The White House has been strongly hinting for two weeks that President Trump is unlikely to “re-certify” the Joint Comprehensive Plan of Action (JCPOA) or as it’s better known, the Iran Nuclear Agreement. The emotions from across the political spectrum range from jubilation to outright hysteria though, it’s important to note, the reactions don’t fit neatly within American party lines (plenty of Democrats had to be strong-armed into supporting the deal, and more than a couple Republicans believe it is in America’s interest to stay within the accord). The reality of the matter is much more complicated, though I believe it’s safe to tell everyone to take a deep breath and calm down.
A quick and dirty discussion of the mechanics of the JCPOA are in order. Technically speaking, it’s a non-binding political agreement (remember the Paris Climate Accords?). The Iran Nuclear Deal is not a treaty. It’s a series of interconnected agreements and a complex set of verification steps and was designed to make it easy for the United States to pull out or re-apply sanctions on Iran at will. To that end, the American president has to re-certify the agreement every 90 days, as well as sign off on a series of sanctions waivers that cover periods of time from a couple of months to a year. We’ll come back to this part.
The agreement, however, was approved by Congress, and in the event that President Trump or any of his successors decide to refuse certification of the deal – essentially declining to admit that Iran is holding up its end of the bargain – Congress has 60 days to attempt to change portions of the JCPOA they disagree with or (re)apply sanctions both old and new.
That last bit about sanctions is where things get tricky, before we even get into the fact that Congress couldn’t get anything done in 60 days in a normal political season, let alone when they’re racing to hammer out a budget and attempt to forge some sort of tax reform deal. The JCPOA and the Presidential waivers cover a web of sanctions that are both those passed by Congress and those that came into effect via executive order. The latter is where Trump could snapback previous executive sanctions and apply new ones if he feels Congress isn’t taking Iran to task as much as he’d like.
There are other complicating factors here, namely the five other nations who are members of the accord (including a France that has steadfastly refused to renegotiate the terms of the deal as its companies race to access Iranian energy plays and the third largest market in the Middle East). Europe as a whole and France, Germany, and Britain in particular are loathe to re-enter a difficult and prolonged negotiations with the Iranians given all the other problems they’re dealing with (like Russia, Merkel’s declining power, and an overhaul of the socioeconomic pillars of political life… just to name a few), and traditionally have had a much easier time dealing with Tehran than the Americans.
At the end of the day, though, not much is likely to immediately change. There is a strong argument to be made that it’s bad for America’s long-term interests to be seen as an unreliable partner to international agreements as well as further alienating EU/NATO partners, but the most likely scenario is that President Trump refuses to certify, the US Congress gets busy doing nothing, and that Iran continues trading and dealing with Europe, Russia, and China. Meanwhile, the US create a unilateral sanctions system to target Iran – perhaps with secondary sanctions to target European and Asian players who are doing business with Iran. That’d return us to the status quo ante that defined the US-Iran relationship for not only much of the Obama administration, but also the past four decades.
So… now what? If the US is serious about disengaging from the Middle East—and the relatively standoffish (in terms of the US response) American action in Libya, Syria, post-ISIS Iraq, and Yemen are goods signs that the US is indeed serious—there are few realistic options on how to contain the Middle East quagmire.
Option one is to establish a regional balance of power. This requires encouraging Turkey to be an independent actor rather than a state that is a mere adjunct of NATO (check), turning a blind eye to Saudi Arabia’s tendency to spawn Sunni terror groups (check), and somewhat rehabilitating Iran in the international community so that it can counter the other two. That last was the Obama administration’s rationale for the nuclear deal in the first place. The advantage of this route is that the region’s various players become locked into a never-ending death struggle that so consumes them, they lack (ideally forever) the freedom to act out-of-region.
Option two – which appears to be Trump’s preference – is to anoint one of the three major players to run the region in the Americans’ stead. Those of us who remember the heady days of sword-dancing and orb-touching from President Trump’s earlier visit to Saudi Arabia will not be surprised to hear that the likely beneficiary of the Trump administration’s emerging Middle East policy is Riyadh. What’s more important is that Riyadh certainly thinks so, too. From lip service moves such as allowing women to drive, to staging a practice war against mountain-bound Shi’ite-aligned rebels in Yemen, to buying-off and/or strong-arming regional Arab competitors such as Egypt and Qatar, the Saudis are certainly trying to set themselves up as the regional powerhouse.
But Saudi Arabia is an odd choice. It is a desert country completely dependent upon oil sales, predominantly to a China that hopes to challenge US hegemony in the Pacific. It is the only of the three that is not a democracy, and shows zero interest in even considering shifting its domestic politics in a liberal direction. It’s primary foreign policy strategy is to spam out militant groups to turn its rivals’ neighborhoods into post-apocalyptic carnage zones (its hands were in the rise of al Qaeda, the Taliban and ISIS). Between its deliberate lack of civil society, its brittle political culture and its monochromatic economy, it simply doesn’t have any of the “normal” levers of power that would allow it to be a regional hegemon without a great deal of ongoing help.
And if it needs a great deal of ongoing help, that doesn’t really mesh with the core American desire to get out of the region.
The Middle East is a wild and wacky place. The core issue is geographic: basic resources – especially water – are in short supply and resource competition breeds violence. Cultural and sectarian differences are what outsiders are often aware of, and for good reason. Out-of-region powers ranging from the British to French to Russians to Americans have been playing Persians and Turks and Arabs of various flavors against one another for centuries. First to get beneficial trading relationships with the Eastern world (think spices and silk), then to keep potentially hostile forces locked up in the sand box, and finally to get preferential access to the bounty of oil and gas resources in the area.
The Middle East boasts five major civilizational zones, four of which we’ll examine here. What sets them apart from the wastes that dominate the broader region is the simple fact that they have water. It is a basic concept, but it bears stating plainly: water enables agriculture enables populations enables cities enables education enables technology enables a military. Without water, it is damnably hard to develop into, well, anything.
Anatolia (aka Asia Minor, aka Turkey). This first zone gets both the most and the most reliable rainfall. The real gem is western Anatolia – not only is this zone (relatively) wet, its mountains low, and its valleys broad, it directly abuts the Sea of Marmara: a warm temperate zone with fertile lands and excellent trade opportunities, making it among the world’s richest and most advanced regions going back to antiquity. Move further east in Asia Minor, however, and the land rises and sharpens. The Marmara region can – and often has – projected power deep into the Middle East, but it must always first negotiate its own internal rugged zones before venturing out. For the past half millennia, Anatolia has been home to the Turks.
Persia (aka Iran). The second-most powerful regional geography are the Persian Highlands. Geographically an extension of eastern Anatolia, the lands are riven by dozens of minor mountain chains generating hundreds of tiny valleys with dozens of distinct cultural and linguistic communities. Like the Turks, the Persians can only venture out when they have their internal house in order. They’re getting close. It has taken the largest group – the Persians – the better part of recorded history to consolidate the messy region under their control, in part by promulgating a multi-ethnic/religious, semi-nationalist identity we know today as “Iranian”.
