It is the geopolitics rather than the economics of energy that will
drive US interest, particularly as it regards efforts to change Iranian
policies, if not the Iranian regime, as well as the longer-term power balance
in the Middle East.
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Posted on: Thu, 02/20/2020 - 13:33
Trump at the White House (Reuters)
Oil may not be the only factor driving a reduced US commitment to
guaranteeing security in the Middle East, but it certainly is one that weighs
heavily in US President Donald Trump’s mind. “Because we have done so well with
Energy over the last few years (thank you, Mr. President!), we are a net Energy
Exporter, & now the Number One Energy Producer in the World. We don’t need
Middle Eastern Oil & Gas, & in fact have very few tankers there…,” Mr.
Trump said in a self-congratulatory tweet. (1)
The timing of Mr. Trump’s assertion that a decade-old, technology-driven
drilling boom had propelled the United States to become the world’s top fossil
fuel producer gave his tweet real meaning even if his claim that the US was no
longer dependent on Gulf imports or vulnerable to oil price fluctuations was
questionable. He was tweeting two days after drones and missiles allegedly
launched by either Iran or Houthi rebels in Yemen seriously damaged two key
Saudi oil facilities. (2)
Coming on the back of Mr. Trump’s failure to respond to the earlier
downing by Iran of a US drone, the sabotaging of tankers in the Arabian Sea off
the coast of the United Arab Emirates, and multiple attacks on US facilities in
Iraq by Iranian-backed militias, the tweet reinforced nagging questions among
Gulf leaders about the reliability of the United States’ longstanding regional
defense umbrella intended to protect against such incidents.(3)
All Roads Lead to Rome
Oil was a factor in an ongoing rethink of US interests in the Middle
East that started already at the time of the Obama administration even if Mr.
Trump’s approach to some form of disengagement differs starkly with that of his
predecessor, Barak Obama.
In contrast to Mr. Trump’s transactional approach and maximum pressure
campaign designed to force Iran to unconditionally renegotiate the fledgling
2015 international agreement that curbed the Islamic republic’s nuclear
program, discontinue its development of ballistic missiles and halt support for
regional proxies, Mr. Obama negotiated the agreement and sought to gradually
return Iran to the international fold.
Transactionalism was at the core of Mr. Trump’s assertion in the wake of
the oil facility attacks that they were ”an attack on Saudi Arabia,
and that wasn’t an attack on us. If we decide to do something,
they’ll be very much involved, and that includes payment. And they understand
that fully.” (4)
Both approaches set off alarm bells in the Gulf. Saudi and UAE leaders
favoured Mr. Trump’s campaign against Iran but worried about his transactionalism.
Nonetheless, both approaches were informed by the re-emergence of the
United Sates as a powerful player in international energy markets even if
statistics failed to bear out Mr. Trump’s assertions of energy independence.
Despite having become the world’s largest oil producer, US production of
some 18 million barrels a day falls just short of the country’s daily
consumption of 20 million. The United States’ requirement for imported oil also
stems from a mismatch between what some US refiners want and what the United
States produces.
Some refiners, including Motiva Enterprises LLC in Port Arthur, Texas,
the US’ biggest facility are part owned by Saudi Aramco, the kingdom’s
national oil company, and set up to accommodate medium and heavy Saudi grades.
Others, primarily in California that depends on Saudi Arabia for 37
percent of its total foreign oil imports, because it lacks pipelines that would
connect it with oil-rich states such as Texas. (5)
Source: U.S. Energy
Information Administration
Much of the US shortfall is covered by imports from Canada. The United
States, nonetheless, acquires an average of 48 million barrels per month of
crude oil and petroleum products from the Gulf region. That is a third less
than what the United States imported a decade ago and roughly equivalent to
what it purchased in the mid-1990s. (6)
Said Jason Bordoff, a former senior director of Obama’s national
security council and founding director of the Center on Global Energy Policy at
Columbia University: “US consumers (and Trump) may yet discover that while the
shale revolution has strengthened the United States’ position economically and
geopolitically, the nation is far from energy-independent: The Middle East
remains critical to oil markets, and disruptions there can still cause pain for
consumers here.” (7)
Source: U.S. Energy
Information Agency
Even if the US would import no oil from the Middle East, it would retain
an interest in ensuring that supply from the region is not disrupted given the
impact that would have on the United States itself as well as its trading
partners.
As a result, a reduced US commitment to Middle East security could
backfire, particularly given that some degree of dependence on oil from the
region is likely to continue in the foreseeable future. That is all the more
true given that domestic US prices will be vulnerable to disruptions in the
Gulf with its significant price-setting influence that impacts not only oil
derivatives, but also other commodities such as corn and soybeans whose prices
respond to movements in oil markets.
