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Monday, November 5, 2012

A Region in Turmoil: Threats to Gulf Energy and Shipping


By James M. Dorsey






Rather than offering a comprehensive, encyclopedic threat analysis, this Insight aims to pinpoint the most immediate threats to the security of Gulf energy and international shipping and the likelihood that they could become a reality. It constitutes a first attempt at looking at the likely scenarios that so far have been given inadequate attention.

In doing so, it also spotlights an underlying policy dilemma: the contradiction between ensuring energy security and safe shipping in the short and medium term based on the status quo in the Gulf, the need to be prepared for likely disruptions of the flow of oil and gas as a result of domestic and regional developments, and a long-term anticipation of significant political change in the region.

Three major threats highlight the urgency of the issue:

–volatility as a result of possible conflict with Iran;

–the potential eruption of brewing discontent in oil and gas producing Gulf states; and

–questions about the United States’ ability to be a reliable guarantor and defender of last resort.

These three factors do not neglect threats from non-state political or criminal actors that may or may not be supported by failing states. They constitute the most immediate, overarching dangers to sea lanes connecting the Gulf to the rest of the world.

Iran

Iran’s war games in April 2010 not only highlight the threat that the Islamic Republic could pose to international shipping in case of an Israeli and/or U.S. military attempt to take out Iranian nuclear facilities. They also serve as an example of the potential threat by non-state actors that may or may not have the backing of a state. During the games in the Gulf and the Strait of Hormuz, the Islamic Revolution Guard Corps (IRGC) swarmed, seized, and destroyed hypothetical enemy vessels. Iran could further target tankers with coastal anti-ship Silkworm missiles, patrol boats and short-range aircraft launched from nearby bases, or fast in-shore attack craft packed with explosives.

Many assume that Iranian verbal threats to shipping in the Gulf and the Strait of Hormuz as a response to a possible Israeli and/or U.S. attack are little more than bluster due to Iran’s interest in keeping sea lanes open for its own exports. Yet this is questionable. U.S. and European sanctions have already reduced Iranian oil exports by about two thirds and could force further cutbacks. As a result, Iran’s vested interest in keeping shipping lanes open has been considerably reduced. By the same token, the effect of an Iranian attempt to shut down shipping lanes is to some extent counterbalanced by the building of new pipelines and the conversion and expansion of existing ones in the Gulf that circumvent the Strait of Hormuz. More serious may be the likelihood of Iranian retaliation against Gulf oil and gas facilities using both conventional military and cyber capabilities.

With the threat of a unilateral Israeli attack on Iran in advance of the U.S. presidential election having vanished, the focus is on possible post-election Israeli and/or U.S. action. In hindsight, the 
Israeli diplomatic and psychological operations campaign during the last year appears to have been primarily aimed at narrowing U.S. options and achieving a firmer American commitment rather than at preparing the ground for a unilateral Israeli operation. Israelis and Iranians effectively agree that while a successful Israeli attack may set back Iranian nuclear efforts, it would take U.S. involvement to deliver a devastating blow to the Islamic Republic’s operations. In fact, Iranians may well be willing to pay the price of an Israeli attack because of the benefits it offers. These benefits include:

– shifting the blame for economic hardship from the government to Israel and the United States, particularly in advance of next year’s Iranian presidential election;

– emotive popular support in the Middle East and North Africa at a time of rising discontent in the Gulf and elsewhere;

– a distraction from Iran’s unpopular support for the regime of Bashar al-Assad in Syria;

– potential opportunities to compensate for the ultimate loss of Syria; and

– leveraging rivalry between the United States on the one hand and China and Russia on the other.

Deep-seated prejudices on both sides undercut efforts to achieve a negotiated solution. Iran is convinced that U.S. policy aims at regime change. It further views past offers to reward Iran for agreeing to comply with international demands as efforts to portray it as weak and having caved to pressure rather than as an incentive to reduce its international isolation. For its part, the United States believes that Iran is not serious about negotiations and that it has Iran increasingly cornered. It further assumes that it can succeed with a big stick and limited carrot policy and that Iran will only succumb if it has no choice.

That analysis could prove correct. The question is whether compromise could not be achieved in a more equitable way that would allow Iran to save face, help put U.S.-Iranian relations on a more healthy footing, avert the potential fallout of relying primarily on a stick, reduce the cost to ordinary Iranians, and remove at an early stage the threat to international shipping. The proof will be in the pudding if and when the threat of a U.S. attack becomes imminent.

