The Energy Security Scenario: Focus on the Middle East

-G.D. Bakshi, Indian Army


Middle East: Keystone in the World Security Edifice

The Middle East region is the keystone and centrepiece of the world's energy security architecture. The reason is simple. In 1986, the Middle East as a whole, accounted for 46 per cent of the total oil imports of the Organisation for Economic Cooperation and Development countries (OECD—USA, Europe, Canada, Japan and Australia). It had 85 per cent of existing spare production capacity. To understand the key role that this region plays in the world's energy security scenario, it would be essential to go back a little into its recent history.

From the 1930s onwards, American and Western oil firms (primarily the Standard Oil Company of California, now Chevron) had started developing the Saudi oil fields. From the 1930s to the 1960s, the international oil market was controlled by a loose international structure. Seven integrated oil companies (known as the "seven sisters") controlled the exploration, development, refining and marketing of oil on a world- wide basis. By regulating oil production in the oil exporting countries which they controlled, they were able to direct cyclical changes (changes in demand arising from changes in pricing within the international market).

The Structural Turning Point

As per Japanese experts like Yasushi Matsuda (writing in Energy Security to 2000: Energy Paper no. 23); a major structural turning point came in 1970, when US oil production reached its peak. This meant that the US ceased to have surplus capacity capable of supplying its allies when the flow of oil was interrupted for political reasons (e.g. the Suez Canal crisis in 1956 or the June 1967 Arab-Israeli war). Thus, the contours of American and Western vulnerability to the "oil weapon" began to emerge.

The relative strength of the oil companies and the governments in the oil producing countries was abruptly reversed and during the 1970s the Organisation of Petroleum Exporting Countries (OPEC) acted to remove the control of oil resources from these vertically integrated companies. The world got its first oil shock in 1973 during the Yom Kippur war between Israel and its Arab neighbours. The OPEC countries realised the value of oil as a strategic weapon. The swift rise in the prices of oil caused a worldwide recession. For the first time it drew attention to the finite nature of the world's oil reserves and the widespread economic destabilisation any disruption of Middle East oil supplies could cause. By the late 1970s, both pricing and production were no longer determined by the oil "majors" (the big seven Western oil companies).

The First Oil Shock

This created alarm in the West in the 1970s. It led to a series of energetic steps in the OECD countries to reduce oil dependence. These steps included increased reliance on coal (as opposed to oil) for power generation. OECD dependence on Middle East oil declined from 25 per cent of the Total Primary Energy Requirements (TPER) in 1973 to 13 per cent in 1984. The US imports (which stood at 6.3 million barrels per day (mbd) in 1973) had first tempted the Arab states to use the oil weapon. Subsequently, this figure had shot up to 8 mbd. However, due to energetic energy conservation steps this declined to 5.1 mbd in 1985. Similarly, Japan's imports of Middle East oil declined from 5.6 mbd to 4.6 mbd. The third factor in reducing OECD oil dependence was the development of the North Sea oil fields of the UK and in Norway. West European oil production rose to 3.3 mbd in 1984. Both the UK and Norway became net oil exporters. The oil shock gave a tremendous fillip to research and development in alternative and renewable sources of energy (this was possibly its most beneficial long-term impact). In the meanwhile, the quest for alternative conventional energy solutions, to include the liquification of coal and the use of natural gas (LNG) was commenced. Thus, coal requirements grew from 13.2 mbd of oil equivalent (mbdoe) in 1973 to 16 mbdoe in 1984. This pushed up coal's share of the Total Primary Energy Requirement from 18.6 per cent to 21.6 per cent. The fourth factor was the push given to nuclear power generation. The percentage of electricity generated by using nuclear power in the OECD countries rose from 4.4 per cent in 1973 to 17.9 per cent in 1984 and was targeted to rise over 25 per cent by the year 2000. The share of oil in electricity generation in the same period fell from 25 per cent to 10.5 per cent.

The Crash of 1986: The Oil Glut

All these cumulative measures sought to put tremendous pressure on the OPEC cartel and oil prices. Oil prices had risen to a crisis peak of 34 dollars per barrel in February 1981. Spot prices led the rise and peaked at 4.5 dollars per barrel in November 1979 and November 1980. These 30 dollars per barrel prices had caused a worldwide economic recession and greatly depressed the demand for oil. From the year 1981 onward the nature of the oil market began to change dramatically. The OPEC had laid down production quotas. The OPEC countries, however, were now losing oil revenues. In an attempt to stem the fall of these oil revenues, the OPEC countries constantly exceeded the share of production allotted to them in the OPEC meetings. Experts believed that natural market mechanisms now began to operate to stabilise the oil prices--for oil had become a commodity like any other.

