Mideast still crucial for oil supply: Experts
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.