Almost Everything is About Oil in the Middle East

Energy Aware

Perhaps the most extraordinary part of Iran’s April 13 attack on Israel was that it was countered by a coalition that included Jordan, Saudi Arabia and the United Arab Emirates (UAE). It is also noteworthy that this was the first time that the United States engaged militarily in Israel’s defense.

The events of April did not begin with the October 6, 2023 strike on Israel from Gaza but have their origins decades earlier. It is now evident, however, that the catalyst for Hamas’ attack was the impending normalization of diplomatic relations between Saudi Arabia and Israel.

This would have had significant consequences for Israel’s oil supply, an important aspect of the present crisis that is rarely discussed by the press or politicians. Almost everything is about oil in the Middle East.

The Saudis were ready to join the Abraham Accords that in 2020 established ties between the UAE, Bahrain, Sudan, Morocco and Israel on regional security and trade.

As a direct consequence, Israel was officially moved under the U.S. Central Command (CENTCOM) area of responsibility in early 2021, shifting from its decades-long alignment with the U.S. European Command (EUCOM).

The timing of the Gaza incursion into Israel in October was designed to prevent Saudi Arabia from joining the Abraham Accords.

It is hardly a coincidence that Houthi attacks on shipping in the Suez Canal and the Red Sea started in November. Almost 9 million barrels of oil per day (mmb/d) pass through the Canal and the Bab al-Mandab Strait.

It’s worth recalling that the Houthis have been in an armed conflict with Saudi Arabia in Yemen since 2015, and were responsible for attacking the main Saudi refinery complex in 2019. Both Hamas and the Houthis, along with Hezbollah in Lebanon, are funded and largely directed by Iran.

There is little doubt that Iran was central in events that led up to the current crisis. Its actions were part of a long-term strategic plan for dominance in the region that was strengthened by American blunders in Iraq twenty years ago.

It is equally clear that Russia and China are aligned with Iran. In early 2023, China and Iran pledged to strengthen their security and economic cooperation. The two countries signed 20 agreements covering various areas including trade, transportation, and information technology. China buys almost all of the oil that Iran is able to export.

Just before Russia’s invasion of Ukraine, China and Russia issued a joint statement declaring that their partnership had “no limits” in opposing NATO expansion. They further stated their intention to reshape the global governance system to be more representative of the changing global landscape, challenging the current US-dominated world order.

Iran has been supplying drones and other military equipment to Russia in its war on Ukraine. That conflict resulted in an energy crisis beginning in 2022 as Russian supply of oil and natural gas were largely cut off from Europe. The latest flare-up in the Middle East is a welcomed distraction for Putin from the world’s focus on Ukraine. It also benefits Russia by diverting U.S. funding from Ukraine to Israel.

The sides are chosen. Iran, Russia and China are on one side, and the United States, United Kingdom, Saudi Arabia, the UAE, Jordan and Israel are on the other. It’s obviously not quite that simple but this is a reasonable place to start to sort the structure of events in the region.

Many worry that oil flows will be interrupted. About 20.5 mmb of crude oil, condensate, and refined products pass through the Persian Gulf daily including 90% of Iran’s exports.

Any reduction in oil transit would be contrary to China’s interests because half of its imported oil passes through the Gulf daily. This becomes a risk, however, if Israel or the United States escalates the present conflict by attacking Iran directly.

Prelude to Oil in The Middle East

The media and most analyst discussions focus on politics but almost everything in the Middle East is about oil.

The strategic and military importance of oil began early in the 20th century. Steam boilers and industrial machines were increasingly powered by petroleum products. The British navy began converting its fleet to oil in 1910.

In World War I, trucks, planes, submarines and tanks ran on oil-based fuels, and the railways’ strategic value increased as it could facilitate the movement of troops and supplies. Air warfare powered by gasoline made its debut in WWI. The United States provided most of the oil needed by the western allies but European powers wanted their own supply.

“The First World War became a contest geopolitically…for control of the Ottoman Empire. I don’t believe that that was the cause of the First World War but [it] was the geopolitical prize at stake as the war developed.”

Helen Thompson

That was partly because oil was discovered in Persia (now Iran) in 1908 by the Anglo-Persian Oil Company and the British government purchased a controlling interest in the company in 1914. Mesopotamia (now Iraq), shared the same geology as neighboring Persia.

Germany planned to build a railroad to connect Mesopotamia with Berlin. The Berlin-Baghdad Railway was intended to provide Germany with a direct link to the Middle East, bypassing the sea routes controlled by British and other colonial powers. This would enable easier access to the region’s resources, including oil. The project clashed with British strategic interests and was among the many factors that heightened tensions in the lead-up to World War I.

