Oil, America, and World Order
On Saturday, September 14, drones descended on Saudi oil facilities wiping out over 50 percent of their oil production. The attack, claimed by Yemen’s Houthi rebel forces, increases already high tensions in the Persian Gulf between Iran and Saudi Arabia.
The attack on Aramco is, to date, the most aggressive attack to transpire in the four years that Yemen’s war has been raging. It is also the worst attack directed at Saudi oil production since the Gulf War in 1991. It cut the Kingdom’s oil output by 5.7 million barrels of crude — about 6 percent of the global supply.
To put that into context, the world consumes approximately 100 million barrels of oil per day (BPD). Of that 100 million, Saudi Arabia produces approximately 11 million of those barrels. That’s an incredibly high daily consumption rate, and it has nations wondering if the energy security policies they have in place is enough to withstand continuing attacks as bad as the one on the Saudi’s.
Energy Security
The International Energy Agency (IEA) defines energy security as, “the uninterrupted availability of energy sources at an affordable price.” On a general level, it is defined as having access to sufficient supplies at a reasonable price. Access, supply, and affordability are the three pillars of strong energy security policy. Countries in which a significant proportion of their revenue is from oil, known as security of demand, should also be included in our definition of energy security.
Scholars have extended this definition further though, redefining the term to include the ability of nations to be energy secure without exerting undue force, both militarily and/or diplomatically. It begs the question, can we consider a nation energy secure if it has to go through such lengths to gain that security? If states were truly energy secure, they wouldn’t be so vulnerable to political shocks in oil-strategic parts of the world (sound familiar?).
With the exception of World War II, most countries don’t wage war for the sole purpose of gaining physical control over energy resources. But fear of a destabilized balance of (oil) power has the potential to instigate conflict. As a case study, consider Iraq’s invasion of Kuwait:
There is little evidence that America’s involvement in Iraq was due to commercial interests. But there is a strong case that America’s involvement in Iraq was strategic, to curb Saddam Hussein's increasing control over the global oil supply. Once Iraq seized Kuwaiti oilfields, it held 19 percent of global oil reserves. Had he continued his conquest into Saudi Arabia, as many feared, he would have held 44 percent of oil reserves. The implications would have been severe; so the Coalition of the Gulf War, one of the largest international alliances the world has ever seen, pushed back Iraqi aggression — all to maintain the current geopolitical order.
As Gregory Gause aptly points out,
“One does not need to be a rocket scientists to know that oil is why the outside world cares about the Persian Gulf.”
Had Hussein gained control of Saudi oil in addition to Kuwait’s, he could have blackmailed a majority of neighboring countries into submission by destabilizing international oil prices — having consequential effects on the global oil markets. American allies would feel increasing pressure to align themselves with Iraq, completely altering the world order.
Energy AND Security
Energy security plays a major role in energy and security dynamics. Availability and accessibility of energy resources will determine what lengths nations are willing to go to in order to gain energy security. By the same token, nations with high volume energy exports will be less risk averse. Their willingness to break rules without fearing repercussions is higher because victims of aggression are less willing to alienate an oil-rich nation.
Conflict as a By-Product of Resource Competition
Friedman’s First Law of Petropolitics posits that high oil prices embolden high-producing nations to engage in increasingly confrontational foreign policies. ‘Petrostates’ — states in which 10 percent of GDP is revenue from net oil exports — engage in militarized interstate disputes (MID) 50 percent more frequently than non-petrostates. Why might this be? Oil is a highly contestable resource; it can be captured through conquest, and makes an oil-rich state a more appealing target.
Take the South China Sea as an example. Chinese military dominance in the region is not random; the South China Sea holds 11 billion barrels of untapped oil and 190 trillion cubic feet of natural gas. China is stomping out claims by Taiwan, Vietnam, and Malaysia, among others, by building artificial islands in the region and military bases on the Spratly Islands.
Oil also produces security dilemma dynamics. Revenue generated from oil exporting states can finance large, sophisticated militaries. Military amassment, no matter the intention, poses an inherent threat to neighboring countries. While this can be mitigated through a signaling of intent, it is difficult to discern in oil-exporting states, as they tend to be less democratic.
Alternatively, as briefly mentioned earlier, oil-exporting states may be less risk averse because they anticipate little punishment for hostile behavior. Because oil is a strategic resource, major powers have incentives to keep the supply line open and clear while avoiding major conflict that could threaten global oil prices and security. As a result, oil-exporting states may be more casual with threats of force — especially against non-exporting nations.
The value associated with a particular issue will determine the lengths at which nations are willing to commit costs to conflict to achieve their goals. Energy is a salient interest for every nation. The higher the prices, the more salient the interest. This occurs for one of two reasons: 1) higher prices increase the value of ownership, making oil-rich countries more appealing targets, and 2) the international dynamics caused by major power’s dependence on energy imports is greater when prices of oil are higher.
Oil states are 30 percent more likely to be involved in MIDs when oil prices are $60 per barrel than when they are $20 per barrel.