The Levant (aka the Eastern Mediterranean shore). Whereas Persia is shot through with micro-climates and hundreds of separate identities, the Levant’s mountains are lower, its valleys bigger, and its flat lands more contiguous, meaning it has only generated a score of so peoples. It is also somewhat hived off from the other areas by mix of deserts and mountains, allowing the bigger fish in this smaller pond to carve out their own worlds. The Jews proved capable of re-creating their ancient homeland, albeit at the cost of the Palestinians who had been living there since the Old Testament was completed. A more motley crew involving Sunni, Shia, Maronite Christians and others has attempted with some success to spackle together Lebanon. The Alawites of the northern Levantine coast partnered with the Shia and Christians of the mountains to dominate the interior cities of Homs, Hama, Aleppo and Damascus to run Syria – a partnership that has yet to breakdown despite the agonizing civil war.
Mesopotamia (aka Iraq). In the final area it hardly ever rains at all, but it still has water courtesy of the Tigris and Euphrates Rivers. The saddle of desert land separating the pair is so low that stone-age level irrigation technologies can turn it green. Unique among the four for its broad, unified flat lands, when Mesopotamia is able to rise it is able to rise very quickly (all the neighbors are constantly dealing with the agony of a difficult, rugged, arid geography while the lowlanders simply shift around some water and build roads through flat areas for a quick economic pick-me-up). As such Mesopotamia is the most likely region to launch invasions…but also the power that is the least defensible and most likely to get wrecked in a prolonged war.
Between the competing nationalities, ethnicities (map courtesy of the Gulf/2000 Project), religions, clans and factions, there just isn’t anything that most – much less all – of them can agree on. Or at least there wasn’t until about four years ago. That’s when the Islamic State popped up.
Istanbul, Turkey
Unlike Persia or the Levant where it rains or Mesopotamia where irrigation is easy, the lands in the Middle East’s middle are hard desert. The Euphrates does flow through the area, but the middle Euphrates’ banks are steeper than those in southern Iraq, so the “green zone” from the high point above one bank to the other is typically but a few miles. With so little usable land stretched across so much empty, in no era has controlling this narrow ribbon been worth the effort, particularly since desert raiders can easily punch anywhere into it.
Consequently, the regional powers simply leave what is today western Iraq and eastern Syria alone until some of the local crazies (or resource competitors, if you’d rather) cause sufficient problems that one of the regional powers feels moved to send the army in and burn everything to the ground. The Islamic State is merely the most recent manifestation of a problem that has plagued this area since the dawn of civilization.
IS owes not just its rapid rise, but its very existence, to the Middle East’s recent geopolitical disarray. Syria has been locked into a civil war and been unable to patrol, much less act decisively, in its eastern lands. Israel’s glee at watching the Syrian war continue to wreck its primary regional foe has prevented it from acting. After their World War I defeat, the Turks closed themselves off from the world and ceased participating in Middle Eastern affairs; they are out of practice. Iraq faced not only the U.S. occupation and its own civil war, but its Western-trained and -supplied army proved so incompetent that it had to be disbanded. Iran has had bigger fish to fry in Iraq – a country it is hoping to turn into a client state – and Syria – a regional ally it very nearly lost. Americans, gun-shy from their Iraqi occupational experiences, didn’t want to take the lead on another Middle Eastern war. (Incidentally, the only reason Americans care at all about IS is that a few idealistic Americans refused to believe that the local mass-murdering militant group known for enslaving or beheading any Christians they came across would target even secular American aid workers.)
But all this and more has recently changed.
Six years into the Syrian civil war, the Iranians (and Russians) have poured in resources sufficient to turn the tide in the government’s favor. Anti-government rebels in the country’s west have suffered a litany of defeats, freeing Damascus to push more resources against IS in the east. The Turks have recently consolidated their own internal political schisms and for the first time in a century, started venturing out again. Syria and Iraq are the first step on a broader…regional tour. The Iraqi army was re-mustered, re-trained and re-supplied, and during the past year it has made steady gains against IS in Fallujah, Ramadi and Mosul. American forces did a bizarre dance of advising-but-not-fighting-but-ok-sort-of-fighting-sure-really-fighting.
One functional regional power would have been enough to roll IS up given time, but three plus some international add-ons were more than enough to decimate it. At long last, IS in its Middle East “caliphate” form is rapidly deteriorating after a two-year-long staccato of steady, significant losses. Recently their “capital” at Raqqa fell, and what little remains of the institutional core of IS-prime is itself no longer a significant geopolitical threat. It has been a long, messy, bare knuckle brawl, but it is nearly over.
Tehran, Iran
Given the cast of characters we’re talking about there was never 100% unity behind how or if or when or to what extent IS needed to be crushed, but to have folks as widely divergent as Persia and Arabia, Russia and America, Israel and Syria on the same page – however briefly – is far more than a mere historical footnote.
Now, with the unifying threat the Islamic State posed largely fading into the desert, things in the Middle East are about to get a hell of a lot uglier. No longer will everyone be putting their other beefs aside to deal with the threat of IS. Now they have to deal with each other.
The next crisis will boil up out of Iraq, a country comprised of three mutually-loathing groups:
Iraq’s Arab Shi’ites make up the bulk of the population, and have for centuries. But being the majority does not work for them. Living primarily in the southeast edge of the country near Iran, their Shi’ite beliefs have placed them at odds with the Sunni Ottoman, Hashemite and Baathist leadership that have ruled Mesopotamia since the 16th century. Proximity to Iran should have had benefits, but then again being Arab subjects of a Persian empire isn’t a great position to be in. With roots in the marshy swamplands of the southern tip of Iraq, these Arabs have long been poor, but Iraq’s Shi’ite core now rests atop most of Iraq’s superfields. After the fall of Saddam and the introduction of representative democracy thanks to the United States, Iraq’s Shi’ite Arabs (with plenty of community organizing thrown in by Iran) have the numbers and oil wealth, much to the dismay of everyone around them. As much as the Iranians want to have Shi’ites running things in Baghdad, they don’t want a wealthy, ethnically Arab oil competitor on their western flank who can challenge their regional role. Iraq’s Shi’ites have grown to resent not only their typical Sunni masters, but also Iranian attempts at puppeteering Iraqi suffering to their benefit. Iran saw this coming, and has spent decades sowing infighting and competition among Iraq’s Shi’ites – and it did so expertly.