Saudi Arabia has been one of the swing producers of oil and the prime centre for the control of the oil price mechanism. In the summer of 1985, Saudi Arabia abandoned its policy of restricting exports because as the swing producer it was suffering the most. The shock of lowered economic revenues was beginning to pinch badly. Saudi oil production had fallen as low as 2 mbd in the third quarter of 1985. The Saudis now abandoned their role as market stabilisers and announced that they would carry out a price offensive to regain market share. This virtually led to a collapse of OPEC's ability to control the international oil market. (This almost signalled a return to the pre-1930 period when the international oil cartel had been established.) The crash of oil prices in 1986 now was phenomenal:

In January 1986, it was 27.77 dollars per barrel.

In April 1986, it fell to 16.46 dollars per barrel.

In August 1986, it fell to a record low of 10.34 dollars per barrel.

In the long-term analysis, this oil crash of 1986 may have an even more destabilising impact upon mankind's future than the oil shock of 1973. The USA has a special relationship with Saudi Arabia. In fact, the USA and Saudi Arabia jointly have set the agenda for the world oil price regime by engineering this oil glut. The oil glut was welcomed all over the globe for it led a way out of the global economic recession. The price of Middle Eastern crude oil collapsed. Indigenous production of oil in the USA and Europe was no longer competitive when compared to the cheaper Middle Eastern oil. As a result, the OECD share of Middle Eastern oil began to grow by leaps and bounds again. Thus:

In 1985, it was 37.7 per cent.

In 1990, it was 41.5 per cent.

In 2000, AD it is expected to be 49.6 per cent.

By the year 2000, the condition for revival of the OPEC cartel will be complete. The American, Western and Japanese oil dependence on the Gulf will have increased to levels far higher than those obtaining in 1973 when the first oil shock was administered.

The oil glut may have more terrible long-term consequences than the earlier oil shock. For a start it has made all research and development into alternative energy sources economically unviable. The short-term gains of an immediate economic revival and end to the recession have blinded all nations to the accelerated pace of the oil drain out. The oil reserves are finite. The acceleration in their pace of use due to the drastic lowering in prices is going to bring the final "drain out crisis" that much closer and faster. The increasing over-dependence on the Middle East oil brings into sharp focus the volatility of the region and the enormity of the crisis that any sudden, non-linear political changes in the Middle East can unleash. The sudden collapse of the Soviet Union had eroded the strategic leeway/leverage of the Middle East states. Their freedom of action was based upon the stand off between the two erstwhile superpowers. A unipolar power equation has almost revisited the colonial mindset upon the Middle East. The quest for short-term economic gains is setting the stage for a long-term catastrophe in the sphere of energy security.

As the USA steadily turned Saudi Arabia to surrogate status to further its energy security strategy and firmly take control of the world oil price regime, it deliberately crafted a policy of political and military control of the Gulf region, to keep the oil glut flowing. As prices crashed, OECD dependence on Middle Eastern oil expanded. The American Central Command, a large scale rapid deployment force especially configured to intervene in the Middle East was established in the Carter era. Ostensibly designed to check any Soviet incursion into Iran or the Gulf (post-Afghanistan), its actual purpose was to intervene forcefully to arrest any major political change in the Gulf region that would threaten the oil price regime. Consequent to its enhanced dependence on Middle Eastern oil, the USA had opted for a military power projection capability to safeguard its source of cheap oil. The major oil interests and oil industry giants in the West have dictated this geo-political agenda. The Middle East was now crucial to Western prosperity and the USA was prepared to shore up its economic interests by outright military intervention if need be. The obvious pitfalls and long-term dangers of oil as an energy base for the industrial civilisation were swept aside. All development of alternative and renewable sources of energy was put on the back burner for short-term economic gains and profits. The Western consumerist life-style characterised by conspicuous overconsumption apparently has become an end in itself. It had to be preserved and perpetuated, whatever its long-term ecological or political consequences. The Western energy security strategy now acquired clear-cut and distinct military overtones. The instruments of military intervention were perfected and put into place under the fig leaf of countering a hypothetical Soviet threat to this region. The only threat to this region, however, was from within.

