Mideast still crucial for oil supply: Experts

Friday 23/10/2015
A gas flame near the Khurais oilfield, about 160 km (99 miles) from Riyadh.

Washington - The United States’ increas­ing energy independence is fuelling a debate about its engagement in the Middle East and its com­mitment to the security and stabil­ity of Gulf Arab states. The question heard in policy circles and oil mar­kets is whether the United States still needs the Gulf if it no longer needs its oil.
While the current state of the oil market poses challenges for US-Gulf relations, in a world that consumes 93 million barrels of oil a day with expectations of increas­ing demand, it is not likely that the Gulf region will become a global af­terthought.
Molly Williamson, former deputy assistant secretary in the depart­ments of State, Defense and Com­merce, told the annual Arab-US policymakers conference in Wash­ington that Russia, Saudi Arabia, the United States, China and Can­ada produce 50% of the 93 million barrels a day that the world con­sumes. Each of these countries, Williamson said, has a unique “clock”.
Russia’s clock is “running out of people and money”, she said. Not only is Russia’s population declin­ing, but the fall in oil prices has dev­astated its finances. This “clock” determines Russia’s geostrategic moves. “If you are going to cause mischief,” Williamson said, “It is in the interest of Russia to do it sooner than later.”
Saudi Arabia has a different clock. With more than half of its population under age 27 and look­ing for opportunities, diversifying the economy is critical for the king­dom.
The United States and Canada, Williamson said, suffer from a severe backlog in infrastructure spending. China is experiencing an economic slowdown and also faces a demographic challenge due to an ageing population.
With these ticking clocks in the major oil producers, the Mid­dle East, especially Saudi Arabia, seems to be in a better position than many others and its impor­tance will probably grow rather than diminish.
Herman Franssen, executive di­rector of the Energy Intelligence Group, predicted that the Middle East will remain “crucial for sup­ply of oil for decades to come”. He said that Saudi Arabia is the only one with the spare capacity be­cause “we can’t get oil quickly like Saudi Arabia and the kingdom has that power and OPEC still has this power”.
Franssen said the market will continue in oversupply until the third quarter of 2016 and by the end of next year will start to balance. But he cautioned that it was highly unlikely that the price of oil would reach $100 per barrel; $60 or $70 is more likely, he said.
However, Franssen called on people not to underestimate what electric automobile company Tesla is doing and to watch for a possible “breakthrough” in the electric car business that could have a huge im­pact on oil demand.
He was sceptical that the United States would reach the level of en­ergy independence that it wants and warned: “To look at energy independence to rebalance our in­terest in the region is not a smart thing.” If the United States “does not defend its allies… this will up­set the balance and put it in a disad­vantageous position in the world”, he said.
Franssen said Washington should not remain on the sidelines and noted the situation is making it difficult for Gulf states to have con­fidence in US policy. But, he asked, “Where else can they go? France is not a major power” and in the end, “only the US has the power to de­fend Saudi Arabia”.
One US government official who attended the conference and spoke to The Arab Weekly denied that the United States had written off the region.
Richard Westerdale, director of the Energy Resources Bureau’s Pol­icy Analysis and Public Diplomacy Office at the US State Department, said America’s energy future “is bright and can play a transforma­tive role”. He added that the United States has no desire or ability to decouple from the international market.
“The idea of energy independ­ence is a myth,” Westerdale said. “It cannot exist today in a globally in­terconnected economy, especially as oil markets demonstrate that an­ything that happens in the world af­fects us here” in the United States.
He reiterated that Washington’s “commitment to the Middle East has never been stronger”, and “the US will remain engaged with the Gulf to help in security and usher an energy future”.
When asked about the impact of Iran’s imminent re-entry into the oil market, Westerdale said this would not happen at the expense of Gulf allies. “We are not talking about a zero-sum game,” he said.