The next oil crisis (Lawrence Solomon)

U.S. has antagonized former allies in the Middle East. The next time oil runs short, they won’t run to help out

By Lawrence Solomon

The next oil crisis won’t resemble the last. Where once the West could count on most of the Middle East’s oil exporters to rally to its support in times of crisis, today the West can count on none. Where once all in the Middle East understood that American military power would keep the sea lanes open at all costs, today most in the Middle East see the U.S. as a declining, largely impotent power. When the next oil crisis hits, the West will no longer be able to count on the co-operation of Middle East nations to limit anarchy in oil markets and economic convulsions at home.

The last oil crisis, following the West’s loss of Iran in 1979, led to chaos in the West — long lineups at the pump in the U.S. were common, the U.S. printed up coupons in preparation for gasoline rationing, and California actually did ration gasoline. Yet the chaos would have been much worse had Saudi Arabia and other oil producers not intervened to stabilize oil markets. At the United States’ request, Saudi Arabia boosted its output by 30%, and Kuwait and others to lesser degrees, in an attempt to meet the shortfall caused by the cut-off of Iran’s oil. As a result, the shortage in the West during the 1979 oil crisis was a mere 4% — enough to forestall widespread rationing but not enough to prevent massive price hikes and a severe recession.

The Saudi royal family was then willing to help despite the incompetence of the United States, which did much to bring the crisis on the West. Although Iran was seen as a model of economic and social advancement in a largely reactionary Middle East, and had done much to advance the rights of women and religious minorities, an idealistic president Jimmy Carter pushed for more, including a release from prison of Muslim extremists who would later foment revolution. Thinking the Shah’s regime secure — as little as six months before the Shah of Iran would flee, the CIA had assured Carter that Iran was “not in a revolutionary or even a pre-revolutionary situation” — Carter even ratcheted up his pressure with human rights rhetoric.

The rest is history. The Shah fled from Iran in January of 1979. The Ayatollah returned to Iran from exile in February. A referendum in March, to express the will of the people, resulted in a 98.2% vote for an Islamic Republic in which all rights became subordinate to a Supreme Leader observing Koranic law. Iran overnight changed from being one of the most Westernized and secular of Middle East states — the Shah had even changed the calendar to honour Cyrus the Great, the Persian Empire’s founder, rather than Mohammed — to being one of the most Islamist and a gross abuser of human rights. Several months more and Iran became embroiled in an eight-year-long war with Iraq that would claim an estimated 500,000 lives.

Between the 1979 oil crisis and now, when oil markets were jittery or the Western economy needed lubrication, the Saudis and the West’s other Middle East allies could generally be relied upon to boost production to help the West’s economies. The relationship between the West and its Middle East allies has been controversial, and properly so: Some stress that Western military aid has kept Middle East despots in power against the will of their people, some that the Middle East economies advanced less slowly than those elsewhere, some that Western dependence on Middle East oil hurt the West’s own economies. Regardless of the merits of the arguments, one thing is indisputable: Much good will and respect reigned between the leadership of many of the Middle East states and the West.

That good will and respect is no longer in evidence. In 1978, the United States did not realize it would be helping to topple the Shah — it merely pushed for reforms in what it saw as altruistic steps toward democracy. This was not the case with Egypt’s Mubarak, whom the United States knowingly helped push out despite his 30 years of loyalty, with no attempt to as much as save face. America’s high-handed treatment of a long-time loyal ally so outraged King Abdullah of Saudi Arabia that he reportedly dressed down President Barack Obama in a heated telephone exchange. To make clear to the Arab world where he stood, and what he thought of Obama’s conduct, the king then had his aides describe his confrontation with Obama to the press. To punctuate his opposition to U.S. policy, Abdullah even decided to counter the U.S. threat to deny Egypt its annual subsidy of US$1.3-billion, by vowing to replace any funds the U.S. withdrew. King Abdullah could do no less for Mubarak, a close friend as well as fellow potentate — honour and dignity is all-important in the Middle East.

The Saudis, who understandably expect that the U.S. would have like disregard for Saudi dignity should their own regime need support, now believe they are on their own, and have begun to reorient their foreign policy away from U.S. dependence, for example by exploring an accommodation with arch-rival Iran. The region’s other oil producers, who take their lead from Saudi Arabia, doubtless learned the same lesson, along with one other one, too. If the regimes in Egypt and Tunisia, among the region’s least authoritarian, could so quickly fall in the face of demonstrations, those still standing will not invite the same fate by holding their armies at bay while demonstrators muster. Hence the scenes of late in Bahrain, Iran and Libya, where the army and other forces have been quick to attack demonstrators.

As the region flares up, the prospect of a massive disruption in oil supplies looms. It could be caused soon by domestic chaos in an energy-exporting nation such as Libya, or later, should a now West-friendly regime need to appease Islamists by demonstrating a willingness to provoke the West.

Whenever and whatever the cause, when the next oil crisis hits, the Middle East’s oil producers will feel little obligation to do the U.S.’s bidding — to the contrary, they may even want to demonstrate the cost to the U.S. of not having shown them due deference. Those rationing coupons that the U.S. printed in 1979 may yet be needed.

via Lawrence Solomon: The next oil crisis | FP Comment | Financial Post.

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