The Gulf War, 1991

The politics of the oil price war spawned the Gulf conflict of 1991. Iraq had emerged as a strong regional military power after its exhausting war with Iran. Crushed by its wartime economic debts and burdens, it was keen to increase oil prices to hasten its economic recovery. Saudi Arabia and Kuwait resisted its attempts to hijack the oil price agenda with considerable Western backing and support. An exasperated Saddam Hussein showed little patience. After sounding the Americans, he simply invaded Kuwait. The threat posed to the American-led energy security regime was palpable and direct. With the USSR in its terminal throes, the Americans responded in a superb military fashion. CNN-crafted images deluged the world media channels and painted Saddam Iraq as a rogue state and aggressor nation. An impressive international coalition was drummed up. All the OECD nations contributed troops or paid up in cash. Low priced Gulf oil had helped lubricate economic recovery all over the world, and there were far too many nations with an economic stake in continued flow of low priced oil from the Middle East. The rest is history. Saddam realised the enormity of his mistake a little too late. He suffered a disastrous military defeat but managed to survive politically. By direct military intervention, the West had regained total control over the Middle Eastern oil reservoir and now were in total command of the guiding mechanisms of the world oil price regime. Between the USA and Saudi Arabia, the oil glut was engineered and controlled. The so-called theory of market mechanism bringing down the oil prices is a pure myth. The fact is that Western (OECD) oil dependence on the Middle East is now more comprehensive than ever before and has necessitated a purely military response to enforce the existing oil price regime.

Saudi Arabia: Pivot of the Oil Market

Saudi Arabia is the pivot of the international oil market. As the swing producer, it has for decades helped the United States manage the international oil scene. It was the leading host nation for the assembly of the coalition forces that trounced Iraq in 1991. As Dr C. Raja Mohan writes," Since the Gulf War of 1991, the American strategic commitment to defend the increasingly vulnerable regimes of the Arabian Peninsula has become deeper and more visible Discarding the traditional policy of maintaining military presence over the horizon, the United States has scaled up its military deployments in the Saudi Kingdom as well as in the other Gulf countries. This has made the American military installations and facilities prime targets of terrorist attacks in the region. The United States is so deeply involved now in protecting the Saudi regime that it is unlikely to back down any time in the near term future."

As the US reiterates its political determination to defend its allies in the region and insists upon deepening its containment of two of the largest nations in the Persian Gulf (Iran and Iraq), tensions in the region can only be expected to multiply. Problems are becoming acute else- where in the Gulf, particularly in Bahrain (the HQ of the US 5th Fleet and Naval Forces in the Middle East). In recent months, Bahrain has witnessed unprecedented incidents of street demonstrations, bombings and arson from a dissident movement clamouring for political and economic reforms. Dr C. Raja Mohan asserts that the Gulf Kingdoms are coming under growing pressure from radical political Islam.

The Iran Model

Currently Saudi Arabia, therefore, is the prime Western surrogate for the existing strategic control of the Gulf region and of the world oil price regime. America has once again demonstrated its intentions of intervening militarily to sustain its dominance of this region. In Operation Desert Strike, it unleashed Tomahawk cruise missiles against targets in Southern Iraq in September 1996. Conventional force solutions for the Middle East have been credibly demonstrated in the recent Gulf war. The Gulf region provides ideal terrain for the implementation of Air Land Battle doctrines of conventional conflict. But what about sustained and enlarged Low Intensity Conflict that could flare up from within the region? The conventional force structures had proved totally inadequate to control Vietnam or keep its population under sustained political subjugation or control.

Iran was once the prime American surrogate in the Gulf region. The Shah had taken upon himself the role of the Gulf policeman. The way that domino fell is still fresh in our memory. An internal upheaval, a popular explosion simply swept away the Shah, the SAVAK and all those elaborate structures of domination and control. Purely from the military point of view, Western Armies can get away with short, swift and decisive conventional campaigns against regional Gulf powers. They are not in a position, however, to enforce prolonged military occupation in a typically colonial mode. No amount of Tomahawks can replace or obviate a sustained on-ground military presence. It is this facet which is extremely doubtful in the Gulf context. Today, can the West sustain a prolonged military presence in a hostile Gulf? The threats to the energy security regime in the near future are likely to emerge from within the Gulf itself. They are likely to assume a Low Intensity Conflict format which the West has always found difficult to counter

Stability of the House of Saud

The key question in the world's energy security scenario, therefore, hinges upon the political stability of the house of Saud. The following facts bear scrutiny in this regard:

(a) The Institute of Strategic Studies, London, pointed out in its strategic comments that "the current Islamic opposition movement has gained momentum since the Gulf War. It is made up of various branches, including loosely organised underground militant groups trained in Afghanistan and apparently responsible for the latest terrorist upsurge in Saudi Arabia."

(b) There were two car bomb explosions in Riyadh and Khekhar (near Daharan) on November 13, 1995, and June 25, 1996. There have also been other attacks on US military establishments.