Because Gulf producers are state-owned entities rather than private
corporations as in the United States, US leaders have no control of production
levels that influence prices. As a result, energy independent or not, Trump
needs his Gulf and other allies in OPEC to intervene when oil prices rise too
high for US consumers.
Similarly, greater US energy self-sufficiency has in some respects
changed the nature of rather than reduced US dependency on the Gulf. In
effect, the dependency is less economic and more geopolitical.
Source: U.S. Energy
Information Agency
The United States’ use of energy as a weapon in its sanctions-driven
efforts to change policies, if not regimes in Iran and Venezuela relies on Gulf
states to compensate for market shortfalls resulting from US policies. US
sanctions have removed at least 2.5 million Iranian barrels of crude per day
and aim to reduce Iranian exports to zero. The sanctions, without Gulf
intervention, would have sent oil prices soaring.
“A stout U.S. military deterrent to those who might threaten oil and gas
flows from the Gulf does not guarantee stable prices, but it helps reduce the
risk of both damaging spikes and the geopolitical risk premium that markets
generally price-in during periods of instability in the region,” said energy
scholar Gabriel Collins. (8)
Continued dependence does not mean that the United States has not and
economically, strategically and geopolitical from the impact of shale oil.
Increased domestic production has boosted GDP by not spending dollars overseas
and has reduced America’s trade deficit by some US$250 billion. (9)
Higher oil prices have furthermore benefitted US producers and helped
offset price hikes for consumers. Increased US production has also bolstered
global inventories, reduced the impact of supply shocks, forced the
Organization of the Petroleum Exporting Countries (OPEC) to cut production, and
given the United States the kind of flexibility to manage production levels
that traditional producers do not have.
The Future is Complex
Moving forward, energy-driven US interests in regional security not only
in the Middle East but also in the Eastern Mediterranean are likely to be less
shaped by the degree to which the United States may rely on imports and more by
developments in the region itself, including the emergence of the eastern Mediterranean
as a potential gas supplier to Europe, Asia and China; Saudi plans to establish
a natural gas network with the UAE and Oman that eventually would extend to
Kuwait, Bahrain Iraq, Jordan, Egypt and possibly Palestine; and the kingdom’s
intention to massively invest in development of its own gas resources. (10)
The Eastern Mediterranean lurks on the back ground in the war in Libya
with Turkish backing of the United Nations-recognized Government of National
Accord in Tripoli designed to protect a Turkish-Libyan maritime agreement
creating an Exclusive Economic Zone against rebel forces of Field Marshall
Khalifa Haftar, who is supported by Turkey’s regional rivals, the UAE and Saudi
Arabia. (11)
Russia has joined the fray, hoping that a victory by Khalifa, who has
been attempting to capture Tripoli since last April, will thwart a
Greek-Cypriot-Israeli agreement to build a pipeline that would supply gas
to Europe, reducing European dependence on Russian gas in the process. (12)
Critics charge that the maritime agreement that would limit Greek-Cypriot
Israeli access to hydrocarbons in the Eastern Mediterranean, violates the
Law of the Sea. (13)
Throwing the Eastern Mediterranean into the mix raises US interest not
only for reasons of energy security. Israel’s stake in Eastern Mediterranean
gas reinforces the United States’ commitment to the security of the Jewish
state that requires some regional American presence.
Even so, if Mr. Trump believes his own energy independence rhetoric, he
may be blinded to the kind of US influence that will be needed to defend
Israeli interests in the Eastern Mediterranean. Serious strains in US-Turkish
relations coupled with Mr. Trump’s inclination to by and large abandon Syria
and his disinterest in Libya despite having taken a phone call from Mr. Haftar
in April 2019 would suggest that the president has not connect ed the dots.
Tension in the Eastern Mediterranean mounted with two Turkish
exploration vessels, Fatih and Yavuz, exploring in territorial waters belonging
to European Union-member Cyprus, a country Ankara refuses to recognize. Turkey
invaded the Turkish Cypriot north of the island in 1974 and is the only country
to recognize the region’s unilateral declaration of independence. Turkey is
unlikely to be deterred by the sanctioning of two of its officials for
involvement in the exploration in Cypriot waters in violation of international
law. (14)
The Washington-based Center for Strategic and International Studies
(CSIS) cautioned in a report that “the United States needs a holistic and
integrated approach towards the Eastern Mediterranean that will stabilize
Europe and shift the regional balance in the Middle East back towards the
United States. Resolving the Syrian conflict is essential for Eastern
Mediterranean stabilization and developing an appropriate policy approach
toward an increasingly antagonistic and anti-democratic Turkey is the key to
solving the Syria puzzle and re-anchoring the region toward the Euro-Atlantic
community.” (15)
Describing the Eastern Mediterranean as a theatre of big power
competition that threatens US and trans-Atlantic interests, the report, maps
out a detailed strategy for US re-engagement.