In 1927, a British group that later included an American consortium made a major oil discovery near Kirkuk in northern Iraq. Oil was discovered in Bahrain in 1932. In 1933, a team of Standard Oil Company of California geologists began a study of Saudi oil potential. Later, Standard Oil of New Jersey and Texaco joined the consortium that, together with the Saudi government, became the Arab American Oil Company (Aramco). Aramco discovered the giant Damman Dome field (Dhahran) in 1939. A decade later, the Ghawar field was found to the southwest of Dhahran.

How the U.S. Lost Its Way With Four Energy-Blind Presidents

Oil security in the Middle East was the cornerstone of U.S. foreign policy for the next 58 years until George W. Bush destroyed it in 2003 by occupying Iraq. That upset the Middle East balance of power by giving greater influence to Iran. Subsequent mis-steps by the Obama administration increased Iran’s reach and allowed Russia to become a serious player on Iran’s side.

Obama further undermined long-standing foreign policy fundamentals by abandoning traditional allies Saudi Arabia, Israel and Egypt. He thought that the U.S. no longer needed these alliances because of the shale revolution. He wanted the U.S. to get out of the Middle East.

Trump partied with Saudi royalty but further weakened the U.S. position by telling the Saudis what to do about oil prices. He did nothing when Saudi refineries were bombed by Houthis in 2019—not even a phone call expressing sympathy.

Biden’s ill-timed U.S. exit from Afghanistan and discourteous public comments about Saudi leaders were serious policy errors. U.S. relations got so bad with Saudi Arabia that Crown Prince Mohammed bin Salman would not return phone calls from President Biden in early 2022.

Dan Yergin remarked,

“Energy security fell off the table in the United States as we became self-sufficient…It was like amnesia.”

The U.S. lost its way in foreign policy because its leaders were energy-blind.

Back to the Future

Israel is currently involved in its fifth war since statehood.

During the 1948 Israeli War of Independence, large numbers of Arabs were displaced sowing the seeds for the present Palestinian problem. The second war was in 1956 when Egypt blocked the Suez Canal and Red Sea from Israeli access. Israel invaded the Sinai Peninsula, and British and French militaries had to move in to separate Egypt and Israeli forces.

During the Six-Day War in 1967, Egypt massed troops in the Sinai Peninsula and Israel destroyed most of the Egyptian Air Force on the ground. Israel took the Sinai Peninsula and Gaza Strip from Egypt, the West Bank from Jordan and the Golan Heights from Syria.

In 1973, Egypt and Syria launched a surprise attack against Israel in what became known as the Yom Kippur War. The USSR supported Egypt and Syria with arms and diplomatic backing, while the US provided crucial resupply efforts to Israel. The US raised its nuclear readiness level to DEFCON 3.

Arab oil-producing nations imposed an embargo against the US and other countries, leading to the 1973 oil crisis. The war eventually set the stage for the Camp David Accords brokered by the US in 1978, which resulted in the Egypt-Israel Peace Treaty of 1979. This agreement effectively made the Soviet Union irrelevant in the Middle East until Obama’s blunders allowed Putin an entrée into Syria in 2015.

The Iranian Revolution of 1979 permanently altered circumstances in the Middle East. Before the revolution, Iran was a major supplier of oil to Israel. The new regime in Iran immediately cut off oil exports to Israel, forcing the country to seek alternative sources of oil at a higher cost and under more challenging conditions.

The United States guaranteed oil to Israel but this was problematic because U.S. oil production was in decline, and it quickly became the world’s largest oil importer. Obama did not renew this oil guarantee in 2014.

Today, half of Israel’s oil comes from Azerbaijan. Israel sells arms for that country’s fight with Armenians in Nagorno-Karabakh that Russia backs, and that Turkey opposes.

George W. Bush’s occupation of Iraq in 2003 was probably the greatest foreign policy disaster in American history along with the Vietnam War. It upset the delicate balance of power, that had been the central aim of U.S. foreign policy since 1945, in favor of Iran. As a result, oil-rich Iraq today is essentially an Iranian satellite state.

Revenues from high oil prices that continued through 2014 allowed Iran to greatly enhance its power with proxy groups throughout the Middle East. At the same time, the U.S. eliminated oil sanctions against Iran as part of the Nuclear Agreement negotiated by the Obama administration.

It’s About the Oil

When viewed through the lens of oil and history, it seems clear that recent events in Gaza were part of a deliberate, long-term strategic plan by Iran to increase its power by preparing its allies for a long and potentially larger conflict.

Most of the warring parties depend on imported oil but their sponsors—Iran and the United States—are oil super powers. About half of the world’s oil reserves are in the Middle East. Western powers colonized the defunct Ottoman Empire largely because of oil. It makes no sense to frame current events in this region without considering oil.

U.S. Senator Lindsey Graham recently wrote “Hit Iran now. Hit them hard“, and his colleague Senator Marsha Blackburn said the U.S. “must move quickly and launch aggressive retaliatory strikes on Iran.”