The Sunni Arabs have a long cultural pedigree, with tribal links to Saudi Arabia and especially Jordan. Bedouin tribesmen gave their support and legitimacy to the Hashemite monarchy (a branch of which still rules in Amman). Sectarian links to distant Ottoman sultans, and tribal links to Saddam gave the sectarian minorities oversized control and the lion’s share of state oil revenues (before American-led forces bombed them twice, the Sunni triangle had excellent connectivity with Baghdad, European-built highways, good hospitals and universities even as Shi’ite Iraqis were living like 14th century peasants). Unfortunately, the Sunni live along the fringe of the broad, arid expanse of Iraq’s Western Desert. Of late their fortunes have reversed: they have no oil, their sons are wooed by an alphabet soup of militant groups, and they are vehemently opposed to any subgroup – be it Shi’ites or Kurds – dismantling what they view as an inherently Arab Iraqi state or taking their share of national oil revenues… which comes from oil fields they no longer control. In addition to having fallen the furthest, the Sunni Arabs are the smallest of the three groups. They simply cannot win at either representative democracy or open warfare, so they have learned to change the game and fight irregularly, kicking over the table. Iraq’s Sunnis are the ones who ran the Baath insurgency and the local al Qaeda chapter against the Americans, and who gave birth to the Islamic State.
Iraq’s Kurds are a subgroup of a broader community stretching from Iran through Iraq and Turkey to Syria. Like most other groups in the Middle East, the Kurds are as prone to infighting as anyone else. More in fact, as they hail from not only the steppes of northeastern Syria, and highlands of Iraq, but also the riven mountain valleys of southeastern Anatolia and northwestern Iran. Simply – if not entirely accurately – put, Iraq’s Kurds are divided between pro-Turkish and Iranian camps, and Iraqi Kurds have been slow to support Syrian Kurds in their fight against IS or Turkish Kurds in their armed resistance against Ankara (with Iranian Kurds another entity entirely). Iraq’s Kurds also have something no other Kurdish group does: control over significant oil and natural gas reserves. This infuriates Iraq’s Sunni Arabs to no end for taking the money, Iraq’s Shi’ites to no end for taking de facto political control of their territory, and gives the Kurdish Regional Government in Erbil an effective bargaining chip against Baghdad. It also – so far – makes them valuable to Turkey, an oil importer.
It is the final of these three groups that perked up my attention recently. On September 25 they held an independence referendum in which some 90% of the electorate is believed to have shown up, with 93% of voters answering in the affirmative.
Pretty much everyone – including the United Nations and the United States, the two groups who have most aggressively supported Kurdish rights – have condemned the vote and called upon all parties to ignore the results.
“Why?” you might ask. And it’s not a stupid question.
The Kurds have suffered greatly at the hands of Iran, Turkey and Iraq, and their many waves of refugees haven’t exactly been welcomed in Europe with open arms despite their relatively secular approach to religion. They’ve certainly been Washington’s regional ally of choice, asking for little while supporting American efforts throughout their region with land, basing rights, tactical and strategic intelligence, and – when push has come to shove – some of the most badass fighters the region has ever produced. Of late they have done most of the heavy lifting against both the Assad regime and the Islamic State.
The problem is that the battles against IS achieved something that no other conflict in the region ever has: it gave the various factions of Kurds a singular enemy to fight, helping craft a proto-identity that might actually help the notoriously fractured ethnic group unify. And if the Kurds all agree that they are the same people, then an independence vote – regardless of obstacles – makes a lot of sense.
And that’s a problem for everyone.
It’s a problem for the Iraqi Arabs of all sectarian stripes who see Kurdish territories as theirs. It’s a problem for the Iraqi Shia who see their northern tier coming unhinged and a loss of northern oil revenues. It’s a problem for the Americans who would like nothing more than to get the hell out of the region, but who feel responsibility to their loyal Kurdish ally and would prefer to not leave them in a lurch – no matter how self-imposed that lurch is. It’s a problem for Iran and Turkey and especially Syria where local Kurdish communities have identities forged in the common anti-IS effort and who all directly border a would-be independent Iraqi Kurdistan. And it is a problem for the Iraqi Kurds, whose landlocked nature means that without the buy-in of the other regional players any independent Kurdistan would be so economically broken and dysfunctional as to make Bolivia look wildly successful.
And that’s only half the problem.
The other half is that the Islamic State was not an import – it was the noxious weed that took root in the fractures of Iraqi society. The Kurds’ push toward independence risks pushing those fractures further, and a destabilized Iraq (and yes, it can always get worse than what we see now) risks pulling its neighbors down with it. To give you an idea of just how disruptive that would be to, well, everyone in the neighborhood, the only country in the world supporting the Kurdish referendum is… Israel.
With the shiny disco ball of IS crashing down, the players of the Middle East are taking stock of each other as the lights turn back on. No longer facing a common enemy, each major player is seeking to capitalize on the weakness of their competitors. The Levant and Mesopotamia are in need of rebuilding, and Iran, Turkey, and Saudi Arabia want to limit risks while maximizing their own strategic gains in the process. Baghdad and Damascus will protest loudly during any vivisection of their territories, but the Kurds are looking to reap the rewards of fighting on the front lines against IS. Their success against the informal forces of the Islamic State has them feeling up for a fight, though the regular armies of the regional states will not be routed as quickly. Current US/NATO support belies how little overt (if any) military support the Kurds can expect in a fight against Ankara, Baghdad and Tehran, and yet the vast majority of the population is expecting Erbil to act in accordance to the referendum, and to find some dividends on the huge amount of suffering endured by Kurdish people in their frontline fight against IS.
And never forget that should the regional powers start battling an emerging Kurdistan, the no-mans-land of western Iraq and eastern Syria will once again fall off the region’s collective radar…granting yet another breed of desert militant the perfect environment to gain strength once again.
From time to time it is important to take a step back from the noise and splatter of the news cycle (and oh my has there been a lot of noise and splatter this year!) and take a good deep, hard look at trends old and new to see how they are strengthening, weakening, and weaving themselves into new forms.
The big three megatrends that guide my work – the American withdrawal from global management, the steepening inversion of global age demographics, and the ever-advancing shale revolution – remain my guiding stars. Shale has slowed somewhat but that’s largely irrelevant as the U.S. and Canada combined are only a rounding error away from becoming net oil exporters. The global demographic shift is right on schedule (it is far too late in the game to magic up a fresh batch of Millennials). And the American withdrawal from the global order has obviously accelerated under the ever-thoughtful, always-restrained, humble modesty of President Donald Trump.
They’re coming, and in about a year they will be with us.
To that end I’m putting together a three-part newsletter about what everyone will be worried about next year. These are issues that will have an outsized impact not just for the United States, but the wider world that will impact regional events for a decade to come:
With the Islamic State all but wrapped up, it is time for the Middle East to embark on its next – and far more violent and far reaching – military conflict.
The pause in the violence of the drug war is nearly over and what comes next will have far greater implications for both Mexico and the United States.
