In my first article on U.S.-Russian relations I outlined the features shared by the two nations and their peaceful co-existence up to 1917. The second dealt with the issue of Soviet communism and its impact.
In Cold War years, both powers sought control over this vital region and its key resource, petroleum. The U.S. supported Israel, Egypt and Saudi Arabia. Soviet Russia’s influence extended over Syria and Iraq. When a new and radical state – The Iranian Islamic Republic – appeared, both powers sought to limit its influence.
Soviet Russia’s collapse allowed the U.S. full freedom for two decades. It maintained its opposition to Iran and sought to control Afghanistan and Iraq. While successful in the short term, American policies introduced the potential for future instability: artificial borders were maintained, religious enmities flared up, and little of the oil wealth ended up in the people’s pockets. The U.S. public does not relate well to Middle Eastern adventures and their cost in blood and treasure. Yet this is the very point our Middle Eastern “ally” Saudi Arabia has chosen to launch two highly questionable policies.
The first was to unseat the ruling (and Shiite) Assad family of Syria and replace it with a Sunni regime. This has resulted in a three-year civil war, a refugee crisis, and the rise of a number of extremist groups of the kind the U.S. has been fighting for years.
The other was to raise oil production – both its own and OPEC’s – to a point where the global oil price collapsed. The goal here was to increase its market share and pricing power by driving the American “fracking” companies out of business.
Both were huge mistakes. Russia saw its last foothold in the Middle East and its vital oil/gas business threatened by Saudi actions, as well as the opportunity of joining an Iran-Iraq-Syria alliance. Now Russian jets and helicopters, Iraqi militiamen and Iranian advisers are fighting for the Assad government.
Saudi Arabia retaliated by providing advanced weapons to the rebels, turning what looked like a quick Iranian victory into a potential stalemate. Here is where oil comes in.
When Saudi Arabia crashed the price other producers responded by following suit. Oil supply rose by 1.5 to 3 MBPD (Millions of Barrels Per Day) above demand. This surplus could quickly grow:
- Iran intends to expand its exports by 2 million barrels per day (MBPD) as soon as sanctions are lifted.
- Iraq, now pumping 4 MBPD plans to reach 8 MBPD and has the reserves to support that level.
- Potential recession in China could reduce its imports by up to 2 MBPD. Recessions in other major economies are threatening as well.
The global oil surplus thus could grow to 10 MBPD in the foreseeable future. Another factor adds urgency to the issue: storage.
The surplus oil now being produced must be put somewhere. The world’s tank farms are filling up, with growing numbers of full tankers idling at sea or sitting at anchor, waiting to unload. Once storage facilities are full, the price of crude will crash to around $ 20/barrel – a totally untenable situation. This would happen next year, so major players (Iran?) must be giving it serious consideration.
The problem is simple: in order to restore prices (and the finances of producing states) something like 10 MBPD must be taken off the market. “Sharing” the cuts has never worked because everyone cheats. It would be easier if all concerned ganged up on one or two big producers.
Only three countries produce 10 MBPD of crude: the U.S., Russia and Saudi Arabia. The first two will never cut production, so Saudi Arabia is the likely fall guy.
It is also, as oil goes, the sitting duck. Its oil exports travel through two choke points: the Strait of Hormuz, which Iran can blockade; or the even narrower Bab el Mandeb at the south end of the Red Sea. This can be shut from Western Yemen – where Iran’s Houthi allies are already at war with the Saudis.
An Iranian-engineered blockade of Saudi oil exports thus could happen, if push comes to shove. After all, it was the Saudis who initiated the current oil price war. But such situations are unpredictable. The stand-off could end up with the two arch-enemies taking each other’s oil facilities out, creating the biggest energy crisis ever.
This leaves the U.S. and Russia with three options:
- They can back their respective allies, Cold War style… provided they have the stomach for an unpredictable shoot-out in the Persian Gulf (and elsewhere).
- They can sit back and “let happen what may”. A “bad” ending would please Russia as its oil would skyrocket in price. But the U.S. – which imports 6 to 8 MBPD, cannot afford it.
- They can agree, WWII style, and impose a solution, with the tacit or overt backing of China and Japan, who need the oil.
The matter is of the utmost urgency. Time (and storage space for oil) are quickly running out, most likely long before next November’s election. The burning issue (no pun intended) is oil, and more specifically, oil in the Middle East.
While Soviet Russia turned into an enemy of the United States after WWII, its people’s eventual rejection of Marxism has opened the future, and the future might demand cooperation.
Russia has made overtures to the U.S. about cooperating in fighting ISIS. One way to foster cooperation is to find a common enemy. ISIS has conveniently provided a common enemy for such cooperation. Mr. Trump has intimated that he could cooperate with Russia. A national debate on this would be helpful.
Born in Poland, Jacek Popiel was educated in Africa, Canada, and the United States. He speaks five languages. His career spans military and international business development in the Soviet Union, Eastern and Western Europe, North America, and Japan. He is currently a freelance writer and political consultant. His book “Viable Energy Now,” grew out of his military and international business experience and his professional involvement with energy issues.