These declarations may play well with a certain base of Americans but they ignore reality. U.S. efforts to occupy Iraq and Afghanistan were, after all, miserable failures. Why should military actions to subdue a far more powerful and competent county like Iran seem so simple to these leaders?

In Strategy: The Logic of War and Peace, Edward Luttwak pointed out the danger of underestimating an adversary’s capabilities or intentions, and the risk of focusing purely on military factors without considering the political and cultural contexts within which conflicts take place. Both accurately characterize U.S. errors in the Middle East over the last twenty years.

Hit them hard and then what, Senator Graham?

Energy underlies and connects everything, and oil is the most important source of energy in the world today. Iran, Russia and China understand this, and base their future power and influence on their control of resources and the means of production. Iran’s rising influence in the Middle East, Russia’s actions in Eastern Europe and the Middle East, and China’s growing power in the Asia-Pacific region and the global south are explicit challenges to the established world order.

In even in the most drastic net zero scenario, the world will need 66 mmb/d of oil in 2050. Where will that come from after two-and-a-half more decades of depletion?

A lot will probably come from Iran and Iraq because of their large reserves whose development has been hampered by sanctions, lack of international capital, and decades of conflict and instability.

The rage and chaos that lies beneath the surface in the Middle East has been nearly unmanageable for indigenous Muslim governments. Let’s not forget the rise of ISIS into a state the size of Great Britain a decade ago nor its recent reappearance. It is the enemy of all states in the Middle East including Iran, and its most recent action was against Russia.

The region is a political quagmire that has overwhelmed major powers for more than a century, and the risks today could not be more serious. The complex interrelationships of global geopolitics and oil cannot be understated. Almost everything is about oil in the Middle East and many western leaders today are energy-blind. Any action that upsets the tenuous balance of power or causes an interruption in oil supply from the Persian Gulf may threaten the global financial system.

The outcome of events unfolding today in the Middle East will depend on whether the United States understands the stakes as well as its counter parties, demands restraint from Israel, and can control extreme factions in the U.S. Congress.

Art Berman is anything but your run-of-the-mill energy consultant. With a résumé boasting over 40 years as a petroleum geologist, he’s here to annihilate your preconceived notions and rearm you with unfiltered, data-backed takes on energy and its colossal role in the world's economic pulse. Learn more about Art here.

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22 Comments

  1. Derek Tee on April 23, 2024 at 6:42 am

    This should be at the forefront of current discussion. Like me, most would learn a great deal even from just the one article; it takes a petroleum geologist to see it so clearly.

    Meanwhile, people argue about unrelated things. My thinking is: the reason the truth here won’t make it into the typical talking points is: it’s simply too embarrassing to those in power.

    • Art Berman on April 24, 2024 at 2:53 pm

      Derek,

      Thanks for the comments. I don’t expect leaders to understand the nuance of energy and geopolitics. I do expect them to ask people who understand.

      All the best,

      Art

  2. Les Deman on April 20, 2024 at 12:05 am

    Art,

    Your history of the region’s geopolitical and economic stature is spot on. The unforeseen chaos and realignment of the Bush invasion underpins the events of the past six months. What the recent miscalculations by current factions will create remain unclear. However, given history my fear is that the costs and ramifications will be significantly larger than the 2003 debacle.

    • Art Berman on April 22, 2024 at 4:09 pm

      Les,

      Thanks for your comments and observations. The current situation has grim implications for US power because of our perilous fiscal position plus bone-headed ignorance of energy and history.

      All the best,

      Art

  3. yra harris on April 19, 2024 at 6:56 pm

    Art 00a very comprehensive piece but I disagree on your analysis of the 1956 Sinai war.This war was orchrestrated by the French in an effort to put pressure on the Algerian political turmoil.At the meeting in Surres the French brought the Brits and Israelis together as both were plagued with problems—-Nasser had nationalized the Suez and terrorism was plaguing Southern israel through the Mitla Pass—-Eisenhower was furious as the “War” detracted from the Hungarian uprising and he bitch slapped them all resulting in Britain acknowledging the Empire was over and Israel fighting 1967 War with mostly French weapons–just an area of disagreement on an otherwise fine summation.

    • Art Berman on April 22, 2024 at 4:05 pm

      Thanks yra Harris. You may be right but the big picture is the Egypt-Israeli conflict. Suez was the coup de grace for the French and British as powers in the Middle East.

      All the best,

      Art

  4. Miguel Tejada on April 19, 2024 at 5:55 pm

    Art
    Until now, the oil industry depends on western (US)know how&technology. And also from western investment capital.
    What will happen when China develop newest state of the art oil/gas exploration&extraction tech that don’t depend of western patents? What will happen when China&others develop capital markets independent from the west that can finance for example Irán or Iraq oil development?