The one trade deal that the Americans made for economic, rather than strategic, reasons is in danger. The year 2018 will be when NAFTA’s future is decided one way or another.
We’ll have more, but hopefully this trio is enough to whet everyone’s appetite for what is shaping up to be an extremely active year.
So, two things that happened in the past week that were of interest to me.
First, Saudi Arabia issued its official demands that the Qatari government would need to meet for the Saudis and their allies to end their diplomatic, political and economic blockade. With deep conditions ranging from the shuttering of the al Jazeera news service to a complete realignment of the country’s foreign policy from one of independent stances to something more appropriate to a province of Saudi Arabia.
Second, I spoke at PACOM in Hawaii about the changing nature of American power. The subsequent discussion focused heavily on the evolving role of the U.S. military as the country’s geopolitical priorities shift. The two neatly dovetail and highlight one of the deepening challenges the U.S. government faces in the next few years.
Let’s start with the background.
Near the end of World War II at the Bretton Woods conference the United States struck a deal with the allies. In the post-war order, the United States will defend not just your countries, but all your trade. You will no longer need to fight one another to access raw materials or markets. Furthermore, the American market — the only one of size to survive the war — will be open to you. All you have to do is side with America against the Soviets. Put simply, the United States pledged its military and economy to subsidize history’s largest alliance network.
By 1992, however, the Cold War had ended and — caught up in the transition from the Bush Sr administration to Clinton — the Americans neglected to craft a replacement strategy. The world changed, but U.S. strategic overwatch and subsidization of the alliance did not. All the various Cold War allies — ranging from the Germans to the Koreans to the Chinese to the Greeks — continued to benefit economically, but the Americans no longer received the strategic deference that was part of the original Bretton Woods deal.
Twenty-five years later, the economic cost of such an outdated strategy has led to the perception in many Americans’ minds that the world is freeloading on American security commitments. This isn’t intolerance or a fit of pique, it is a reasonable response to Washington’s inability to craft a replacement for a security policy that is a generation out of date. Such perceptions heavily colored the populist nature of the 2016 presidential election, and of course the election of Donald Trump — and now the American retrenchment is in full swing.
Yet it hardly started with Trump. American strategic policy has been on autopilot since 1992. The Clinton, W Bush and Obama administrations were too distracted, disinterested and/or unaware of the intricacies of the international system to meaningfully update the original Bretton Woods deal. In Donald Trump the Americans now have a leader just as distracted, disinterested and/or unaware as his three immediate predecessors. What is different about Trump is that as a populist he feels no attachment to the Bretton Woods system, so there is no natural inclination to just let-it-ride. Consequently, there are a growing number of breaches as the freshmen president, by action and inaction, peels away bits of the old system — but doesn’t replace them with anything new.
Such peeling is on full display with U.S. policy to the Persian Gulf. Trump’s first overseas visit wasn’t to traditional partners like Canada or Mexico or traditional allies like the United Kingdom or Japan, but instead to Saudi Arabia where Trump was quickly sucked into a gilded flattery fest of Trumpian proportions. The Saudis emerged from the visit-glow thinking they had the White House’s stamp of approval to restructure their region in whatever way they saw fit. Their first act wasn’t to move against ISIS or Iran, but Qatar — a tiny country the Saudis have long viewed as unnecessarily close to Iran, unnecessarily promiscuous when it comes to sponsoring political groups opposed to Saudi goals, and in general unnecessarily free-willed.
Qatar, however, didn’t buckle — and that brings us to PACOM.
The U.S. military apparatus is charged with dispensing and enforcing U.S. strategic policy. As part of such duties, the military must constantly interact with allies and rivals around the world. That takes soldiers. Sailors. Marines. Airmen. Bases — and those bases require commitments to local and regional security concerns. That takes engagement, reliability, consistency. Every. Single. Day. By far the Americans’ largest overseas base these days is in Doha…the capital of Qatar. The CENTCOM base there has been the nerve-center for all US operations in Syria, Iraq and Afghanistan for some 15 years now.
The Qataris believe — correctly — that the U.S. military has their back and so there is no need for them to back down to the Saudis. The Saudis believe — correctly — that the Trump administration has green-lit their desire to restructure their region more to their liking. The Trump administration believes — correctly — that the U.S. strategic policy it inherited needs an overhaul, but has yet to craft that replacement policy.
The result in the U.S. military and diplomatic community is an overriding sense of confusion and frustration. Their standing orders are clear, but the shifts out of the White House are equally clear. And increasingly, the two contradict. The folks at PACOM can’t figure out, for example, whether they are supposed to treat China as a threat, a partner, a rising power who should be engaged…or given space. And mixed messages aren’t the best things when dealing with multiple aircraft carrier battle groups.
The issue is not so much Trump’s tendency to make policy via Twitter (although that obviously doesn’t help), but instead that ever since the Cold War ended the Americans have not had a goal.
Until the Americans select a new one they cannot have a coherent strategy. Until they have the national conversation required to select that goal, these deepening splits between needs and actions will only widen, leaving allies new and old not just in a lurch, but often acting against one another — as Saudi Arabia and Qatar are now.
There are plenty of places where this disconnect between emerging strategic interests and outdated policy will grind. Some of the louder ones include NATO, where it is no longer clearly in America’s interests to defend Europe against Russia. At the DMZ, where North Korea is far more a threat to South Korea, Japan and even China than it is to the United States. In the South China Sea where Chinese aggression is less a threat to American interests than to Taiwanese and Japanese. In Kuwait where America’s lack of oil import needs staggeringly reduces the Americans’ interest while staggeringly increasing Saudi belligerence. America’s use of Turkey’s Incirlik airbase will likely evaporate for a mix of reasons ranging from disenchantment with the evolution of the Turkish political space to a general feeling that the refugee issue is Europe’s problem, while Syria is Turkey’s problem.
Other places generate a lot less heartburn and — even without some new overarching strategy — are likely to keep their current levels of American involvement regardless. The UK, Canada and Australia have been and will remain America’s closest allies under almost any reasonable scenario. Morocco and Algeria are reliable partners in the struggle against Islamic militancy. Proximity and economic centrality will keep the Americans involved in Panamanian affairs for as long as water transport is a thing. Singapore sits on the world’s most strategically located real estate and is likely to be a valued partner until the end of time itself.
Perhaps the quirkiest aspect of all this are the countries likely to suffer the most from the policy discombobulation.
On the surface the Qatari-Saudi spat seems like it would deliver the Persian Gulf to Iran on a silver platter. But no. Within the first week of the argument, Turkey had deployed troops to its airbase in Qatar. Nothing is easy in the Middle East, even (especially!) for powers inhabiting the region. Turkey’s push to support Qatar is a clear indication to Tehran (and Riyadh) that even if US troops left the region tomorrow, Iran gets to look forward to facing off against yet another superior economic and military power. Unlike the United States, however, Turkey has a bevy of permanent regional interests directly opposed to Iran’s own, and occupies prime real estate in the neighborhood.