(c) Mohammad Al Masari, the leader of the Saudi Opposition is currently in Afghanistan. The Saudis bankrolled fundamentalist Islamic groups for Jehads in Afghanistan and Central Asia. Some of this export contagion is now coming home to roost.

(d) To a large extent the current crisis has originated from, and been triggered off, by the Gulf war. The traditional Saudi security policy shaped by King Ibin Saud and his son Crown Prince Fahd early in the 1950s was based upon acceptance of US military protection stationed "beyond the horizon" for use in an emergency. A permanent US military presence or a pre-positioning of arms was vehemently rejected as an infringement of Saudi sovereignty. This policy changed radically during the Gulf war when over 500,000 foreign troops operated from bases in Saudi Arabia. Subsequently, a limited Western military force remained to enforce the implementation of the UN Resolution on Iraq and to ensure the stability of the Gulf Emirates. It is this foreign presence that has given a fillip to traditional Wahabi fundamentalism as characterised by Saudi Opposition leaders like Mohammad Al Masari and Salman-Al Awda of the Central Najd region. The current opposition is centred in Burayada, capital of Al-Qassim province to the north of Riyadh.

(e) King Fahd suffered a stroke in November 1995. His annointed successors, Crown Prince Abdulla and his half brother the pro- US Defence Minister Sultan, are fairly advanced in age. Consensual politics in the house of Saud could break down and result in a succession struggle which would have a highly destabilising impact on the country.

(f) The major reason for the current unrest is also economic. With the decline of oil revenues from 1982 onwards, the liberal Saudi welfare policy ran into difficulties. Between 1987 to 1995, there was a decrease of almost 50 per cent in the Gross National Product (GNP) per capita as well as the exhaustion of almost all the $115 billion in liquid foreign exchange reserves.

(g) Demographic changes have doubled the population over the past 30 years and strained the government's capacity to continue with its benevolent welfare policy.

The cumulative effect of these changes, the destabilising cultural impact of the presence of foreign troops on Saudi soil, the rise of radical Islamic politics and fundamentalism (especially as a reverse contagion from Afghanistan), the fall in oil revenues, the decline in GNP and the doubling of the population are all likely to engender instability and turbulence that could force Saudi Arabia to emerge from its time warp. The situation is hardly as serious as it was in Iran just prior to the revolution, but the destabilising impact of sudden political changes (brought about by assassinations and terrorist strikes) cannot be ruled out. The short and long term prognostications, therefore, are grim.

The juxtaposition of the greatly enhanced OECD oil dependence on Gulf oil, with the revival of fundamentalist restiveness could result in a situation where sudden/violent political changes in the Gulf could completely derail the existing energy security regime and administer a second oil chock. The military power projection capabilities of the USA were amply demonstrated in the Gulf war and are adequate for a short- term conventional military conflict. American forces, however, are not geared to enforce a long-term occupation in support of a threatened regime. An Iran style fundamentalist revolution in the Gulf Arab states would generate a serious low intensity conflict situation which the existing American force architecture is not designed to counter for any length of time. Prolonged occupation/garrisoning could be made very costly by continual terrorist attacks that could seriously erode the political will to stay on. Lebanon and Somalia are clear illustrations of this lack of political will on the part of the Americans for any Vietnam style quagmire.

The Scenario

At this stage, therefore, it would be essential to juxtapose the mega trends of the Middle East, to understand the likely nature of politico-military threats that could egulf this region:

(a) The first oil shock of 1973 led to a deliberate reduction in the dependence on Middle Eastern oil, and gave a tremendous fillip to oil conservation strategies.

(b) The first oil shock also guaranted a worldwide economic recession.

(c) Oil prices spiralled till 1986. That year there was a "reverse oil shock" and oil prices crashed dramatically. With this oil glut, the world economy surfaced from its phase of recession.

(d) In 1991, the coalition of nations led by the USA, fought to cripple Iraq and its attempts at hijacking control of the Middle East oil price regime.

(e) Consequent to the Gulf war of 1991, the USA and Saudi Arabia now firmly control the world oil price regime.

(f) As a consequence, the Western countries dependence on cheap Middle Eastern oil is growing exponentially. In 1985, it was 37.7 per cent. In 1990, it reached 41.5 per cent and by the year 2000, AD, it is likely to be 49.6 per cent. It is in this phase that East Asia's oil demand will also soar dramatically. We now have a crucial dependency scenario. Both the West (OECD countries) and the Asia-Pacific Rim countries will become heavily dependent upon the outflow of cheap oil from the Middle East. As this finite resource drains out rapidly, the competition for its control is likely to become intense and fierce.

