Oil is Hardly a Good Weapon and History Proves That

by / 1 Comment / 103 View / November 17, 2014

As Saudi Oil Minister, Ahmed Zaki Yamani ranked among the world’s most powerful people. In the 1970s, Yamani flexed his muscle, coordinating oil production slashes in protest of American support for Israel during the Yom Kippur War. He got what he hoped for: the price of oil shot up 400%, plunging Western economies into recession. And that is where most American journalists cut the story off. They disregard the oil shock in the opposite direction that sent recessionary shockwaves through Middle Eastern economies and resulted in Yamani’s expulsion. They forget that the price of oil contracted almost 400% following the OPEC shock because demand for oil fell, and new sources of supply became economically viable. They continue to instill anxiety towards OPEC in their readers despite OPEC having learned its lesson. We must rid ourselves of our fear of the foreign; recognize that the “oil weapon” has been deemed suicidal, and accept that it is in the American best interest to continue purchasing oil from the Middle East.

The US refers to unstable nations, especially in the Middle East, as safe havens for terrorists: places where the youth are radicalized and militant organizations train without disruption. However, politicians have failed to connect the dots in the Middle East; they call for the region to establish governments that can govern while preaching the need “energy independence,” which would pull the plug on regional economies. Data from the World Bank and the Bureau of Economic Analysis indicate that Saudi oil exports to the US are as important to the Saudi GDP as domestic agriculture, mining, and utilities are to the US GDP. Similarly, the IMF estimates that Iraq’s budget is 93% dependent on oil revenue. Thus, reducing oil imports from the Middle East could cause states to fail, which according to Rachel Stohl, creates the “conditions in which terrorist organizations emerge and thrive.”

To add insult to injury, cutting imports from the Middle East would require the US to find another source of energy, likely to be domestic shale. According to Mahmoud Salameh of the International Association for Energy Economics, heightened oil supply resulting from US fracking could push the price of oil down “to $50/barrel over the next 24 months.” Fracking poses a dire threat to Middle Eastern stability. Since the region is reliant on oil revenue for growth, sustained cheap oil would doom it failure. The Japanese Institute for Energy Economics found that Iran, Iraq, Saudi Arabia, Libya, and Kuwait all require oil to remain above $50/barrel to afford social and military spending. The region saw a glimpse of its doom with price contractions in the 1980s. The US would be foolish to recreate those conditions in the name of national security.

Those advocating energy independence make the following arguments. First, they assert that trusting the Middle East not to shock the price of oil is a mistake. But they ignore that the price of oil plummeted soon after it rose, and OPEC experienced equal if not greater economic hardships than its targets. As a result, OPEC has not deliberately shocked the oil market since the original shock in the ‘70s. Moreover, the US is prepared for an oil shock. In the aftermath of the 1970s price increases, the US established a Strategic Petroleum Reserve, an emergency storage of fuel meant to flood the market with oil in the event of an energy price increase. If it happens, Americans will barely feel the effects of another OPEC shock.

Another argument for oil independence is that oil money sometimes falls into terrorist hands. Although this argument has stumped most oil interdependence advocates, it fails for a few reasons. First, if terrorist organizations were not financed by oil, they would generate funds from other sources. In Afghanistan, terrorists forced the population into an opium addiction, and in Sierra Leone, child soldiers guarded rebel held diamond mines. Usually, militants inflict damage on the population both with their attacks and as a side effect of funding, but organizations financed by donors with oil money are tamed; they are rarely so starved for cash that they have to extract revenue from the population. Second, using oil as a source of revenue makes terrorist organizations susceptible to financial crackdowns. ISIS’s dependence on licit, traceable oil has allowed the Treasury Department to freeze its accounts. Finally, Middle East militaries depend on oil revenue for counterterrorism operations. The boon terrorists would gain from underfunded Middle Eastern militaries far outweighs the puny marginal benefit they gain from funding themselves with oil.

Let us not allow anxiety push us towards realizing our fears. To maintain regional stability and avoid terrorist attacks on our homeland, we must maintain energy interdependence with the Middle East.

  • Lana

    ” To maintain regional stability and avoid terrorist attacks on our homeland, we must maintain energy interdependence with the Middle East.”….UMMMM