Trump’s wobbling on NATO seems like it gives the Russians everything they want — a Europe without the American security umbrella. But no. With the Americans out, the Germans have no choice but to rearm — and every time that has happened, it hasn’t turned out well for Moscow.
Loosening security ties with the East Asian rim seems like a dream come true for the Chinese. But no. Not only does that force Japan, Korea and Taiwan to massively bulk up their defense capacities (and perhaps go nuclear), but China’s extensive international economic position is utterly dependent upon the Americans keeping markets open and sea lanes safe on a global scale. Without America, there is no Chinese economic miracle — and most likely a naval war with Japan that China simply cannot win.
What will the Americans decide they want out of all of this? What will their new goal be? No clue. American politics are loud and messy and amped up with righteous indignation at present. Even if Americans could start the national conversation on finding that elusive goal today, I doubt they’d come up with the final answer in this presidency.
Saudi Arabia is in the midst of a full-court press against the government of Qatar, leading a coalition of countries as varied as Egypt, Bahrain, the UAE, Yemen and the Maldives. All these states and more have severed diplomatic relations, in addition to barring all land, air and maritime transport to and from the tiny Persian Gulf country.
So what’s up?
Think of the relationship between Saudi Arabia and Qatar like the relationship between the United States and France during the Cold War. It was obvious to everyone who was stronger, and France didn’t appreciate playing second fiddle. So, in order to balance relations and maintain some independent standing, France would cut side deals with the Soviets. Little that Paris did was purposefully hostile to Washington, but France was certainly the gap in the Western wall.
Qatar is a Sunni Arab country, just like Saudi Arabia; in fact, Qatar is the only other country claiming Wahhabi Islam as its official state religion. But that doesn’t mean Qatar — with a citizen population less than one-twentieth that of Saudi Arabia — wants Riyadh to be the boss of it. Qatar’s independent streak is borne out of a perception of its options. Qatar is the only Persian Gulf state not utterly dependent upon oil. Instead it exports natural gas in liquid form, making the Qatari economy resistant to any minor Saudi meddling. Doha has weaponized news media in the form of Al Jazeera, routinely blasting out stories critical of its neighbors (read: the Saudi royal family) throughout the Arab speaking world.
Most importantly, Qatar has worked to bring other powers into its side of the Persian Gulf. The most obvious of these powers is Iran — Saudi Arabia’s arch-nemesis (shameless plug: for lots of information on the coming war between Saudi Arabia and Iran, see Chapter 7 of my new book, The Absent Superpower.
But Qatar has hardly stopped there. Qatar has also pursued an aggressive foreign policy that seeks to back Islamist groups — oftentimes militant Islamist groups — throughout the Middle East. Based on your politics, many would agree with the Saudis and classify some of these Qatari-backed groups as being in the terrorism business.
A few things come from this:
First, this points to how emboldened the Saudis must feel after Trump’s visit and sword-dancing bonanza. Riyadh is desperate to position itself in the region before Iran can get back on its feet, however wobbly. An early step is to ensure that all regional states fall in line, and fast. Qatar has long been the most defiant Gulf Arab state. Any concessions Doha grants in upcoming days will be an important message to Oman and Kuwait, who have yet to side with the Saudis in halting trade with Qatar. Also important is the reaction of Turkey — the only other Sunni state in the region that might butt heads with Riyadh over who is really in charge.
Second, the Saudi strategy seems expressly designed to bring about a rupture in Qatari-American relations. One of the balancing powers the Qatari brought in to offset the Saudis is the United States. CENTCOM established a forward headquarters in Qatar to coordinate the Afghan and Iraqi Wars, and now CENTCOM plays a leading role in anti-ISIS operations. So long as the Americans have CENTCOM in Qatar, there is only so much the Saudis can do to counter Qatari ambitions. But should the Trump administration conclude the Qataris are Iranian-loving terrorist-sponsors, CENTCOM would relocate back to the American mainland in a heartbeat. That wouldn’t just leave tiny Qatar utterly alone, it would probably result in its de facto annexation by Saudi Arabia within a few years.
Third, welcome to the new normal. From 1945 until …last month, the world was more or less American-managed. The United States used its control of global markets, global security and the global ocean to build a series of alliances and institutions to hold everything together. In this system, the participants gained global market access, global resource access and physical security in exchange for deference to Washington on defense matters. They also agreed to not do certain things. Near the top of the no-no list was economic warfare: embargoes, for example, were to be relegated to history. The United States would arbitrate disputes to prevent them from spinning out of control, particularly between countries that were on the ally list. Countries like, say, Saudi Arabia and Qatar.
The United States has been backing away from such active management since the Clinton administration and I’ve long maintained that whoever was elected president in 2016 would be the leader to preside over the formal abandonment of that system. (Lots on that in my first book: The Accidental Superpower.) Trump won. Trump is on deck. Trump is trashing the American-built, -maintained and -brokered global Order. Bereft of American overwatch, regional powers are taking matters into their own hands. The Saudi-led actions against Qatar are a (very small) taste of the Disorder to come.
Fourth, do not allow yourself to get caught up in the Saudi propaganda. While the groups that Qatar (and Iran) back are not nice people, it isn’t as if the Saudis are paragons of pacifism. Saudi foreign and security policy going back to the 1980s is to export Saudi malcontents to conflict zones, as well as to supply fighters within and beyond their region with weapons, intelligence and money so they can bloody Riyadh’s foes. By the very definition that the Saudis are using to condemn Qatari actions, the Saudis are the industry leaders in the terrorism business.
You can easily make a strong case that Qatar, Saudi Arabia, the UAE and Kuwait are all complicit with militant groups of all sorts — and have been for decades. Sometimes they control these groups, sometimes they simply assist them, sometimes they lose control and the groups rebrand, sometimes factions within the sponsoring countries keep supporting the militants even after control is lost. This last is certainly what happened with mujahedeen-turned-al Qaeda 20 years ago and is happening with al Qaeda in Iraq-turned-ISIS today. No one in the Persian Gulf has clean hands.
Fifth, a key characteristic of the emerging Disorder is that while the United States will not feel that it is nailed down to express security guarantees or global structures, it still will intervene from time to time and will still play favorites. While I believe it is high time for the United States to bring CENTCOM home, I also read Saudi actions as an attempt to shape American behavior. Is there room for Saudi-American cooperation on a great many issues? Sure. But as the U.S. lets the global order break down, there will be constant risks of being coopted, bribed, tricked and otherwise manipulated into subconsciously adopting the goals of other countries as America’s own.
