By Nurhidayahti Mohammad Miharja
In the midst of ongoing turmoil in the Middle East, MEI held a panel discussion earlier this month to address its repercussions on the already volatile oil supply and prices in the global economy. Panelists for “Middle East Oil: Blessing or Curse” included Ms. Vandana Hari, Asia Editorial Director of Platts, Mr. Pepe Escobar, Correspondent for the Asia Times, and MEI Senior Research Fellow Dr. Ali Kadri.
Ms. Vandana Hari explains fluctuating oil prices.
Vandana Hari opened the discussion by establishing the Middle East as the center of oil production. Twenty-four million barrels/day (b/d) of oil account for approximately 27 percent of global oil supply. With recent developments, however, 700,000 b/d of this oil has been under threat in three Arab states, namely Sudan, Yemen, and Syria. In addition, the increasing European Union and United States’ sanctions against the purchase of Iranian oil have added to fears of supply disruption and inflated prices. Although Asian governments have yet to ban imports of Iranian oil, some countries, such as Japan, have reduced average crude imports. Asian efforts to wean themselves from Iranian oil supplies are critical because the top four Asian economies receive about two-thirds of Iran’s crude exports.
With Iranian crude production dropping to 3.4 million b/d (from 3.68 million b/d last year), Saudi Arabia has been increasing crude output in a bid to replace Iranian export. The world’s biggest crude exporter has since pumped the greatest amount of oil in the last three decades. Similarly, March OPEC output has been the highest since October 2008, with 31.39 million b/d. This has resulted, according to Ms. Hari, in Organization for Economic Cooperation and Development (OECD) stockpiles hitting below the five-year average, inventories in Europe and Asia tightening, and OPEC spare capacity shrinking. In addition, Iran has threatened to close the Strait of Hormuz, putting around 20 million b/d of oil at risk. The impact would be widespread, as both oil markets and the top five OPEC producers are dependent on free movement in the Strait. Nevertheless, Vandana noted that closing the Strait would also ironically “remove Iran’s biggest bargaining chip.”
Mr. Pepe Escobar speaks via Skype from Bangkok.
From a geopolitical perspective, Pepe Escobar addressed the pipeline politics intertwined with U.S. energy policy, focusing on three important pipeline projects—the Baku-Tbilisi-Ceyhan (BTC) pipeline, the trans-Afghanistan (TAPI) pipeline, and the Iran-Pakistan-India (IPI) pipeline. According to Mr. Escobar, the U.S. decision to support the BTC pipeline (which connects Azerbaijan, Georgia, and Turkey) aimed to bypass Russia and isolate Iran. Political considerations clearly influenced the choice of pipeline routes, which involved separating Russia from previously Soviet Central Asian countries. The difficulty with the pipeline, however, is that the route involves three nations threatened with separatist conflicts.
U.S. focus has since shifted to a policy to build a pipeline through Turkmenistan, Afghanistan, Pakistan, and India. Named the TAPI pipeline, Mr. Escobar stated with 90% geopolitical certainty that the pipeline would not be built due to security concerns. While it is a potential energy corridor strategically vital to the United States, the areas through which the pipeline runs, such as Kandahar and Balochistan, are similarly plagued with insurgencies and separatist movements. Nevertheless, the United States still favors the TAPI route to the proposed Iran-Pakistan-India (IPI), or Peace, pipeline. Seen as a “Pipelineistan node in the emerging Asian energy security grid,” it is not in U.S. interests to allow such a critical link between Southwest Asia and South Asia. Mr. Escobar concluded that the “original American strategy is not working, [and] the big winner is gas-prone China, who is getting oil and gas from everywhere.”
Ali Kadri emphasized that the nature of the struggle for oil is premised on several falsehoods. The first involves the hype around Iran’s military capability, specifically regarding its ability to close the Strait of Hormuz. He termed it as “Iraq-ing” Iran, or blowing the image of Iran out of proportion so as to later launch a war of aggression. The second falsehood revolves around the sanctions imposed on Iran, which are supposedly designed to pressure Iran into complying with international demands to stop its nuclear weapons capability. However, such a move structurally weakens the Iranian formation, with resultant huge unemployment rates that target the working segments of the population. More importantly, this invites regional instability, which also feeds a process of accumulation by militarism.
Another falsehood Dr. Kadri highlighted is the notion that stability is necessary in the market for oil to be processed and traded easily and for the dollar standard to remain secure. A preoccupation with stability conveys the idea that we are presently in danger. However, there has never been stability in the oil market and the dollar has never been steady. Finally, the overarching falsehood concerns the present economic world order that has come to be dictated by short-term considerations. These are fed by the ultimate falsehood, which is that a free and unregulated market is welfare enhancing. Essentially, Dr. Kadri argued that oil supply does not pose a problem and that if we apply long-term planning to it, more environmentally friendly sources of energy will emerge. A restructuring of the global powers from a U.S.-dominated system into a new, multipolar system will provide the space for science to demystify these falsehoods, which are underpinned by the ideological power of financial capital.
