The great game for Middle East oil
By S.M. Naseem
IN his state of the union address last month, President Bush, besieged by the mounting opposition to his Iraq policy, once again tried to deflect attention from the “mother of all policy disasters” by changing the subject to focus on his domestic promises. Unfortunately, the latter have been as deceptive as his foreign policy pledges which have totally destroyed his credibility.
In particular, his reiteration of the appeal to his country to break its “addiction” to oil was puzzling considering the president’s long-standing links with the Saudi royal family, which depends vitally not only on a steady flow of oil revenues but also on the underwriting of its security.
Those who expected that Bush, after suffering humiliating military and electoral losses, would attempt to assuage the damage to his presidency by making some bold moves towards an integrated energy and environment strategy, were disappointed. Bush and his presidential cabal are too closely hand in glove with oil interests to take such a radical step.
In any case, the American public, spurred on through the promotion of the profligate American dream by corporate interests in the automobile, oil, retail and utility sectors, has hardly paid much attention to the energy-conserving strategy since Jimmy Carter’s exhortation to treat it as the “moral equivalent of war” (or a jihad against oil), three decades ago.
Concerns over alternate energy sources and exaggerated rumours about its impending displacement as a principal energy source notwithstanding, oil remains the most strategic commodity in the world economy. In recent years, the volatility in oil prices has produced conflicting views about the role of oil in the continued expansion of the economy. The recent pullback in oil prices from their August peak has created unwarranted optimism that oil prices will go down. However, informed forecasts show that oil prices have hit a plateau and are poised to move to a higher peak at the slightest hint of a global crisis. The increased demand for oil in the last decade has stemmed largely from the high growth rates of the two large Asian economies of China and India and of other developing economies.
Being a strategic commodity, oil has played an important role in world politics as well. The two major players currently governing the fate of oil are Saudi Arabia, arguably the most influential producer and exporter of oil and the US, the most powerful consumer and importer of the commodity. The US-Saudi economic relationship, which was non-existent until the late 1930s grew rapidly after the discovery of oil by an American oil company and led to the establishment of Aramco and a political and security relationship which achieved salience during the Cold War.
A series of formal and informal agreements concluded by successive US administrations and dating back to 1951 when the Saudis agreed to a defence assistance pact with Washington including a long-term lease of Dhahran airfield and military deployments demonstrated the strong US security commitment to Saudi Arabia. An American official in 1944, declared, “The oil in this region is the greatest single prize in all history.” Six decades, later his words have never been truer. To protect its strategic interests, the Carter doctrine of 1978 affirmed Washington’s willingness to protect the Gulf’s oil supply at all costs, including the possibility of going to war. The 1991 Gulf war was perhaps the first test and application of the Carter doctrine of the post-Cold War era. The 2003 invasion of Iraq was an even more explicit reaffirmation of that doctrine.
The creation of Israel in 1948 proved to be a low point in US-Saudi relations. The Saudi government was under pressure from its Arab neighbours, especially Iraq and Jordan, to withdraw Aramco’s oil concessions as a protest. Both the need for solidarity with the other Arab countries on the Palestine issue and to strike a better deal on oil with western countries weakened its relationship with the US.
With one-fourth of the world’s proven oil reserves and some of the lowest production costs, Saudi Arabia remains the international community’s largest net oil exporter for the foreseeable future and a strategic power which can’t be easily pushed around. Saudi Arabia commands a central place among its neighbours in the region, with an area geographically larger than all of western Europe. Saudi Arabia is the founding member of the Organisation of the Islamic Conference (which incorporates the entire Muslim world), the Arab League, and the Organisation of Petroleum Export Countries (OPEC). It has enormous political and economic influence in the Middle East.
As the “swing producer” of oil for the global economy, Saudi Arabia virtually has veto power over changes in oil prices. Its clout as a global financial power has increased commensurately with its current account surplus which in recent years has far exceeded the combined surpluses of East Asian economies, including China. Oil has thus endowed Saudi Arabia with considerable economic and political leverage. For instance, it could pull the plug on the dollar by convincing the oil market to use the euro as the standard currency for oil deals and trades.