Today, Russia’s ambassador to Turkey, Andrei Karlov, was giving a speech at the opening ceremony of a photo exhibit when an assailant, who has since been identified as a standing police officer, opened fire, killing Karlov. Karlov had served in his ambassadorial role to Turkey since July 2013. He previously served as Russia’s ambassador to North Korea.
There are two relevant bits here. First, Russian politics.
I don’t mean to sound trite here, but politics in Russia are nothing like politics in the United States. In the United States there are dozens of routes to political power. The Clintons came out of local government. The Bushes out of business. Carter out of agriculture. Obama out of academia. Reagan out of Hollywood. An economically rich geography fosters a strong civil society which provides myriad paths to political power.
That’s not how things fly in Russia. The geography and political system are so hostile there is only one way to national leadership: first be a senior intelligence officer. These folks are the only ones who have a sufficiently accurate and complete view of the country that they can even attempt a national role. This makes Russia’s leadership much more intelligent and competent than the American leadership, but it also makes the Russian leadership thin and brittle. (Technically, Karlov was a career diplomat, but mere functionaries aren’t appointed ambassador to countries as politically prickly and strategically sensitive as North Korea.)
The American political class probably has around two million people. The Russian political class has but 200. With the death of Karlov they have one less. This would be bad enough under normal circumstances, but circumstances in Russia are far from normal.
Red Square in Moscow, Russia
Between the Soviet breakup and the subsequent collapse of the Russian healthcare system, the Russian population is one of the fastest aging and most diseased in the world. By 2050 the Russian population will have shrunk by one-quarter, with ethnic Russians no longer the majority. For a country where oppression of minorities is the cultural equivalent of baseball, this will prove a swampy problem.
Back to the issue of the moment, replacing skilled diplomats is hard enough. Skill sets like Karlov’s which include language competency in Russian, English, Korean and Turkish are hard to develop. Factor in Russia’s demographic hollowing out and Karlov is utterly irreplaceable.
The second issue regards Russia’s relationship with Turkey.
According to initial reports, Karlov’s assassin shouted condemnations of Russia’s policy in Syria in general and Aleppo in specific. It was just the sort of high-profile action that puts a spotlight on political policies and inspires militants of various stripes. (Imagine the fallout had a Mountie killed the American ambassador to Canada during the Iraq War.)
As regards the Turks, Turkey has been in a bit of a geopolitical deepfreeze since its catastrophic defeat in World War One. For most of the time since, the Turks farmed out control of their foreign policy to the United States in exchange for economic access and strategic cover. Of late the Turkish government has begun emerging from its self-imposed shell and started to form opinions as to what its independent strategic posture should be.
At first Ankara assumed that everyone in its neighborhood would do whatever it wanted because Turkey is so inherently awesome. This included expectations that the Israelis would pay for a fully independent Palestinian state, that revolutionary Egypt would model its government after Turkey’s ruling party, that Baghdad would subjugate its foreign and civil policy to Turkish norms, that the Syrian government would overthrow itself, and that U.S. troops would deploy to Syria to carry out Turkish desires. Needless to say, things didn’t exactly work out as the Turks predicted.
Istanbul, Turkey
Instead, Turkey found itself in a panicked argument with the Russians when a Turkish air defense battery shot down a Russian jet operating in Syria. After an initial bout of Turkish bombast, Ankara was faced with the harsh reality that they were diplomatically out of practice, utterly bereft of meaningful allies, and on the verge of a very real war with the Russians.
Enter Karlov, who has a record of successfully manipulating people as testy as North Korea’s Kim Il Sung. The result was Turkey’s ignoble Karlov-managed climbdown. Part of that climbdown was admitting (unofficially) that the Russians owned Syria and any meaningful Turkish policy there required Russian sign-off. After all, the Russians were willing to bomb anyone they thought needed bombing, and the Turks were not.
Karlov’s assassination drags Turkey’s capitulation, Turkey’s (non-)position in the Syrian war, and the broader Turkish-Russian relationship all back into the spotlight. All these things and more are now back at the top of the Turks’ internal to-debate list. It also creates a rare window. With Russia’s man in Turkey gone, the Turks have a moment to have these debates with less outside interference.
Which way will the Turks go? No idea. The Balkans hold more economic opportunity but expansion there would clash with Europe. The Caucasus hold more cultural opportunity but expansion there would clash with Russia. Syria holds more immediate military and political opportunity but expansion there means wading into a thankless civil war.
Turkey’s neighborhood is messy. For 70 years, Turkey’s quiescence has kept the region’s biggest and most capable power from participating. Don’t bet on that continuing.
Deputy Crown Prince Mohammed bid Salman laid out part of his country’s strategic challenge in an April 25 interview.
“We have a problem with military spending,” the prince told Al Arabiya. “When I enter a Saud military base, the floor is tiled with marble, the walls are decorated and the finishing is five stars. I enter a base in the U.S., you can see the pipes in the ceiling, the floor is bare, no marble and no carpets. It’s made of cement. … We are the third- or fourth-largest in terms of military spending in the world, yet our army is ranked in the twenties.”
If anything, the crown prince-designate is being overly generous to his military establishment. Going back to the foundation of modern Saudi Arabia, the Saudi military has been an expensive paperweight. Riyadh has used its oil heft to purchase foreigners to fight its wars. When Saddam Hussein’s Iraq invaded Kuwait in 1990, the Saudis flat-out paid a coalition to defend their country and liberate their neighbor. In the years since, Riyadh hired so many Pakistani pilots that the Saudi air force for a time felt as Pakistani as Pakistan’s own. Even today Riyadh maintains vast warehouses packed with shrink-wrapped Abrams tanks and Apache attack helicopters awaiting foreign operators to fight wars on Riyadh’s behalf.
In the Saudi mind those operators would always be American, a people so dependent upon energy imports and so wrapped up in maintaining the global order that they would fight and die to defend the Saudi nation and way of life.
America’s shale revolution has changed all that. Shale oil production has proven increasingly cost-effective. So much so that U.S. oil output is holding steady despite the oil price collapse. This is doing more than edge the Americans towards energy independence, it is also remaking American industry. Cheap oil and nearly free natural gas is overhauling sectors ranging from petrochemicals to electricity to manufacturing and placing an extra $2000 a year per family in the citizenry’s pockets.
Between shale’s cavalcade of changes and a rationalization of America’s foreign policy that is as long-overdue as it is all-encompassing, the Americans no longer need Saudi oil and no longer really care if the Persian Gulf stays open.
And so the Saudis are taking their first (grumbling) steps towards standing on their own feet — and firing their own guns. It will be a long, hard, costly slog. Saudi Arabia has no indigenous regular military expertise, no related skill sets in logistics or industry to call upon. What they do have is loads of pre-purchased equipment and a metric butt-ton of cash to hire trainers from every corner of the globe. And even before the crown-prince-to-be’s announcement, their new stratagem is bearing fruit.
