The Oil Economy Is Collapsing With Every Protest in the Middle East

Photo Credit: iboy_daniel on Flckr

Whatever the outcome of the protests, uprisings, and rebellions now sweeping the Middle East, one thing is guaranteed: the world of oil will be permanently transformed.  Consider everything that’s now happening as just the first tremor of an oilquake that will shake our world to its core. 

For a century stretching back to the discovery of oil in southwestern Persia before World War I, Western powers have repeatedly intervened in the Middle East to ensure the survival of authoritarian governments devoted to producing petroleum.  Without such interventions, the expansion of Western economies after World War II and the current affluence of industrialized societies would be inconceivable.

Here, however, is the news that should be on the front pages of newspapers everywhere:  That old oil order is dying, and with its demise we will see the end of cheap and readily accessible petroleum -- forever.

Ending the Petroleum Age

Let’s try to take the measure of what exactly is at risk in the current tumult.  As a start, there is almost no way to give full justice to the critical role played by Middle Eastern oil in the world’s energy equation.  Although cheap coal fueled the original Industrial Revolution, powering railroads, steamships, and factories, cheap oil has made possible the automobile, the aviation industry, suburbia, mechanized agriculture, and an explosion of economic globalization.  And while a handful of major oil-producing areas launched the Petroleum Age -- the United States, Mexico, Venezuela, Romania, the area around Baku (in what was then the Czarist Russian empire), and the Dutch East Indies -- it’s been the Middle East that has quenched the world’s thirst for oil since World War II.

In 2009, the most recent year for which such data is available, BP reported that suppliers in the Middle East and North Africa jointly produced 29 million barrels per day, or 36% of the world’s total oil supply -- and even this doesn’t begin to suggest the region’s importance to the petroleum economy.  More than any other area, the Middle East has funneled its production into export markets to satisfy the energy cravings of oil-importing powers like the United States, China, Japan, and the European Union (EU).  We’re talking 20 million barrels funneled into export markets every day.  Compare that to Russia, the world’s top individual producer, at seven million barrels in exportable oil, the continent of Africa at six million, and South America at a mere one million.

As it happens, Middle Eastern producers will be even more important in the years to come because they possess an estimated two-thirds of remaining untapped petroleum reserves.  According to recent projections by the U.S. Department of Energy, the Middle East and North Africa will jointly provide approximately 43% of the world’s crude petroleum supply by 2035 (up from 37% in 2007), and will produce an even greater share of the world’s exportable oil.

To put the matter baldly:  The world economy requires an increasing supply of affordable petroleum.  The Middle East alone can provide that supply.  That’s why Western governments have long supported “stable” authoritarian regimes throughout the region, regularly supplying and training their security forces.  Now, this stultifying, petrified order, whose greatest success was producing oil for the world economy, is disintegrating.  Don’t count on any new order (or disorder) to deliver enough cheap oil to preserve the Petroleum Age.

To appreciate why this will be so, a little history lesson is in order.