The United States, “must make hard choices and embrace realistic goals,
however unattractive, to reinvigorate US diplomatic, economic and security
engagement in the region. This will involve addressing and reconciling
seemingly incompatible US policies towards Syria and Turkey that can only be
bridged through active created and sustained diplomacy backed by ongoing
military engagement,” the report said.
US Oil Growth Projection (EIA)
It Is Geopolitics, Stupid!
Similar to the Eastern Mediterranean, it is the geopolitics rather than
the economics of energy that will drive US interest, particularly as it regards
efforts to change Iranian policies, if not the Iranian regime, as well as the
longer term power balance in the Middle East and Central Asia.
And it’s as much about gas as its about oil. A Saudi push to become a
major natural gas player seeks to take advantage of the US sanctions against
Iran in a bid to turn the kingdom into a gas powerhouse that rivals the Islamic
republic. (16) The push came after Saudi Arabia discovered major
reserves in the Red Sea. (17)
Aramco chief executive Amin Nasser said he expected US$150 billion
to be invested in the Saudi gas sector over the next ten years. Mr. Nasser
envisioned gas production increasing from 14 billion standard cubic feet to 23
billion by 2030.
“We are looking to shift from only satisfying our utility industry in
the kingdom, which will happen especially with the increase in renewable and
nuclear to be an exporter of gas and gas products,” Mr. Nasser said.
“Aramco’s international gas team has been given an open platform to look
at gas acquisitions along the whole supply chain. They have been given
significant financial firepower – in the billions of dollars,” he added. (18)
Saudi Arabia has targeted acquisitions in the United States in an effort
to both boost its position in the gas market as well as US interest in the
kingdom’s stability and also in the Artic.
Aramco agreed in May 2019 to a buy a 25 percent stake in Sempra Energy’s
Texas liquefied natural gas terminal in one of the biggest gas deals ever. The
deal involves a 20-year agreement under which Saudi Arabia would buy 5 million
tons of gas annually from Sempra’s Port Arthur plant, due to begin operations
in 2023. (19)
While the Trump administration looks favourably at Saudi investment,
some analysts are raising red flags. “We simply cannot
hand the quickly globalizing (via LNG) gas market to more risky exporters that often have political goals
that are contrary to ours (to put it politely),” said Jude Clemente of JTC
Energy Research Associates. (20)
The kingdom has also expressed an interest in acquiring a 30
percent stake in Russia’s Novatek Arctic LNG project. (21)Access to the
project’s gas would allow Saudi Arabia to negotiate long-term deals and/or sell
cargoes on the spot market or increase domestic supply.
A Saudi-Russian deal in the Artic would likely not only enhance the
kingdom’s position but also bring Saudi Arabia, a member of OPEC, and Russia,
which is not formally part of the cartel, closer together in their joint
management of global oil supplies.
Beyond investments, Saudi Arabia is seeking to become a force in the
marketing and trading of gas. The kingdom scored an initial success
with the sale in April 2019 of its first Liquified Natural Gas (LNG)
cargo in Singapore, the trading hub for Asia and the Pacific, the world’s
largest LNG market. (22)
Conclusion
US President Donald J. Trump claims that his shale oil has made his
country energy independent. It is a claim that goes down well with a
significant segment of the American public even if the facts do not bear out
Mr. Trump’s assertion in a year in which voters go to the polls to decide
whether he will get a second term.
Increased self-sufficiency has fuelled perceptions that the United
States is losing interest in the Middle East and is likely to reduce its
commitment to the region’s security. Even if US economic interest may lessen,
US strategic interest in regional stability continues to loom large.
The question is not whether the emergence of the United States as the
world’s largest energy producer will lead to its departure from the Middle East
but what consequences it will have coupled with uncertainty among Gulf leaders
about the level of Mr. Trump’s commitment on the region’s future security
architecture.
ABOUT THE AUTHOR
Senior Fellow at the S. Rajaratnam
School of International Studies, co-director of the University of Würzburg’s
Institute for Fan Culture, and co-host of the New Books in Middle Eastern
Studies podcast. James is the author of “The Turbulent World of Middle East
Soccer” blog, a book with the same title and a co-authored volume, “Comparative
Political Transitions between Southeast Asia and the Middle East and North
Africa” as well as “Shifting Sands, Essays on Sports and Politics in the Middle
East and North Africa” and just published “China and the Middle East: Venturing
into the Maelstrom”.
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