At that very last one-minute-to-twelve point, Iran is likely to concede.

Governed by middle-aged revolutionaries with vested interests that have been accumulated in the more than three decades since the overthrow of the shah, Iranian leaders effectively maintain at best a revolutionary façade with their provocative hostility toward the very existence of Israel and their anti-American and anti-Western rhetoric. Traditionally a nation of traders, Iranian leaders, when faced with the real and imminent threat of losing their grip on power or accepting humiliation, will most likely opt for the latter.

Whether that would truly remove the threat to international shipping would remain a question. Anti-Western resentment among Iran’s elite would be deepened. Popular sentiment would be split between those that share that resentment and those that see opportunity in taking advantage of the regime’s weakness. Such developments could make potential change messier, more volatile, and ultimately more dangerous. Alternatively, an international effort to resolve the nuclear issue that is not aimed at weakening Iran could avert the Islamic Republic from turning into a cornered cat that jumps in unexpected ways, thus easing a potential process of change.

I include the threat of cyber warfare as a function of the dispute with Iran. For instance, cyber attacks earlier this year temporarily knocked out a large number of computers related to Iran’s nuclear program, and there were subsequent attacks on state-owned Saudi oil company Aramco and Qatari natural gas producer RasGas. The cyber attacks underscore the emergence of a new battleground with implications that go far beyond the confines of this Insight, including the need to protect critical infrastructure that is owned and/or operated not only by state and public entities but also by the private sector. Potential responses range from hard power attacks against infrastructure to what strategists call “active defense,” or counter cyber warfare. Ultimately, responses will involve multi-sector cooperation and the development of national and international legislation.

Popular unrest in major oil and gas producing nations

Unelected Arab monarchs of oil and gas producing states pride themselves on having so far largely managed widespread discontent bubbling at the surface with a combination of financial handouts, artificial job creation, social investment, and repression. In the cases of Jordan and Morocco, both countries resorted to elections and a modicum of reform.

Yet, in the shadow of the escalating civil war in Syria, it is politically unreformed monarchies such as Saudi Arabia, Bahrain, Kuwait, Oman, and Jordan in charge of increasingly liberalized economies that threaten to move into the front lines of the region’s convoluted transition from autocracy to more open societies and political systems. The rulers’ expected resistance to real change at whatever cost poses a potential threat to their ability to continue to produce oil and gas at current levels and maintain the security of international shipping in the region. That risk is heightened by the hostility between Iran and the conservative Arab Gulf states as well as the manipulation of sectarian identities by pitting Sunnis against Shiʿa in Saudi Arabia and Bahrain.

To be sure, the situations in Saudi Arabia, Bahrain, Kuwait, Oman, and Jordan differ substantially from one another. Yet, individually and taken together they feed the worst fear of monarchs and their Western backers: a successful popular revolt in one monarchy will open the door to serious challenges to autocratic royal rule in the rest of the region’s mostly energy-rich monarchies. Spanning the differing circumstances is a deeply felt sense of social, economic, and political disenfranchisement that fuels the discontent in all three nations. This discontent cannot be exclusively addressed by employment of police and security forces, handouts, and social investment.

The facts on the ground deny the notion that Middle Eastern and North African revolts threaten republics rather than monarchies. That is true only if monarchs leverage the one real asset they have: a degree of legitimacy that gives them the temporary benefit of the doubt. That benefit will hold true only if monarchs truly address real concerns rather than hide behind security forces. This is in contrast to the republican leaders in the region who have so far been deposed in part because they had lost all legitimacy and protesters were unwilling to give them a last chance.

So far, there is no indication that Arab monarchies have understood this need for change. Bahrain is a revolt calling for regime change in waiting; Saudi Arabia is heading for a similar fate in its economically most vital region, the Eastern Province;[1] Kuwait is hanging in the balance with the position of the emir increasingly dependent on whether he can credibly demonstrate his sincerity in wanting to root out corruption; and Jordan has said ‘a’ but has yet to say ‘b’ by paying lip service to reform without enacting it and announcing elections on the basis of a controversial election law. The future of Sultan Qaboos in Oman is also uncertain; witness his crackdown on critics who remain unconvinced by initial reforms.

