The Spoils of War 2: Expect Dire Consequences if Syrian Contagion Spreads to Oil

Among the dismal reports coming out of Iraq, a seemingly minor but highly significant item was news that ISIS and the Iraqi government were battling over the Baiji oil refinery near Tikrit. The Baiji oil refinery, news reports noted, could be a key installation in providing fuel. Indeed, back in the day so-called “insurgents” often stole fuel from the Baiji refinery for use and sale on the black market in the aftermath of the US invasion of Iraq in 2003. Cleverly, the insurgents would take fuel from the refinery and then attack the refinery to close it temporarily, raising the value of the refined products in their possession and depriving rivals of fuel.

The fact that Baiji came into play again as a military target is disturbing and raises as many questions as it answers. Are rebel forces simply trying to deny the Iraqi government fuel? Or if they intend to take over the refinery for their own use, what crude oil would they be able to put in it? Iraq’s crude oil fields are controlled either by the Kurds or by the Iraqi central government, presumably neither of which would be selling feedstock to militias with ties to ISIS. It seems farfetched to think that the plan was to smuggle crude oil into Iraq from Syria and use the Baiji refinery to process it so one has to assume that the attackers were aiming at the oil complex, which also fed some local power generation services, just to cripple the local economy and deny their military rivals of fuel. By denying basic energy services, militias across the Middle East have learned they can undermine the authority of existing political leadership in the region. A prime example of this strategy has been amply demonstrated in Libya where what might have been a successful transitioning government fell into disarray as rebel factions grabbed and turned off key oil installations and denied access to eastern Libyan export ports.

The battle for the Baiji refinery may seem minor at first glance but it raises the specter that regional oil facilities will be considered both strategic assets and spoils of war in not only the greater battle for Syria and Iraq but potentially in the struggle for geopolitical power across the entire region. This turn of events would be a serious challenge to stability across the Middle East and for the global economy. My research with econometrician Mahmoud El-Gamal shows that oil facilities damaged during wartime can dramatically reduce access to oil from a country for years, if not decades.

The concern that oil will drive military actions on the ground in Iraq cannot be overstated. Already, the Kurds have taken the opportunity of chaos in Iraq to grab the Kirkuk oil field. And, there are rumors that Iran has positioned military “advisors” in and around Iraq’s southern oil fields. As the United States mulls its options to diffuse the crisis, it might want to consider this: If Iran could, would Tehran want to control by proxy or otherwise, Iraq’s southern oil fields and infrastructure in the long run? What would the implications of that be for the regional power balance and global energy security?

And, in thinking about quiet negotiations with Iran about cooperation on the Iraqi situation, the US administration must also ask itself: is the US sure Iran would be satisfied over time with just “effectively” controlling the Basrah oil fields? Might the very nearby oil-rich Saudi Eastern province, with its large Shi-ite population, be yet another tempting target once Iran digested other assets in the Northern Gulf?

US military cooperation with Iran on the ground in Iraq is not only inconsistent with our regional alliances, it conflicts with our long term interests in global economic stability. Providing military support for an Iraqi leader beholden to Iran for his survival has the same strategic deficit.

Countries have strategic interests and the idea –often bandied about in Washington- that countries “need to sell their oil and gas” no matter how hostile they are to the West is a stupid one. The tense situation between Russia and Ukraine should be proof enough of that. Much ink has been spilled to explain that a cutoff of Russian energy exports to Europe will hurt Russia itself and therefore acts as a constraint on Moscow. But can we actually count on Russia to take the economically rationale path? Even if Russia is clever enough not to pull the trigger on its oil and gas weapon, it is not desirable for Russia to have that kind of economic leverage over important economies and allies of the United States. It can use that leverage to wrest other kinds of concessions from Europe. Moscow has indeed already cut off natural gas supplies to Ukraine. Europe’s overwhelming dependence on Russian energy has put the entire continent at tremendous risk. So I ask US leaders: How in the world would it be desirable to concentrate even more oil monopoly power in the hands of Iran?

While clearly it is politically incorrect to say this aloud, we still have to consider energy supply in forging our immediate policies in Iraq and Syria. Whatever the inclination to believe that we can use renewable energy to solve all our energy problems, for the time being, the world has over 1 billion liquid fuel cars on the roads today. Oil, therefore, remains a vital fuel for economic activity. This reality, no matter how unpleasant to those pushing a green energy agenda, keeps us stuck in the morass of worrying about war’s effect on global oil supplies. The consequences that sectarian conflict in the Persian Gulf region might escalate to involve oil installations across the region are dire both for local populations and for the global economy.  There are only so many petro-state failures that can be counter-balanced by rising US shale oil production.

The Obama Administration needs to play a wiser role in Middle East diplomacy in trying to diffuse the current crisis in Iraq and think more carefully about how to best involve itself in the protection of key regional oil installations and for whom. To date, the United States has not done a particularly good job in its diplomatic efforts to assist local leaders in managing oil revenue sharing conflicts in places like Iraq and Libya, and this failure has crippled US efforts to stabilize those countries. In promptu statements about the US taking a role in the defense of the Baiji refinery before proper diplomacy could take place on the ground in Iraq falls into a similar category of ill-planned policy. The administration would do well to count to 100 before it speaks about conflicts over oil facilities in the future and to consider the strategic elements of oil supply when considering diplomatic solutions to current conflicts.