Commentary: The Coming Arab Winter

By Peter C. Glover and Michael J. Economides

Forget the Arab Spring. Islamists havThe Coming Arab Wintere already hijacked it. But, as if internally extinguishing the hope of democracy isn’t enough, dark clouds are now gathering to blot out the economic ‘sun’ for the oil-powered Middle East states, ushering in  – courtesy of the West’s technological fracking ‘miracle’ – a new Arab winter.

The trouble, as we know, the economies of many Arab states rely almost exclusively on massive oil revenues. Without them the leading lights of OPEC know it is only a question of time before the global export of US fracking technology reduces many Arab states to their familiar basket case economic status.

Saudi Arabia currently ranks as the world’s leading oil producer: but not for much longer. The Saudis must be concerned. While the scale of its reserves is clearly formidable, the collapse of Saudi and OPEC oil power isn’t a matter of conjecture, it’s inevitable.  Realising the days of its oil-fuelled energy domination are numbered, the Saudis are busy exploring for shale gas resources (but lack the water necessary for the fracking production process). And grasping at other energy ‘straws’, the desert kingdom is even investing in expensive and dubious solar initiatives to offset the fast-rising, revenue-reducing domestic demand for the country’s oil. The other regional producers will have to think like-wise. But what has pretty much sealed the energy fate of Saudi Arabia, as other OPEC members, is the global game-changer that the  is proving to be.

Within just a few years of it taking off, the US shale gas and oil industry is enabling America to become increasingly self-sufficient with imports from the Middle East greatly reduced. The US is closing in on eclipsing Saudi energy production capacity. The 2012 edition of the IEA’s World Energy Outlook says America will surpass Saudi as the world’s biggest oil producer by 2020; such is the rate of current US oil development it could well be before then. According to one recent report, the dramatic expansion of US production could push global spare oil capacity to exceed 8 million barrels per day. At that point OPEC could lose its ability to set or influence prices and global oil prices could drop sharply.  While that would take a heavy toll on many Western energy producers, it would prove disastrous for OPEC’s member states.

Much closer to home, in Israel there is evidence that onshore shale oil potential may be quite large. And Israel’s additional offshore shale gas potential is set to rocket the Jewish state to energy superpower status rivalling the OPEC states.  Still to come, however, would be the impact felt from the development of China’s huge shale resource that could eclipse those of the United States and Canada (the latter being oilsands). Then there’s the massive shale potential of Russia, Argentina and even Australia. Europe may currently be sleeping at the wheel of its energy road map due to environmental concerns, but it’s just a matter of time before European monetary crisis – and the domestic riches to be had – is also fracked by the shale development bug. The point being that, from Asia to the Americas to Europe, oil and natural gas bounties are opening up in numerous non-OPEC non-Arab countries.

The world is changing and fracking is changing it. So what is the geopolitical fall-out when much of the world no longer thirsts for Middle East Arab oil and gas?

Geologists once believed that two-thirds of the world’s oil and one-third of its gas lay under a handful of Persian Gulf states. Just a few years ago, peak oil alarmism ruled the energy bookshelves. No longer. OPEC’s power in holding the West to ransom – as it did in 1973 in the Arab-Israeli oil embargo affair – is not only diminishing, it will shortly be extinct.

Though the runaway success of the US shale gas would be difficult to emulate elsewhere, the coming age of natural gas is seriously threatening the current conventional oil powers. And that’s not surprising given that, as the EIA reports, for every $4 US citizens pay for energy from natural gas they pay $25 for oil. No wonder the world’s leading players – China’s Sinopec, France’s Total, Shell, BP et al are all falling over themselves to buy a slice of the US shale cake. Not just for the investment in the runaway success that is the US gas industry; but as a key investment in their global fracking futures.

There are other serious implications for the Middle East oil states, too. With the Middle East set to lose its oil-dominant position it will also lose much of its strategic relevance for the United States. So who would ‘police’ the Persian Gulf keeping a lid on regional anarchy if America leaves? The Saudis and other Sunni state heads are already as nervous as Israel about Iran’s regional nuclear ambitions. But even domestically, as the ability of the regimes to bribe their citizens with massively subsidized oil prices courtesy of foreign petro-dollars diminishes, we are likely to see more and more street violence threatening regional stability across the region. As one US national security specialist puts it, “The biggest losers would be the Arab oil states grouped in the Gulf Co-operation Council, most of which are monarchies kept in power by a combination of oil dollars and American military power.” The same specialist predicts that, except for Saudi Arabia, not one of the Sunni Arab states could defend itself against Iran or Iraq, the latter country could quickly lay claim again to the Kuwaiti oil fields once America “leaves the stage”.

Then there’s terrorism. On the upside, there’s little question that global terrorism has (ironically) been sustained by an abundance of petro-dollars. As we see the flow from that particular spigot greatly reduced in coming years, the ability to fund proxy wars and large scale terrorist organizations would be significantly reduced. However, the inherent sense of ‘victimhood’ seemingly embedded in Arab culture – and fomented and used by Islamists – is likely to produce increasing individual acts of terrorist activity, both at home and abroad.

Let’s be clear. No one wants to see increasing poverty spreading through the Arab lands of the Middle East. But ‘victims’ of Western policy the Arab states are not. The misuse of much of oil revenues by the failure to invest in their country and citizens, however, has left the Arab states vulnerable to advancing energy and technological developments. It’s a failure of social policy made abundantly clear in The (Sordid) Tale of Three Arab Countries.

While the global extent of the fracking-induced geopolitical tremors are still to be felt, the shaking up of the Arab Middle East and their tyrannical oil policies is moving the regional tectonic plates as politics never could. And there’s a lesson for the western powers here, especially those still debating whether fracking their domestic shale is ‘green’ or not. In the movies love makes the world go round; in the real world it’s energy.

The above concludes a short series that includes, part I:  ‘Israel’s Rise to Energy Superpower’ and, part II, The Collapse of OPEC Power’.

Michael Economides is Editor-in-Chief of the Energy Tribune