The Saudis’ primary concern is Iran, a country eager to move into the vacuum the Americans’ absence is creating. An early Iranian move helped trigger (another) civil war in Yemen, a country in southern Arabia largely irrelevant to anyone who doesn’t border it. Unfortunately for the Saudis, their country is one of the two. In the war, the Saudis have intervened directly, boldly, and at the head of an alliance of states who likewise fear the Iranian rise. The Saudi effort has been marred by a mess of mistakes: high civilian casualties, lots of friendly fire, logistical bottlenecks and outright shortages, extreme unit attrition caused by inexperience in fighting guerrilla forces, and so on.
Yet I cannot help but be impressed by what the Saudis have achieved. A year ago I felt that Yemen presented the Saudis with a chance to showcase their utter military incompetence. Instead Iran’s efforts have been heavily unwound and there is absolutely no chance that Iran’s proxies will carry on to victory so long as the Saudis remain committed. Yemen has proven to be a great test of the Saudis’ war-fighting, and it is a test in which they get a passable grade. Just as importantly, the Saudis have not been fighting alone or limited their activities to Yemen; they now lead a coalition of Gulf Arab states in Syria and Libya as well.
This military and diplomatic activity will prove great practice for the fight to come.
Iran is beginning to comprehend that the Saudis see this as a fight to the death. When that truly sinks in, Iran will realize it has to go for the throat and remove the Saudis’ primary enabler: the Saudi oil fields. That can only be done via outright military occupation. Prince Salman realized this nearly two years ago and everything — from the oil price war to destabilize Iran’s finances to the Yemen and Syrian conflicts to challenge Iran’s strategic position to today’s announcement on military rationalization — is about preparing Saudi Arabia to fend off a direct Iranian assault, and to do so without meaningful American assistance.
On Jan 17 the IAEA gave the green-light to the Iranian nuclear industry – indicating that Tehran was implementing the U.S.-Iranian nuclear deal in both the spirit and letter. With that stamp of approval, some of the sanctions that have hindered the Iranian energy sector are immediately lifted. The Iranian government issued a flurry of celebratory statements, including one from the Oil Ministry indicating that Iranian exports would increase by 500,000 bpd within a week and by another 500,000bpd by year’s end.
Mmmmm….not so fast.
Yes, the rapprochement between the Americans and Iranians massively shifts the regional (and global) geopolitics. And yes, now that sanctions are lifting Iran’s energy output will rise, but an extra 1 million bpd of Iranian crude this year is, well, silly.
First of all, Iran’s not yet out of the proverbial woods. The next step in the normalization is that the United States has to formally lift a raft of sanctions – and the Republican-dominated U.S. Congress gets a say. Considering that the Obama administration couldn’t get a bill passed that criminalizes the president’s own Democratic Party right now if it tried, the idea that there will be any agreement on a topic as touchy as Iran is, well, ludicrous. The Republicans, unfortunately from their point of view, probably lack the votes needed to veto the deal, but they’ll do what they can to increase the controversy and to try to milk the issue for as much political capital as possible. The soonest that the United States is likely to flash its own green light will be April. Only then will non-American firms feel sufficiently confident to start sniffing around the Iranian oil patch.
Second, it isn’t as if the only obstacles to renewed Iranian oil output growth are American. Iran’s laws to facilitate foreign investment into its energy sector are, in a word, unhelpful. Until recently the Iranians used a complicated system called buy-back, in which energy producers would sink in cash, do their work, and produce crude without any ownership interest in the field or the oil. Iran then “allowed” the foreign firms to “buy back” the crude at a price that Tehran determined on a whim. Given that foreign investors have no ownership, profitability, guarantees, consistency or recourse, Iran has probably damaged its own production capacity more than U.S. sanctions. This system is in the process of being overhauled, but it will be – bare minimum – a year before it’s clear if the new system makes more sense. Or works at all.
Kharg Island, Iran
Third, between buy-back and sanctions, much of Iran’s oil output has been shut-in and many fields will have to be re-evaluated before production can be re-started. That process alone will take several months, and until it is done what foreign investment that manifests will be sunk into exploration, not production. Add in the fact that global energy prices are low (and seem to be going lower) and there just isn’t much reason for foreign companies to get too involved too quickly.
What work will be done in the Iranian oil patch will simply be because Iran itself can once again purchase the equipment it needs for its domestically-run projects. That’s far from insignificant, but the total for new output for 2016 will probably be in the range of one-quarter of the Iranians’ idealized numbers.
Which doesn’t mean that Iranian oil won’t hit the market. Iran probably has about 30 million barrels in storage depots and tanker ships in various places around the world. One of the sanctions that already has been lifted because of the IAEA go-ahead opens these volumes up for sale. Assuming that Iran floods the markets with this oil at the rate of 500,000 bpd, these stored volumes can flow for a full two months. Even if this pushes prices as low as $20 a barrel, that’s still over a half billion dollars in income.
Funny thing is, the world might actually get an extra blast of Middle Eastern crude this year – it just won’t be coming from Iran. Instead, the source will be Saudi Arabia and its allies in Kuwait, Qatar and the UAE. The primary reason the Saudis launched their price war in late 2014 – and doubled down on it in late 2015 – wasn’t to crush the American shale patch, but instead to crush Iran before it could fully recover from its sanctions. Iran’s commitments in Syria, Lebanon, Yemen and more all show the classic signs of costly over-leverage. In Riyadh’s mind, now that Iran’s sanctions are on the way out, the financial pressure on Iran needs to be redoubled. The result will be an intensification of Riyadh’s two-track strategy: up the money flowing to foes of Iran in all theaters and up the flow of Saudi oil to minimize interest in and output from Iran’s oil fields. Which leads us to a weird world in which oil prices go lower for longer even as the Middle East gets more violent.
It has been quite the week-end in the Middle East, and things are just getting started.
On Jan 2nd, Saudi Arabia executed 47 Shia dissidents including cleric Nimr al-Nimr. Rhetoric from Shia-dominated Iran flowed fast and furious within minutes, with protestors setting fire to the Saudi embassy in Tehran. In retaliation the Saudis severed diplomatic ties with Iran the following day.
Despite a year of weak prices, shale output has continued to ratchet up in the United States. That, plus a mix of trade and demographic shifts as well as a long-overdue strategic realignment in the aftermath of the Cold War and the Iraq war, is nudging the United States away from actively managing the Middle East. Without the … calming effect of U.S. active involvement in the region, there is nothing to prevent Saudi and Iranian regional fears and ambitions from colliding. And so they are.
Saudi Arabia and Iran have now faced off on opposite sides in blood feuds in Syria, Lebanon, the Palestinian Territories, Yemen, and Afghanistan. Both have attempted to keep the conflict one of the cold or proxy variety.
