Morning, everyone. Peter Zeihan here, coming to you from Waterfall Camp just above the Merced Canyon. That’s the one that stretches pretty much the entire length of the North Country and ends up down in Yellowstone Valley. Today, we’re going to take an entry from the Ask Peter forum about the Middle East—specifically, the Persian Gulf. What’s the future of relations between the United States and the countries in the region, specifically the Arab states, most notably Saudi Arabia?

Well, if you’re an Arab in the Persian Gulf, the news isn’t great. During globalization, the United States needed oil from the Persian Gulf—not for itself, but for its allies. Everyone from Japan to China, to Korea, to Taiwan, to France, Germany, Italy, and Britain. These were countries that did not have sufficient oil capacity for themselves. To induce them to join the global order and the Cold War against the Soviet Union, part of the deal was that the U.S. would keep them fueled. They wouldn’t need a navy to get the oil themselves—the U.S. would take care of that. So, the oil was for the U.S., but not directly. The United States has always gotten most of its oil from within North America, and to a lesser degree, from countries like Venezuela, with a little bit from Africa. We never got more than maybe 20% of our crude from the Middle East at all.

Well, as the shale revolution kicked in, the volumes of crude that the United States got from the Middle East basically dropped to zero. The Saudis got into the habit of parking supertankers off the coast of Louisiana, waiting for them to be needed. And after a while, when it turned out that they weren’t needed anymore, those stopped altogether. In addition, the stuff from Africa went away, Venezuela committed national suicide, and now the United States, plus Canada, is pretty much self-sufficient. There are some rounding errors and caveats in that statement, but that’s kind of the core position.

In the shift through Barack Obama and Donald Trump, the United States became far more disengaged from the world. We went from having a carrier, maybe two carriers at a time, in the Persian Gulf, to now really never having one there unless something is flaring up. This reflects the shift of strategic priorities. The U.S. is far more concerned with things at home, and then, to a lesser degree, what’s going on in East Asia.

For example, when the Kuwaitis discovered a big oil field offshore last month, the Americans were like, “Whatever.” Kuwait can’t develop that itself—Kuwait has no offshore capability. Maybe some of our firms will be involved, but with the security guarantees gone, it’s a different game.

Then there’s Saudi Arabia, which is, of course, the big one. The Saudis are a little cocky because they control the holy sites and claim to control the religion of Islam, or at least speak for it. That is, of course, a hotly contested topic in the region. But the United States has bent over backwards for the last 75 years to keep the Saudis happy because that was the single biggest play in the region for crude. If you could get the Saudis on board, you could pretty much guarantee that the Kuwaitis, Emiratis, and Qataris would join as well. And then you’d have everything you needed.

That doesn’t necessarily play in a post-globalized world. In a world where the U.S. is self-sufficient in energy and has sufficient exports to supply a handful of choice allies, the U.S. actually enters into the role of a disruptor. Reliable energy supplies on a global scale are no longer perceived as a strategic necessity. Once that happens, the U.S. goes from being the greatest guarantor of security the world has ever known to something closer to the opposite. When that happens, the relationship with Saudi Arabia will absolutely tank.

The Saudis can barely operate some of their easier fields. They need a huge army of expats to keep everything going. Simply denying them the staff would be enough to cripple production. More likely, however, all of the oil is exported through just a few terminals, and the Saudis don’t have a navy worth mentioning. So, if you take the world’s greatest naval power against a desert power without much military…you do the math.

I’m not saying the U.S. is going to conquer Saudi Arabia—there’s no point in that. But embargo, destroy some offshore loading facilities, or grab tankers as they leave—these are all options for the future. At that point, if we don’t want the oil and we don’t want someone else to have the oil, Saudi Arabia becomes just a country living in the desert.

Have you seen Syriana? It kind of sums it up. How did Matt Damon put it? The view of the business community is that people in your country were living in tents in the desert a century ago, beheading one another, and you’re going to be doing that again this century? That’s pretty much where we are when it comes to American views of this region. Take away the oil, and all that’s left is a penchant for domestic violence that we don’t particularly like either. So, that relationship is going to break in time. But “in time” is the key word. We’re not there yet.

As the Biden administration has shown over the last two or three years, there’s still a need for an alliance structure to achieve certain things, most notably in the Ukraine war. Also, in terms of boxing China in and semiconductors. As long as the U.S. perceives value in its alliance structure, there’s value in keeping crude flowing unimpeded from the Persian Gulf. But we should be preparing for a middle ground between completely cutting them loose and tolerating them.

