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

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None of this, of course, came to pass.  For many ordinary Iraqis, the U.S. decision to immediately head for the Oil Ministry building was an instantaneous turning point that transformed possible support for the overthrow of a tyrant into anger and hostility.  Bremer’s drive to privatize the state oil company similarly produced a fierce nationalist backlash among Iraqi oil engineers, who essentially scuttled the plan.  Soon enough, a full-scale Sunni insurgency broke out. Oil output quickly fell, averaging only 2.0 million barrels daily between 2003 and 2009.  By 2010, it had finally inched back up to the 2.5 million barrel mark -- a far cry from those dreamed of 4.1 million barrels.

One conclusion isn’t hard to draw: Efforts by outsiders to control the political order in the Middle East for the sake of higher oil output will inevitably generate countervailing pressures that result in diminished production.  The United States and other powers watching the uprisings, rebellions, and protests blazing through the Middle East should be wary indeed: whatever their political or religious desires, local populations always turn out to harbor a fierce, passionate hostility to foreign domination and, in a crunch, will choose independence and the possibility of freedom over increased oil output.

The experiences of Iran and Iraq may not in the usual sense be comparable to those of Algeria, Bahrain, Egypt, Iraq, Jordan, Libya, Oman, Morocco, Saudi Arabia, Sudan, Tunisia, and Yemen.  However, all of them (and other countries likely to get swept up into the tumult) exhibit some elements of the same authoritarian political mold and all are connected to the old oil order.  Algeria, Egypt, Iraq, Libya, Oman, and Sudan are oil producers; Egypt and Jordan guard vital oil pipelines and, in Egypt’s case, a crucial canal for the transport of oil; Bahrain and Yemen as well as Oman occupy strategic points along major oil sealanes.  All have received substantial U.S. military aid and/or housed important U.S. military bases.  And, in all of these countries, the chant is the same:  “The people want the regime to fall.”

Two of these regimes have already fallen, three are tottering, and others are at risk.  The impact on global oil prices has been swift and merciless: on February 24th, the delivery price for North Brent crude, an industry benchmark, nearly reached $115 per barrel, the highest it’s been since the global economic meltdown of October 2008.  West Texas Intermediate, another benchmark crude, briefly and ominously crossed the $100 threshold.

Why the Saudis are Key

So far, the most important Middle Eastern producer of all, Saudi Arabia, has not exhibited obvious signs of vulnerability, or prices would have soared even higher.  However, the royal house of neighboring Bahrain is already in deep trouble; tens of thousands of protesters -- more than 20% of its half million people -- have repeatedly taken to the streets, despite the threat of live fire, in a movement for the abolition of the autocratic government of King Hamad ibn Isa al-Khalifa, and its replacement with genuine democratic rule.

These developments are especially worrisome to the Saudi leadership as the drive for change in Bahrain is being directed by that country’s long-abused Shiite population against an entrenched Sunni ruling elite.  Saudi Arabia also contains a large, though not -- as in Bahrain -- a majority Shiite population that has also suffered discrimination from Sunni rulers.  There is anxiety in Riyadh that the explosion in Bahrain could spill into the adjacent oil-rich Eastern Province of Saudi Arabia -- the one area of the kingdom where Shiites do form the majority -- producing a major challenge to the regime.  Partly to forestall any youth rebellion, 87-year-old King Abdullah has just promised $10 billion in grants, part of a $36 billion package of changes, to help young Saudi citizens get married and obtain homes and apartments.