toward collapse. The US-backed interim president, Juan Guiadó, has failed to gain much traction, with Russia doubling down on its backing of Nicolás Maduro.

In April, Trump supported the move of Libya’s Field Marshal Khalifa Haftar toward Tripoli. The chairman of its national oil company says 95% of oil output could be cut off by renewed fighting.

Most severely, of course, the US embargo against Iran has cut its production by about 1.3 million bpd since August, with a White House goal of “zero exports” threatening a further loss of 800,000 bpd or so.

The US also imposed sanctions on Russia’s oil industry in 2014, over its invasion of Ukraine, though these have not significantly affected production, and is threatening more measures against the Nord Stream 2 gas pipeline to Germany.

This extensive use of economic coercion reflects the US’s new position as an exporter of oil and liquefied natural gas. Under President Barrack Obama, the US grew confident that its rising output gave it more freedom to risk taking adversaries’ oil off the market.

Under Trump, the administration has become openly mercantilist – for instance, pushing its LNG into Europe by threatening Russian supplies, and acquiescing to Iraqi gas and electricity imports from Iran only if Baghdad awarded contracts to American companies.

Given the US administration’s quixotic pursuit of multiple conflicting foreign policy priorities simultaneously, its Gulf supporters have become even more important. The ability of Saudi Arabia, and to a lesser extent the UAE and Kuwait, to use their spare capacity to add as much as 2.5 million bpd to the market is crucial to dealing with unexpected contingencies as the campaign against Iran ramps up.

This betrays the Achilles’ heel of the US’s newfound “energy dominance” – shale oil is not infinitely flexible nor as fast to respond as Saudi spare capacity. And the very light shale oil is not an ideal diet for refineries, currently short of medium and heavy grades — those produced in the Gulf and by Venezuela and Russia.

After repeated Iranian threats to close the Strait of Hormuz, both the UAE and Saudi Arabia have constructed bypass pipelines that could carry about half of their exports. Kuwait, Qatar and Bahrain are completely dependent on the strait, though, and Iraq is mostly so.

If indeed the recent attacks on shipping in waters off the UAE’s Fujairah emirate and on the Saudi East-West pipeline were at Iranian direction, Tehran was sending a message that these alternative routes were vulnerable too.

Iran seeks to prove it can disrupt oil and gas exports from Arab Gulf States

A recent attack on Saudi oil facilities west of Riyadh were designed to demonstrate Tehran’s ability to target all of the region’s oil and gas exports and raise exponentially the cost of military conflict for the US and its allies in the Gulf region, writes Hasan Alhasan.

Even though the US has for long imported relatively little Gulf oil, its security posture there was a key part of the Western alliance system. Europe, Japan and South Korea were assured that neither the former Soviet Union nor a hostile regional monopolist could cut their supplies or jack up prices.

Now that logic has evolved. Allies are seen more as vassals, obliged to adopt American economic dictates.

And the continuing US military presence in the Gulf gives leverage against Washington’s only likely peer competitor, in Beijing, as well as its irritating rival in Moscow. Both countries have strong relations with Iran, which has few other friends.

China’s role in the Middle East still is largely limited to trade and investment. But its Belt and Road strategy involves building a maritime presence in the region, as well as strengthening overland Eurasian oil and gas import routes, less easily interdicted. In extremis, in the event of open conflict, the US still has its foot on China’s jugular.

Russia, meanwhile, has boosted its Middle Eastern role by returning to its old ally in Syria, and building political and economic influence in countries such as Egypt, Libya and Iraq. Its cooperation with OPEC has made it indispensable to Riyadh too. But Russia can never be a replacement for the US in the Middle East, just a useful counterweight.

Other interested parties – European countries and India – play only a marginal diplomatic and security role in the Gulf, despite their economic importance and historic involvement. And so Washington complains of its unfair burden in the Gulf, while reaping the rewards of its stranglehold over any competitor.

Subscribe to our newsletters

Subscribe

Want to know what's going on in the EU Capitals daily? Subscribe now to our new 9am newsletter.