In the middle, we would force this region, by hook or crook, to be a little more selective in where they sell their crude. Should things with China ever escalate to the point of shooting, which I don’t anticipate but can’t rule out, one of the first things the U.S. would do is put a few ships in the Strait of Hormuz and make sure crude can’t get to China at all. That would shut down the entire place within three months. That’s a very different relationship from what we have now, but it’s something to think about.

One more thing. Oh, yeah—Lewis Canyon. We have to look at this from the Saudi point of view. The Saudi position has always been that, since they sit on the world’s largest exploitable deposit of oil, they should just be able to pay people to defend them and their beliefs. Right up until the Iraq War in 2003, the United States was basically a bunch of mercenaries. The Saudis thought, “We’ll buy a bunch of their equipment, shrink-wrap it, put it in air-conditioned warehouses, and when we want them to fight our wars, we’ll call up the American press and they’ll do it.”

They didn’t think the Iraq War was a good idea, but it happened anyway. They were violently disabused of their position in the world. As the U.S. steps back, the Saudis are going to need a different security guarantor, and there aren’t many candidates. It’s got to be someone with a blue-water navy who can deploy over long distances—or march to Saudi Arabia.

The problem is, there are really only four options. China doesn’t have the range. Japan does, but they haven’t moved far enough past their pacifist position to invest in an army. It looks like the U.S. and Japan are settling for cooperation over the Pacific, which includes energy security for Japan. So, that probably doesn’t work. Next up are the Brits and the French. The UAE has already gotten into bed with the French, and there’s already military cooperation from their base in the UAE. But the Saudis would really rather not go with Europeans.

The only other option is Turkey. Turkey wouldn’t need a naval force to sail around the Arabian Peninsula to get to the Persian Gulf—they’d just have to march through Iraq directly to Riyadh. But that would generate the one thing Saudi Arabia doesn’t want: a superior military power with easy access to everything Saudi. Because if you’re Turkey in that scenario, why in the world would you defend Saudi Arabia and not just take it over?

Hey everybody. Peter Zeihan here. Coming to you from Cove Bay in Barbados. It occurred to me that, the Gulf of Mexico just got hit by a hurricane. And I wanted to tell you why it doesn’t really matter. Well, I mean, it does matter. You do property damage, especially in an era of rising sea levels and bigger hurricanes. Obviously, that has an insurance application that hits us all because insurance companies then have to make up for it either by higher premiums or by charging everybody else more for insurance.

So it does ripple through the system. But from an energy point of view, it doesn’t really matter. The United States is no longer simply energy independent. We are now a net exporter of over 4 million barrels per day, not of crude, of refined product. And that puts the United States into a category that no other country has ever been in terms of being an energy power.

Now, the Gulf of Mexico used to be one of our major energy things. And back when I was working at Stratfor in the Arts, part of my job was to basically chronicle how much stuff went off, like how long I would stay offline, and that gave us price increases that would last not for days or weeks, but months or even a couple of years.

Sometimes because it took a long time to repair the damage, to go out and untangle, what happened on the seabed with the pipelines? It was it was expensive, was laborious, and we would feel it for a long time. Not anymore. One of the many weird things about the shale revolution is that all of the production sites are onshore, and unless you get so much rain that everything floods in your field, you’re talking about a time to bring them back on that if it goes off it at all is measured in days and you can bring on a completely fresh well in the weeks.

So we have seen the price argument and the national security argument for energy production in the offshore Gulf of Mexico dwindle and dwindle and dwindle. And so even though the most recent hurricane just plowed through some of the best production real estate the Gulf of Mexico has, it only took off somewhere between 650 and 750,000 barrels per day, which not that is an insignificant amount, but United States, if you include things like, associate production from natural gas liquids and condensate, we now produce close to 20 million barrels a day.

So you’re talking about less than a 5% reduction. And the shale guys are already spinning up their drills to bring more production on line to displace it. And it’ll be weeks to months before the offshore producers can even pretend to catch up. The price structure just has changed so dramatically. For natural gas, it’s actually even a little bit better.

We’re talking about 750,000,000 cubic feet per day. That is right around one 1.5% of U.S natural gas production. So we’ll barely feel that outside of the local markets at all. And same thing. The shale guys are going up to gas wells to supplant it. So think of it this way. If you’re in the Gulf, you are now the piggy bank.

Should anything go drastically wrong with U.S shale production, the reserves in the Gulf will be there for another generation, but it’s probably going to be another generation or two before that’s all relevant. All right, that’s it for me. Take care.

Photo credit: NASA Goddard Space Flight Center from Greenbelt, MD, USA, CC BY 2.0 via Wikimedia Commons