    When do You think this will happen?

    Sincerelly

    Miguel

    • Art Berman on April 19, 2024 at 6:10 pm

      Miguel,

      I don’t think that much will happen differently. Most technology is provided by international service companies.

      All the best,

      Art

      • Cruise on April 19, 2024 at 9:25 pm

        Agree totally with Mr. Art. My time as expat in Middle East was training engineering construction teams on general process info (and often Chinese-based contractors). Best, Cruise

        • Art Berman on April 22, 2024 at 4:06 pm

          Thanks for your comments Cruise.

          All the best,

          Art

  5. Edward Downe on April 19, 2024 at 2:09 pm

    Energy, is the economy. Energy is all economies. To quote Steve Keen: “Labor without energy is a corpse. Capital without energy is a sculpture.” We are indeed energy blind. A costly error as you point out.

    • Art Berman on April 19, 2024 at 3:12 pm

      Edward,

      Steve Keen is a beacon for me.

      All the best,

      Art

  6. Ed Lindgren on April 19, 2024 at 1:49 pm

    Art –

    One area of knowledge (among many) that Americans are sorely deficient in is physical geography. Graham and Blackburn need to get a globe or map and take a look at where Iran is located with respect to the Persian Gulf, Saudi Arabia, Kuwait and Iraq.

    The southern coastline of Iran, from Abadan to Chah Bahar, provides Iran with the ability to control shipping in the Persian Gulf, the Straits of Hormuz (SOH), and its approaches in the Gulf of Oman. Iran has the military resources to shut down maritime traffic through the SOH. If they chose to do so, Tehran could bring the global economy to its knees.

    What could the US do about this?

    The US Navy can barely handle a bunch of barefoot, ragged Houthis rebels who are being fairly successful at severely disrupting maritime traffic in the southern Red Sea. Were the Iranians to close the SOH and Persian Gulf to maritime traffic, it would probably be necessary for the US to put troops on the ground in Iran to neutralize the threat to shipping. At this point, that might be well beyond our capabilities.

    Over 40 years ago, I spent more than a few months of my life floating about on an aircraft carrier in the North Arabian Sea. I learned the geography. Today I would expect any kinetic effort to deal with Iran to turn out no better than our 2003 debacle in Iraq (and it could turn out a good deal worse).

    • Art Berman on April 19, 2024 at 3:11 pm

      Ed,

      I agree that Americans know relatively little about the world.

      All the best,

      Art

  7. Glenn Taylor on April 19, 2024 at 1:44 pm

    You forgot to mention that Iran attacked Israel in retaliation for bombing its embassy in Syria which was essentially an act of war. Your piece makes it sound like Iran attacked Israel without provocation, and note that I have generally supported Israel but its bombing of Iran’s embassy crossed a dangerous red-line.

    I recomend listening to Brian Berletic (New Atlas) on youtube which might broaden your understanding. Berletic is a former US marine and his analysis is thorough, well documented and eye opening.

    https://www.youtube.com/watch?v=dO5ywKinsG0

    • Art Berman on April 19, 2024 at 3:10 pm

      Glenn,

      I didn’t forget to mention anything. I had to make choices about what was most relevant.

      I appreciate your interest in educating me but remind you first, that I have a degree in Middle Eastern History and second, it is my post, not yours.

      All the best,

      Art

  8. Karl Klein on April 19, 2024 at 12:05 pm

    Thanks for all that Mr. Berman.

    What were the odds of so many US presidents getting it so wrong?

    Thanks also, for trying, for so long, to promote the lies of the shale revolution in the USA.

    Going to chat with Jim Kunstler any time soon?

    Regards,
    – Karl

    • Art Berman on April 19, 2024 at 1:33 pm

      Karl,

      Thanks for those comments. I spoke with Kunstler a month ago but no plans for more.

      All the best,

      Art

  9. dobbs on April 18, 2024 at 8:44 pm

    I would not say that Saudi Arabia is on the US side anymore.
    I would put them in the playing both sides position.
    They still have huge amounts of money invested in the West and deep military ties to the US.
    But with Russia joining OPEC, China brokering the normalization of the relationship between Iran and the Saudis and joining the BRICS organization, the Saudis under MBS have moved away from the US.

    • Art Berman on April 18, 2024 at 10:55 pm

      I didn’t say that Saudi Arabia was on the U.S. side, Dobbs. I said that in this conflict, it is on a side that includes the U.S. There’s a difference.

      All the best,

      Art

  10. Fritz Fowler on April 18, 2024 at 2:22 pm

    Art, well written history lesson and great reminder for all what the real underlying reason is for war bells to ring. Thank you.

    • Art Berman on April 18, 2024 at 10:54 pm

      Thanks, Fritz.

      All the best,

      Art

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