FOR much of recent history — including the build-up to the 2008 oil crisis, when the price of crude peaked at more than $147 a barrel — conflict in the Middle East has been synonymous with soaring oil prices.
The reason is obvious: over the past 150 years the world has become increasingly dependent on petroleum products for energy, transport, heating and as a raw material for manufacture, to the point where the modern global economy can be said to be based on hydrocarbons extracted from the ground. And, since the bulk of the world’s known crude oil reserves are in the Middle East, any development that threatens supplies from there can be expected to result in higher world prices.
Yet today, with Iraq, Libya and Syria in a state of civil war, Israel on a knife’s edge after a bloody intervention in Gaza, Egypt chronically unstable following an effective military coup, and the turmoil in Ukraine threatening to cut off Europe’s access to Russian energy supplies, the price of crude oil is actually falling. In economic terms that can mean only one of two things — either demand for oil has fallen through the floor, to the point where the threat of supply limitations is no longer critical, or the traditional sources of crude do not have the stranglehold over the world that they once had.
It turns out to be a bit of both. The global economic crisis that struck in 2009 burst the energy price bubble, and demand for oil has been anaemic since then. According to the International Energy Agency, in the last quarter demand grew at its weakest pace since 2012.
But that would not ordinarily be enough to calm the oil market when much of the Middle East is erupting, especially when Iraq, the world’s seventh-largest oil producer, is at the centre of the turmoil. Sunni militants intent on forming the Islamic State of Iraq and Syria (Isis) have seized large swathes of the country over the past several weeks, and in recent days have threatened the semi-autonomous Kurdish territory in the vicinity of the regional capital Erbil, where a number of western oil companies such as Chevron and ExxonMobil are based.
While this fact, and the humanitarian crisis that developed through the displacement of defenceless communities such as Iraqi Christians and Yazidis, have resulted in US President Barack Obama authorising missile strikes against Isis forces over the past few days, it is clear that, in stark contrast to the past, the West is reluctant to intervene more decisively to safeguard Iraqi oil supplies.
The reality, as illustrated by the lack of panic in the oil market, is that it does not need to; the global shale oil boom, and especially a significant rise in US oil production as a result of the development of shale fracking technologies, means there is no supply crisis. On the contrary, a glut of oil is on the market and the US is importing more than a quarter less than during the 2008 boom.
The reduction of the Middle East’s importance in the world has geopolitical as well as economic implications. In fact, the chaos in the region now is directly attributable to the fall of the “strong men” who used to rule it with an iron fist with the support of western countries whose priority was stability and continued oil supplies rather than human rights and democracy.
Unlike many of his predecessors, Mr Obama has no real incentive to risk “boots on the ground” in Iraq. Not only is the US electorate weary of war in the aftermath of the 9/11 attack and subsequent “War on Terror”, but there is no economic pressure on him to act.
As unpopular as the US military presence in places such as Iraq and Afghanistan has been in the past, this new reality is extremely bad news for millions of ordinary people in the Middle East, including Iraq, Syria, Libya and Egypt. Nobody knows what will fill the vacuum once occupied by self-interested but generally benign western powers.
Picture: BLOOMBERG/DANIEL ACKER
FOR much of recent history — including the build-up to the 2008 oil crisis, when the price of crude peaked at more than $147 a barrel — conflict in the Middle East has been synonymous with soaring oil prices.
The reason is obvious: over the past 150 years the world has become increasingly dependent on petroleum products for energy, transport, heating and as a raw material for manufacture, to the point where the modern global economy can be said to be based on hydrocarbons extracted from the ground. And, since the bulk of the world’s known crude oil reserves are in the Middle East, any development that threatens supplies from there can be expected to result in higher world prices.
Yet today, with Iraq, Libya and Syria in a state of civil war, Israel on a knife’s edge after a bloody intervention in Gaza, Egypt chronically unstable following an effective military coup, and the turmoil in Ukraine threatening to cut off Europe’s access to Russian energy supplies, the price of crude oil is actually falling. In economic terms that can mean only one of two things — either demand for oil has fallen through the floor, to the point where the threat of supply limitations is no longer critical, or the traditional sources of crude do not have the stranglehold over the world that they once had.
It turns out to be a bit of both. The global economic crisis that struck in 2009 burst the energy price bubble, and demand for oil has been anaemic since then. According to the International Energy Agency, in the last quarter demand grew at its weakest pace since 2012.
But that would not ordinarily be enough to calm the oil market when much of the Middle East is erupting, especially when Iraq, the world’s seventh-largest oil producer, is at the centre of the turmoil. Sunni militants intent on forming the Islamic State of Iraq and Syria (Isis) have seized large swathes of the country over the past several weeks, and in recent days have threatened the semi-autonomous Kurdish territory in the vicinity of the regional capital Erbil, where a number of western oil companies such as Chevron and ExxonMobil are based.
While this fact, and the humanitarian crisis that developed through the displacement of defenceless communities such as Iraqi Christians and Yazidis, have resulted in US President Barack Obama authorising missile strikes against Isis forces over the past few days, it is clear that, in stark contrast to the past, the West is reluctant to intervene more decisively to safeguard Iraqi oil supplies.
The reality, as illustrated by the lack of panic in the oil market, is that it does not need to; the global shale oil boom, and especially a significant rise in US oil production as a result of the development of shale fracking technologies, means there is no supply crisis. On the contrary, a glut of oil is on the market and the US is importing more than a quarter less than during the 2008 boom.
The reduction of the Middle East’s importance in the world has geopolitical as well as economic implications. In fact, the chaos in the region now is directly attributable to the fall of the “strong men” who used to rule it with an iron fist with the support of western countries whose priority was stability and continued oil supplies rather than human rights and democracy.
Unlike many of his predecessors, Mr Obama has no real incentive to risk “boots on the ground” in Iraq. Not only is the US electorate weary of war in the aftermath of the 9/11 attack and subsequent “War on Terror”, but there is no economic pressure on him to act.
As unpopular as the US military presence in places such as Iraq and Afghanistan has been in the past, this new reality is extremely bad news for millions of ordinary people in the Middle East, including Iraq, Syria, Libya and Egypt. Nobody knows what will fill the vacuum once occupied by self-interested but generally benign western powers.
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