Changing fundamentals of the global hydrocarbon and petroleum trade, popularly known as the “Oil & Gas Market”, will facilitate a realistic and long-lasting waning of geopolitical importance of the Middle East, which may even lead to material disengagement of the United States from the region. This will have a serious geopolitical impact, some of which are already being observed.
1973 Oil Embargo: Where it all began
The pivotal change in the U.S. foreign policy towards the Middle East occurred as a result of the 1973 oil embargo imposed by the Organization of Arab Petroleum Exporting Countries (“OAPEC”) on the United States, United Kingdom, Canada, Japan, the Netherlands, Portugal, former Rhodesia, and South Africa. The Oil Embargo was imposed by the major oil producers to punish the nations that, according to the Arab viewpoint, provided support, military or otherwise, towards Israel during the Yom Kippur War, which broke out over Israel’s disputed occupation of land west of the Suez canal.
Egypt and Syria along with several other Arab Nations launched a sudden attack on Israel on October 6, 1973, on the Jewish holiday of Yom Kippur. Prior to the initiation of hostility, Arab leaders decided to weaponize the supply and pricing of petroleum as a tool of war against Israel and its Western allies.
Six days after the Yom Kippur war, OPAPEC initiated the Oil Embargo, sending the global petroleum market for a roller coaster ride, as gasoline prices at the pump went up 400% globally. The economies of the targetted countries like the United States immediately felt the shock-and-awe of the embargo, as transportation and manufacturing sectors suffered a major blow.
The Oil Embargo lasted for 6 months, co-incidentally concurring at the same time as the 1973-74 stock market crash in the United States. Eventually, the oil embargo achieved its key objective, as Israel agreed to a negotiated settlement and handed over territories West of the Suez Canal to Egyptian control.
However, the oil embargo created an awakening among the United States and its western allies that predictable and uninhibited supply of Middle Eastern petroleum is a crucial national security concern for the countries concerned. This consensus eventually gave birth to a multitude of interventions and adventurism inside the Middle East, often led by the United States, many of which ended up in chaos and destabilizations felt across the globe.
For the sixth year in a row, in 2016 the United States remained the top combined producer of Petroleum and Natural Gas in the world, beating the likes of Saudi Arabia and Russia.
Come 2012: U.S. Became the NET Exporter of Oil
During the Oil Embargo of 1973, the administration of President Nixon initiated a special national security initiative nick-named “Project Independence” with the overt objective of making the United States energy independent by 1980. Establishment of 1,000 Nuclear Power plants, heavy use of coal, the creation of mass transit networks were the backbones of the plan. Unfortunately, energy independence didn’t come by 1980, in fact, gasoline import went up 50% from 1973 to 1980.
The real break came 31 years later from the target date in May 2011, when the United States became a “Net Exporter” of refined petroleum products. Which meant, U.S. by 2011 exported more refined petroleum than it had imported — an unimaginable feat during the days of the 1973 oil embargo.
Thanks to the dramatic and continuous surge in U.S. shale oil production, in 2015 President Barack Obama lifted the domestic crude oil export ban dating back to 1975.
For the sixth year in a row, in 2016 the United States remained the top combined producer of Petroleum and Natural Gas in the world, beating the likes of Saudi Arabia and Russia. By 2017 the United States is expected to become a Net Exporter of Natural Gas as well.
The U.S. government’s 2017 energy outlook report now projects that by 2030 the U.S. will be a net exporter of energy, largely due to the surplus export of Natural Gas extracted from hydraulic fracking. Although the U.S. will continue to import natural oil from overseas well into the future, the amount and reliance on foreign oil will be much less.
Electric Cars and the Boom in Wind and Solar
The United States became a net exporter of petroleum and natural gas at a time when massive improvement in battery technology is making all-electric automobiles and alternative energy sources like wind and solar much more affordable and popular.
For example, Volvo, the Swedish auto giant, has just announced that it will be the first automaker to have electric motors in every car that it makes from 2019 onwards.
France’s two major automakers Peugeot wants to have 80 percent of its produced vehicles to have electric motors by 2023. Renault, another French brand, is already a global powerhouse of electric vehicles.
France and the United Kingdom have established deadlines to stop selling gasoline based cars in their countries by 2040. China, which surpassed the United States as the largest market for automobiles, is contemplating similar bans on gasoline based automobiles.
The United States is already the home for Tesla, the world’s most coveted electric auto brand. Ford, GM, and Chrysler – the big three of Auto are already embarking heavily on the all-electric footprint. Even tech giants like Google, Apple, and Amazon are reportedly working on all-electric, self-driven vehicles bearing their marquees.
By 2017 the United States is expected to become a Net Exporter of Natural Gas as well.
On the alternative energy front, the U.S. broke an important threshold in March 2017 when wind and solar plants generated 10 percent of all electricity produced in the United States for the first time. Wind accounted for 8% and solar contributed 2%. Some estimates suggest the U.S. will produce in excess of 30% of its total electricity production from Wind and Solar by 2030. Combining that with hydro-power, biomass, geothermal, and other renewable sources, it is quite possible that more than 50% of U.S. electricity may be produced by renewables over the next three decades.
Geopolitical Importance of The Middle East Currently Pegged to the Hydrocarbon Market
With the seismic shifts taking place in the energy market as described above, the geopolitical importance of the Middle East and OPEC is waning. The reduced significance of the Middle Eastern oil curtails crossed an inflection point during the oil slump of 2015-2017, where repeated attempts by the OPEC members failed to resuscitate the price of oil to a level of their liking. This indicated the end of the price-setting abilities once held by OPEC or the possibility of another OPEC initiated oil embargo on the west.
Middle East’s loosening grip over oil supply and pricing, amid an unprecedented boom in alternative energy technologies, is going to set the backdrop for the United States to afford the luxury of disengaging from the Middle East to a larger extent not imaginable before. Having spent nearly trillion dollars over the last two decades in the region fighting two failed wars, the United States found the perfect segway out of the region thanks to the boom in American energy sector.
Disengagement from the Middle East will not, however, mean a total abandonment of the region by any means. Transnational terrorism, resurgent Russia, Turkey and Iran, the perpetually unsettled theater around Palestine and Israel, and presence of two strategic sea choke-points in the Middle East will ensure a continuous presence of the United States as a formidable force in the region well into the distant future.