WASHINGTON– First Tunisia, then Egypt and Yemen and Bahrain. And now, back to North Africa, we have Libya. In 2011, the “wind of change” has finally swept an Arab world virtually shut off from the currents of modernity for about 700 years. Closed societies ruled by obtuse tyrants and small economic oligarchies now are shaking off their yokes and demand to join the global world. The road ahead is at a minimum uncertain, as these societies are poor on top of being oppressed. Westerners look at all this with sympathy. Our good wishes go to the brave young Egyptians who got rid of Hosni Mubarak with an intense yet remarkably short struggle.
So, all is well? Not quite, for this historic upheaval comes with a possible price: oil supply disruptions that may be caused by the broadening of the revolutionary fever to Middle Eastern oil producing countries.
Oil makes all the difference
Indeed, the awareness that the Arab world sits on this gigantic oil supply that we so badly need is the hidden ingredient that makes the whole story of political upheaval in parts of the world that most people know little about so much more gripping. If there were no oil in the whole Middle East and North Africa we would still watch the unfolding political drama of oppressed societies finally rising against obtuse autocrats with interest and sympathy –but only for a short while.
We would say: “Finally, these people said enough”. And we would also start thinking about ways in which we could help them build new, more modern societies. But, as we always do, after the initial enthusiasm, we would be worried about our issues –such as our never ending real estate catastrophe at home– and forget about the whole Arab thing; in the same way as in no time we forgot about the brave Afghan freedom fighters, once with our help they managed to kick the Soviets out of their country.
We do not care that much about oppression in poor countries
So, we would not care that much about historic change in a poor Middle East, limiting our support to symbolic gestures. For example, we do not care much about similar political developments in Africa. Is anybody up to date on the internal strife in the Ivory Coast where a defeated president, Laurent Gbagbo, is refusing to give up power to the rightful winner, Alassane Ouattara, even when confronted with almost unanimous opposition to his defiance? Likewise, look at Zimbabwe, in Southern Africa.
Have you thought about Zimbabwe lately?
There you have Robert Mugabe, another Gaddafi-like old autocrat, bordering on insane, (he is referred to as “Mad Bob”), as perennial president. In power since 1980, Mugabe has single handedly destroyed the national economy. He rigged elections. He has killed and intimidated opposition forces. A brokered power sharing agreement with the weakened opposition leader, Morgan Tsvangirai, became a sham. And yet Mugabe is still there. And the country is no better off.
No interest if it does not touch us directly
But the West, while interested in Zimbabwe at the time of anti-regime upheavals, now essentially ignores the whole thing. No daily updates on the plight of the poor people in Harare on CNN. And why so? Well, very simple. Because, while important in many respects, Zimbabwe does not represent a strategic asset for the US or the West in general. Sure, Zimbabwe has deposits of platinum, gold and other important minerals; but not in quantities that would warrant action to secure them. So, in the end: who cares about political oppression in Zimbabwe, really?
Arab countries have oil
Viceversa, we do care about the Arab world, not because of any special feeling of kinship with the people, but because of a variety of burning issues that we think touch us or may touch us, ranging from the future of Islamic radicalism, to the Arab-Israeli conflict and –finally– oil. In fact, arguably all the other issues are magnified by the underlying oil factor. Would we care that much about the fate of the Palestinians, another small people that got the short end of the stick in a major post-conflict reshuffle, were it not for the fact that the Palestinian issue resonates so much throughout an oil rich Arab world?
Libya unimportant, until oil was discovered
And this brings us to the consequences of the unfolding anti-Gaddafi rebellion in Libya, the latest North African, Arab country now in the news. Back in 1911, Libya was labelled a “Big Sand Box” by Gaetano Salvemini a critic of the impending Italian military expedition aimed at conquering the country. Indeed, other than satisfying the silly imperial ambitions of the Kingdom of Italy, a third rate power, Libya had almost no economic value and no geo-political significance.
But now it is different, for Libya has oil. Notwithstanding four decades of mismanagement under the bizarre and cruel leadership of Colonel Gaddafi and his family, Libya is a net oil exporter, adding about 1.6 million barrel a day to total world oil supply.
Arab unrest extended to Libya: oil prices up
And so, now that the country has been overtaken by the popular protest fever, oil futures shot up to about 95.5 dollars a barrel. The markets are factoring in the possible impact of prolonged Libyan oil supply disruptions due to the rebellion and deep uncertainties over the country’s political future, even assuming Gaddafi’s defeat.