Unwillingness to separate domestic Shiʿi concerns from the interests of Iran is a misreading of a reality in which the Shiʿa view themselves first and foremost as nationals of the states of which they are citizens. That fact was more than evident in the Iran-Iraq war during the 1980s when Iraqi Shiʿa were the ones that fought Saddam Hussein’s war against Iran. The Shiʿa occupy a strategic geography in the Middle East where the region’s energy and water resources are concentrated. 

Addressing their justified grievances, including an end to job and religious discrimination, is key to ensuring energy security and the safety of international shipping. The same is true for Jordan, where the recent discovery of an al-Qaʿida-linked terrorist plot focuses attention on security and threatens to undermine the urgent, equally important emphasis on reform.

The U.S. protective umbrella

Leaving aside the consequences of U.S. military budget cuts, political developments in the Middle East and North Africa are certain to impact America’s security umbrella for the Gulf. Potential conflict with Iran is closely tied to domestic stability in the minds of Gulf rulers. The perception of the Iranian threat is thus one of endangering domestic stability rather than international shipping. 

As a result, Gulf opposition to Iranian nuclear ambitions is tempered by concerns about the possible domestic fallout of military action against the Islamic Republic. In response, Gulf states have responded to Shiʿi unrest with force and to Iran’s nuclear policy by opting for international and regional security arrangements as well as massive arms purchases. Both approaches have so far aggravated rather than alleviated the threats. The Gulf’s newfound focus on nuclear energy raises the specter of a future potential nuclear arms race that would further complicate ensuring energy security and safe international shipping.

The ability of the United States to act as the region’s defensive umbrella by emphasizing defense and deterrence could be affected by a potential eruption of popular discontent in the Gulf. Gulf leaders could prove reluctant to reinforce perceptions that they are out of touch with public sentiment and dependent on the United States in maintaining their grip on power.

This is all the more true given that the United States will have to balance its interests in the Gulf with those in the wider Middle East and the Muslim world, all the more because unrest in Saudi Arabia, Islam’s heartland, will resonate more than events in other Middle Eastern countries across Islamic nations. The most obvious way of compensating for political vulnerabilities would be the expansion of the Gulf’s security umbrella to include the military capabilities of other interested parties such as China and India. Asian powers are, however, years away from being able to provide significant support.

Conclusion

Like everything else in the Middle East, nothing can be looked at in isolation. Threats and opportunities are interlinked. The security of energy and international shipping is determined by a multitude of often equally significant factors, among which those examined above are first and foremost.

This Insight has addressed the fundamentals of current policies and as a result offers few, if any, short-term solutions. Yet, it is one that aims to fashion a potential framework for the creation of a long-term stable environment that could be adopted by cautious, at times tacit, incremental steps. Changing current policies and their underlying assumptions is the equivalent of trying to change the direction of a super tanker in the Suez Canal. The question is not whether disruptions are avoidable but how they can be managed and compensated as part of a longer-term effort to create the circumstances that are likely to reduce fundamental risks.

Contemporary history illustrates that disruptions are manageable. Libyan oil production all but dried up during the NATO-backed rebellion against the regime of Muammar Qaddafi, depriving Germany of one quarter of its oil and state-owned Italian oil company ENI of an even greater chunk. The disruption prompted a delay in the European Union’s imposition of oil sanctions against Syria and a delay for long-term contracts affected by its measures against Iran. The Libyan disruption prompted the International Energy Agency to tap into its reserves—only the fourth time it has done so since its founding in 1974.

Events of the last two years also illustrate the need to plan for a potential post-revolt future in Gulf energy-producing nations. Post-Qaddafi officials made a point of stressing that contractors from countries that supported the ousted Libyan leader or opposed the NATO intervention were less likely to be awarded contracts. The Libyan prosecutor’s office has been investigating possible irregularities in crude sales to oil giants China International United Petroleum & Chemical Co., or Unipec, and PetroChina Co. as part of a broader probe into Qaddafi-era oil deals despite the fact that China was less resistant to Western demands for intervention than it is in the case of Syria.

James M. Dorsey is a senior fellow at the S. Rajaratnam School of International Studies at Nanyang Technological University in Singapore and is the author of the blog, The Turbulent World of Middle East Soccer.


[1] The fact that deep-seated criticism of the Saudi royal family goes far beyond the Shiʿi minority is evident in social media, which has recently shown an outpouring of hard-hitting criticism of the country’s rulers.

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