Geographically, Saudi Arabia could block the transport of goods from one Gulf Cooperation Council (GCC) country to another. It could also choose to stop the flow of oil as it did during the Arab-Israeli war in 1973.
Much less likely, it could stop cooperating on counter-terrorism, which would be debilitating to the war on terror, given the Saudi support of orthodox Sunni causes and groups the world over.
However, with oil export revenues making up around 90-95 per cent of the total Saudi export earnings, 70-80 per cent of state revenues and around 40 per cent of the country’s gross domestic product (GDP), Saudi Arabia’s economy remains, despite attempts at diversification, heavily dependent on oil.
Moreover, its internal and external security depends largely on the supply of arms from the US and other western countries, which consume a substantial proportion of its oil revenues, forcing it to play the oil card with great care and caution.
On the other hand, the United States is the largest consumer of oil and despite its declining importance as an industrial power, it is the world’s largest military power and a leading hegemon. America’s growing dependence on oil, particularly as a transportation fuel, makes its relationship with the Middle East crucial and indispensable. Currently, the United States consumes 25 per cent of the world’s oil while possessing only three per cent of its reserves. The Arab world, in contrast, has shown far less dependence on oil even though it possesses a much larger share of global oil reserves. While it has only five per cent of the world’s population, the United States nevertheless consumes 25 per cent of the world’s oil production. Giving up “oil addiction” is, therefore, not going to be easy.
Ties between the United States and Saudi Arabia, took a nosedive after the 9/11 attacks in which 15 of those allegedly involved, besides its presumptive mastermind, Osama Bin Laden, were Saudi Arabian nationals. Despite the best efforts of the Saudi government to come clean on the issue and to cooperate fully with the US in the war on terrorism, it continues to vitiate the delicate relationship that rests so much on the perception of mutual trust, which has continued to ebb in the face of continuing Afghan and Iraqi insurgency suspected of being bankrolled by Saudi citizens.
The Saudi-US relationship is now at a strategic crossroads. Ironically, the American misadventure in Iraq has further increased the importance of oil as well as of Saudi Arabia. The United States is likely to leave Iraq in a state of perpetual civil war between the areas with and without oil and a weak central government. Although Iraqi oil reserves are stated to be second only to Saudi Arabia’s, the absence of peace and a unified central government will make it difficult to exploit those reserves and to rehabilitate the damaged oil facilities.
If the United States is unable to curb its propensity for misadventure and overcome its increasingly hostile stance against Iran, there could be an extended interruption of oil supplies from the Gulf region.
The American strategy now seems to be aimed at dividing the Muslim world along Shia-Sunni denominational schisms. It is openly pursuing this in Iraq. This strategy is, however, a double-edged sword since the majority of the population in Iraq and in America’s worst enemy Iran belong to the Shia denomination, while Saudi Arabia is a predominantly Sunni state, practising the orthodox Wahabi version.
What is more, the Saudis and Sunnis are perceived to be closer to the Palestinian people, notwithstanding President Ahmadinejad’s holding of the holocaust conference in Tehran.
Despite President Bush’s rhetoric against Iran, the United States may reshuffle its Middle East pack of cards and discard Saudi Arabia in favour of Iran and the Shias.
Implausible, as it may sound, this is the course that the influential New York Times columnist, Thomas Friedman, is recommending to Washington policymakers. In his latest column, caricaturing the contrast between Iran and Saudi Arabia, he refutes the common perception that “the most important thing America could do today to stabilise the Middle East is to solve the Israel-Palestine conflict”, and asserts that the most important thing for America would be to resolve the Iran-US conflict.
The great game for Middle East oil is once again being played out.
It is a game in which the leaders of small nations, including Pakistan’s, imbued with vainglorious self-importance, will be used as disposable pawns.
Email: sm_naseem@hotmail.com