Now, a shut down of Libyan oil facilities would be hardly a disaster, since there is plenty of slack in terms of additional, mostly Saudi, unused capacity that could offset whatever may not be coming into the market from Libya. And yet, even without a real supply crisis, oil prices shot up. Preview of coming attractions?
We still have no energy strategy
And here we are again. More than 30 years after the second oil shock caused by the toppling of the Shah regime in Iran, America, Europe and the rest of the oil importing countries are dealing once more with a similar scenario of upheaval in an oil producing nation, with more or less the same vulnerabilities that existed in 1979-1980. The political turmoil in Libya, while welcome in many ways, as it may put an end to yet another tyrannical and wasteful regime, highlights once more an incredibly overlooked historic vulnerability regarding vital energy supplies from potentially unstable countries.
No way to fend off the consequences of serious supply disruptions
More than 30 years after the Iran crisis, the West has not moved substantially away from heavy reliance on oil. And, valiant exploration successes in other regions notwithstanding, most of the known oil reserves are still in the Middle East. And the Middle East is ruled by medieval era regimes that now are shaken by waves of popular unrest. The consequences of this sudden revolutionary cyclone are difficult to fathom, let alone control. For the moment, Libya is the only major oil and gas producer affected by these historic tremors.
From Libya to the Gulf?
But dare we think what might happen if this bug of freedom and anti-authoritarian rule would get deeper into the oil rich Gulf? Dare we think what might the consequences be if internal upheavals would cripple, even for a limited time, oil flows from Saudi Arabia? Or Iran, for that matter –a country in which active popular resistance to the theocratic regime would otherwise be very welcome? Or Kuwait? Not to mention the possible crumbling of the altogether fragile political arrangements in next door war torn Iraq.
Possible oil supply disruptions due to the revolution now unfolding in Libya have already caused oil prices to go up to pre-recession levels. Imagine if things turn up badly in Libya and another major oil producing nation for whatever reason would see its output curtailed. It would be panic buying and oil prices easily going up, way beyond 100 dollars per barrel, with nasty consequences for advanced economies, and even worse outcomes for poor emerging countries that simply cannot afford oil when prices are in the stratosphere.
No alternatives to oil
And yet, where is the alternative US strategy that created a path to viable new energy sources? There isn’t any. We’ve got bits and pieces; but no real strategy. I have noted before that here in the US we are lucky to have discovered enormous new reserves of economically viable natural “shale gas”. But, while very welcome, this was not part of a strategy; this is dumb luck. And, as yet, we are not even near a point in which we will be able to use this gas as transportation fuel. A meaningful conversion from oil based gasoline to natural gas as basic fuel will take years, may be decades.
Deployed military assets do not help much in these new contingencies
In the meantime, with little or no ability to influence developments, we are condemned to watch events unfold, just hoping that nothing major will happen. And all our contingency planning, including our own US 5th fleet harbored in Bahrain, (another country in distress), does not do the trick. Arguably a huge component of our military spending is aimed at maintaining substantial military assets close to the vulnerable Persian Gulf sea lanes, so that we can protect the unhindered flow of oil. However, if oil flow disruptions are caused by massive domestic upheavals, somehow I do not think that Nimitz class super carriers can help much.
The US “Strategic Petroleum Reserve” will last 34 days
And here we have it. Now we fret about what may happen in Libya, regarding damage to oil installations, while we hope that this wave of unrest will not contaminate all the other Arab oil producing nations. But, beyond our hopes, we have almost nothing. There is no ”Plan B”. Unless your idea of a “Plan B” is the US “Strategic Petroleum Reserve”, SPR, managed by the US Department of Energy. Good to have something in reserve; but we know that all the SPR oil stashed away in excavated salt domes in Texas and Lousiana would last only 34 days, at current consumption levels. That’s it folks: 34 days!
Whereas, it seems that the feverish unrest that has now overtaken the Arab world (those without oil and those with oil) may last years, with consequences that we are unable to predict or prevent.
Time to have an energy strategy
As hopelessly late as we are, we need to concoct something now, including a revamp of all the oil sharing agreements among consumer nations in case of major supply disruptions. (All this is supposedly managed by the Paris based International Energy Agency, IEA; but it would be wise to review and update the whole thing).
Meanwhile, without a plan, the United States of America has entrusted a huge component of its strategic survival on the (hopefully) benign evolutions of epochal, disruptive transformations that have now taken over the Arab world and beyond. Sadly enough, spending by far more than everybody else on national security does not buy us much, unless we really get serious about investing in energy independence.