Extrapolating from current mega trends and regional socio-metric analysis, it is in this period that the internal political stability of the Gulf region is likely to become most volatile and vulnerable. Any sudden, non-linear political changes in the Middle East, therefore, would have the potential to administer a second oil shock and send the world economy into a dangerous tail spin. Nations whose dependence on cheap Middle Eastern oil outflows has become critical, would have little hesitation in resorting to military means to safeguard their access to these resources. A simple event like a political assassination in the Gulf could well trigger off unpredictable consequences. Let us not forget that it was a single assassin's shot at Sarajevo that triggered off World War I. Given the growing dependency of the West and of East Asia on the critical reserves of Middle Eastern oil, all these nations would become hypersensitive to any sudden/non-linear political changes in the Middle East.

The looming tragedy lies in the fact that the events in Saudi Arabia could easily become linked to the consequences of the Islamic Jehad in Afghanistan. This Jehad let loose the largest consignment of light weapons and small arms into Islamic societies. The tremendous fillip given to Islamic fundamentalist ideology by the Afghan war could well come back to haunt one of its prime financiers. The doubling of the Saudi population in the last 30 years and the severe erosion of oil revenues could combine to generate instability in the Middle East. The world's oil security then could become hostage to any political crisis in the Gulf. The chances of such a crisis are increasingly on the rise. So are the chances of a last Western crusade, a last ditch rear guard action of the Industrial Civilisation to avert the march of time. A quick mechanised crusade (a la Desert Storm) would be an altogether different proposition. A long-term low intensity conflict situation, however, could prove to be the nemesis of the West. As events in Iran have clearly demonstrated, the West would have no answer for such an uprising/revolution. A Western military crusade that is over-reliant on air power could at best, impose delay on the unfolding of such political events. Discontinous political changes could usher in a second oil shock and send oil prices spiralling upwards. The major epicentre and locus of the terminal crisis of the Industrial Civilisation, therefore, is likely to be in the Middle East. Today there are far too many sources of destabilisation in that region, namely:

(a) The Arab-Israeli dispute which could spiral out of control over the Palestine question.

(b) Islamic fundamentalism, anti-colonialism and radical Islam could sweep aside the existing order in many Middle Eastern states.

(c) The Shia-Sunni cleavage premised upon the Arab-Iranian civilisational clash could be yet another source of instability.

(d) Currently the greatest source of destabilisation could be premised on the immortality or otherwise of the house of Saud and other Gulf Sheikhdoms.

The Military Demand Picture

Keeping in view these threats to stability in the Middle East, it may be pertinent to point out that the Gulf war of 1991 may well turn out to be the last successful Western crusade. The reasons are simple. There has been a considerable scaling down of US armed forces since the Gulf war. Today the Americans do not have the force levels to match their deployment of 1991. The American shipping fleet (which is the basis of the power projection capability) is also going to decommission a large number of ships by the turn of the century. So far, there is no talk or sign of replacement. A downturn in the American sea lift capability could seriously erode the power projection abilities of the USA. Besides, when the nature of the threat is low intensity conflict, the relevance of large conventional forces comes into question. The Gulf war of 1991 saw a very propitious set of circumstances that may be impossible to replicate. The first oil shock had unleashed an economic recession. The oil glut of 1986 reversed this recession and was a short-term solution that was welcomed globally. Iraq threatened this economic reprieve and the world needed little persuasion to gang up against it. These who did not contribute troops, contributed cash. And so the world's (and in particular the OECD countries') dependence on Middle Eastern oil has grown by leaps and bounds since then. So has the vulnerability of the world's economy grown in tandem. It is hostage to any sudden political crisis in the Gulf. The investment in the arming of fundamentalist Islam in Afghanistan to simply spite the Soviet Union, may at any time come back to haunt the architects of this tactical alliance with fundamentalist Islam. Saudi Arabia itself was the chief financier of the covert Islamic Jehad in Inner Asia. Today Afghanistan has become the Lebanon of inner Asia. It is awash with millions of small arms and the ubiquitous Kalshnikovs. Already some of these weapons, skills and holy warriors are coming back to haunt the Middle East. The recent terrorist upsurges in Saudi Arabia are grim warnings of violent political changes that could unleash a second oil shock. A second oil shock could have disastrous implications for the artifically revived world economy. Conflicts centred over the stability of the Middle East may well create cracks in the Western Alliance that currently spans the Atlantic. These countries have become far too dependent on the outflow of cheap Gulf oil to risk its sudden cut off. Which ever way we look at it, the Middle East suggests itself as the prime focal point for a serious global crisis in the 21st century.