Oil in Authoritarian Regimes
The dynamics mentioned above will embolden different types of leaders. Leaders of oil rich states have the potential to buy out opposition and increase military capacities. This is not to say that all leaders of oil-exporting states are like that, many are happy with their position in the international order such as Saudi Arabia, the UAE, and Nigeria. But for some, dissatisfaction born from feeling cheated by the international order can lead to revisionist ambitions. Revolutionary leaders — those who come to power by force and attempt to change current political and economic relationships, both domestically and internationally — are more likely to use force to resolve interstate disputes. By extension, revolutionary governments in oil rich states have the means to engage in hostile activities, and findings suggest they do engage in MIDs more frequently.
Revolutionary-led oil states are dispute-prone across all oil prices*, compared to other oil-exporting states whom are more dispute-prone than non-exporting states at prices above $70 per barrel. In the dataset above, revolutionary leaders account for 1 percent of all leaders, but 30 percent of the most aggressive in the sample.
‘Coercive Diplomacy’
Due to the overwhelming interest nations have in maintaining energy security, ‘coercive diplomacy’ has been leveraged to roil markets to the advantage of pertrostates. The tightening of global oil supply for a petrostates political gain pushes up prices and challenges the international economy. The 1973 Arab oil embargo is a strong example of circumstances conducive to using energy as a political weapon. In general though, energy as a means to exact political gains is less effective — it is dependent on the international market for energy, characteristics of the state, and the willingness of the producer to damage its own market by withholding. The result of ‘coercive diplomacy’ with energy resources is a higher global price, rather than damage to the single, targeted state.
While this type of ‘coercive diplomacy’ is often associated with oil producing countries, it has also been used by oil importers. States with large oil-imports can leverage their spending to incentivize exporting states to change their policies. The willingness of importing countries to forfeit their energy imports from a particular source for political gain can be seen as an importer embargo. But, again, these types of ‘coercive diplomacy’ methods don’t usually work, as the exporter can generally find a different destination for its oil.
‘Coercive diplomacy’ seems to work well in multilateral efforts. While the action of a single nation against another may not have a substantial political effect, sanctions on oil imports harm the producer when they frustrate non-sanctioning countries’ ability to purchase oil from the target.
What American Oil-Independence Means for the World
The international oil market has influenced American foreign policy for decades. The US has played a significant role in oil markets, not only as a major consumer, but also as the current largest producer in the world. As of 2018, the US became the largest oil producer, surpassing Saudi Arabia and Russia, at over 11 million BPD. US oil production has doubled since 2008, then at 5 million BPD, and is responsible for 98 percent of the global oil production increase in 2018 — a 2.18 million BPD increase out of the 2.22 million BPD increase, globally.
Circling back to the recent events in Saudi Arabia, America’s role following the loss of the Kingdom’s oil was atypical: Trump authorized the release of America’s Strategic Petroleum Reserves (SPR), if needed, to compensate for the dip in production. This move promotes America’s increasing dominance as a new geopolitical power in the space, but also juxtaposes US oil independence against a market-altering production shock — something that would have had the US scrambling just a decade earlier.
This is a huge change from US geopolitics in the past. Between the 70’s and early 00’s, America’s dependence on foreign oil was increasing, especially from the Middle East. By 2007, President Bush had passed the Energy Independence and Security Act, hoping to curb foreign oil-dependence, and one short year later oil prices peaked at $148 per barrel.
America’s ‘Energy Renaissance’ arrived in 2009. Long-lateral horizontal wells and hydraulic fracturing or ‘fracking’ has led to the harvesting of oil in America that was not economic before. This allowed the US oil market to grow substantially in the past decade, shifting the geopolitical order of the world significantly. While America still imports approximately 10 million BPD to meet its consumption, its approach to oil independence has granted a new position in the global order. While true oil ‘independence’ is still somewhat fiction, American reliance on Middle Eastern oil is minimal; today, the US primarily receives its oil from Mexico and Canada. This, for America, is the independence it needed.
“America’s energy revival is not only good for growth, it offers new buffers against the coercive use of energy by some and new opportunities for helping others…” — National Security Strategy, Obama Administration
The US has been yearning to achieve energy dominance for decades. Trump believes the US has finally made it there, and that’s important. Energy dominance, rather than independence, allows for a new foreign policy as the US assumes its position as a major power in the geopolitical order. America’s significant increase in oil production, and dominance over natural gas, can now be leveraged in greater policy strategy. Not only does it shift US bilateral relationships, but its energy security allows production to work as a ‘shock absorber’ that can shield markets from geopolitical incidents without damaging the overall economy (sound familiar?).
As America’s geopolitical power increases, it will be interesting to observe how it wields its newfound influence on the international stage. The exponential rate of growth in US oil markets has not left much time for policymakers to adapt, but it will be critical for America to grasp its new influence in its nascent stages. The US has the opportunity to capitalize on its energy abundance to the benefit of itself and its allies. Complacency in utilizing this strategic and unique moment in history will be lamented by future leaders if it is not engaged to reestablish the geopolitical order, today. Maximizing the opportunity this rate of growth has presented can alter the direction of American foreign policy.
Special thanks to Carolyn Kissane, who inspired this article and continues to be a leading expert in energy politics.