The Persian Gulf
The execution of al-Nimr indicates that this at-arm’s-length strategy is now changing. Iran has long encouraged rebellion among the Saudis’ Shia minority in the country’s Eastern Province, with attempts to foment Shia unrest – like al-Nimr’s dissidence – as one of their chief tools.
Al-Nimr’s execution and the severing of relations indicate that the Saudis, at least, are ready for the conflict’s next stage. It’s unlikely that the rest of the world is: Eastern and Khuzestan, unfortunately, are home to the bulk of the two country’s oil production facilities.
Rather than adjusting OPEC’s production ceiling in an attempt to raise prices, or even generate a common policy to coordinate output, OPEC instead launched a production free-for-all. No longer will there be a quota – any quota. All members can now invest as much as they want, produce as much as they want, export as much as they want. Oil producers the world over are undoubtedly shivering in terrified anticipation. The Arab states of the Persian Gulf have by far the lowest production costs in the world, and if they do truly flood the market with low cost crudes, few – if any – have a hope of competing.
The Saudis’ goal can be summed up quite simply – force as many high-cost producers out of the oil markets as possible. This is accurate, but it is also incomplete. Yes, the Saudis would like to force its competitors to the financial breaking point, and yes, U.S. shale is an industry that the Saudis would like to wreck. But cracking apart the American shale sector is only one of many goals, and it is certainly not the primary one.
First and foremost, the Saudis are targeting Iran. With the Americans steadily stepping back from actively managing the Middle East, the Saudis are finding themselves forced to deal with their Iranian adversaries themselves. In this the Saudis are poorly positioned. While Saudi Arabia has plenty of top-notch military hardware, the Saudi people have no concept of what a military culture means. Iran has 30 years of experience building up insurgent movements and has proxies sprinkled throughout the Middle East. But the Saudis know full well that such proxies are expensive, and in a game of checkbook diplomacy the Saudis simply have more income and a bigger bank account.
Once sovereign wealth funds and less orthodox financial caches are factored in, the Saudis have – very conservatively — $1 trillion to throw at this problem, and that’s not even counting the personal assets of the royal family. The Saudis can sustain themselves in a low-price environment not for years, but for decades. Compare that to Iran’s hand-to-mouth budgeting. For the Saudis timing is critical; America’s rapprochement with the Iranians heralds increases in Iran’s oil output (albeit not likely in meaningful quantities until 2017). Best to drive prices down now and try to bankrupt Iran’s ability to wage proxy wars in Yemen, Lebanon, Syria and Iraq as well as the internal subsides that keep Iran’s population from revolting.
While Iran is clearly Saudi Arabia’s clear-and-present-danger, it is far from the only target.
Second on the list is Russia, whose oil output has risen to a new post-Cold War high. Russia is the world’s second-largest exporter, so a friendly Saudi-Russian relationship has never been in the cards. But the rivalry between Riyadh and Moscow is about more than just oil. The two have sparred indirectly for decades over the broad swath of weaker Muslim states that lie between them, and Russia’s ongoing rivalries with the United States consistently results in Russian actions that threaten Saudi interests. Russia’s intermittent sponsorship of Iran, and Russia’s involvement in the Syrian civil war opposite Saudi Arabia’s own proxies being cases in point. No wonder that the Saudis flooded the oil markets in the mid-1980s in a (successful) attempt to bankrupt the Soviet Union. No wonder the Saudis sponsored the mujahedeen in Afghanistan to gut the Soviet war machine. No wonder that the Saudis funded the Chechen rebellion in the 1990s. And no wonder the Saudi oil minister expressly called out the Russians when forcing upon OPEC the produce-as-much-as-you can policy.
The third target of the new policy is a bit more obvious – those high price oil producers that have eroded Saudi market share over the decades, all of which are the prime beneficiaries of Saudi Arabia’s yesteryear policies of reducing oil output to bolster prices. With very few exceptions, none of these countries have ever actually reduced output themselves, instead relying upon the Saudis, Kuwaitis and Emiratis to bear the entire burden.
Canada: the world’s highest-cost producer is likely to be the biggest loser.
Norway: the Saudis particularly hate how reliable Norwegian output has been the past 20 years.
Russia: the multi-faceted nature of Saudi Arabia’s competition with Moscow earns Russia spot in this list as well.
Iran: with the strategic contest heating up, Iran also earns a double mention.
Libya: while its production costs are not all that high, the deepening civil war there threatens to remove Libyan production from the market completely. Lower oil prices could well be the factor that forcibly devolves Libya from chaos to anarchy – and destroys the entire energy complex.
Venezuela: while an OPEC “ally” who has always argued for lower production levels, Venezuela has not only never willingly reduced output, its output surges are what broke the 1970s Arab oil embargo – something that the Saudis have neither forgotten nor forgiven.
Nigeria: like Venezuela, the Nigerians have a nasty habit of putting Saudi money where their mouth is.
Collectively these countries are responsible for over 20 million barrels of daily oil output, and that oil income is responsible for the vast majority of their export earnings as well as the social stability that is required to produce the oil in the first place. As the Saudi thinking goes, break even one or two of them and a vast quantity of crude will fall off the market.
That just leaves us with American shale. When you add in the light condensates that shale output favors that are not technically crude, U.S. oil output is now above 12 million barrels per day. Largely courtesy of shale, American imports of crude have dropped by seven million barrels per day, five million of which used to come from OPEC members. Between shale’s success and continental integration, the NAFTA trio is now only two million barrels per day of outright energy independence. And by the end of 2017 the United States will surpass Qatar, Australia and Russia to become the world’s largest natural gas exporter.
Funny thing is, the Saudis were convinced until very recently that U.S. shale was just a PR campaign. They didn’t really admit shale was for real until 2013, and it wasn’t until 2014 that they realized shale would not simply reshape global oil markets, but contribute to the end of the American commitment to Saudi security. The Saudis would love to put a bullet in shale’s head.
But that time has already passed. Sure, back in 2012 the shale producers required oil prices at $90 or more to make a profit, but after a decade of technical advancement the industry is emerging from its infancy. New technologies like multi-lateral drilling and micro-seismic are vastly improving the amount of crude produced per well while vastly reducing the per-barrel production costs. More output per well means that surface infrastructure is now comprised of fewer, larger gathering pipes rather than an expensive crazy-quilt of tiny ones. New re-fracking and re-completion techniques are resetting older wells to their original output levels – or even higher. Taken together the full-cycle break-even price for the four major shale plays – Bakken, Permian, Eagleford and Marcellus – are already below $45 a barrel. By the time these new techs fully proliferate across the industry, the shale sector’s break-even is likely to be right around $30 – and that’s likely only a year away.
Which would put the destruction of shale firmly out of Saudi Arabia’s reach. But that’s ok.
The Saudis may miss on shale, but they have a very target-rich environment in front of them. There will be plenty of casualties.
