Tag: Saudi Arabia
No end in sight
How can Daesh (that’s the Islamic State, ISIS or ISIL to the uninitiated) be defeated and what will happen thereafter? If you want the more upbeat official story, read Brett McGurk’s testimony. Here are some thoughts that have crossed my screen lately.
Everyone should expect a generational fight. Though Daesh is losing territory rapidly in Iraq (47% of its maximum) and Syria (20%), it is good at what it does, resilient and adaptable. It has recruited at least 40,000 foreign fighters from 120 other countries. It has overt affiliates in more than half a dozen countries as well as a covert worldwide network devoted to smuggling, finance and terror, as illustrated all too clearly in this week’s Istanbul airport bombing. Even after it has lost all its territory, Daesh will go to ground and continue terrorist attacks of that sort.
The Coalition arrayed against Daesh is large (nominally 66 countries) and organized but still clumsy and far from fully integrated. It will hold a July 20 “summit” in Washington focused on its five “lines of effort”: political/military coordination, blocking foreign fighters, Daesh finance, stabilization of areas retaken from Daesh and counter-messaging. This is in addition to the nine US “lines of effort.”
There are contrasting narratives that avowed opponents of Daesh espouse, leading them to opposing conclusions.
The Russians view Daesh as the product of destabilization of Syrian government institutions, whose maintenance is vital to stem the extremist tide. In order to ensure the survival of state institutions, they support Assad and want reconciliation between him and at least some portion of the opposition. They also think their military intervention has gone pretty well, delivering some Western respect and easing Western pressure on Ukraine. But they are concerned, based on the Chechen precedent, about the enormous cost and difficulties of an Assad victory in Syria. They have flatly refused to pay for any reconstruction when approached by a government-linked expert.
The Saudis have an almost diametrically opposed narrative. They believe Daesh is the product of Iranian-sponsored sectarianism in both Iraq and Syria. Iraqi Prime Minister Nouri al Maliki helped the Islamic State to revive in Iraq after the American withdrawal by governing in a blatantly sectarian way dictated by Iran. ISIS’s ability to gain ground in Syria is attributable to the regime, which released extremist prisoners, has bought oil from Daesh, and focused its military attacks against moderates, all with backing by Iran. The Saudis take the threat of Daesh seriously and believe the fate of Iran’s effort to establish itself as the Middle East hegemon will be determined in Syria. The Kingdom recognizes that its own Wahhabi ideology has contributed to Daesh‘s appeal and is committed to reforms that will change that in the decades to come.
Iraqis are fighting and dying to take turf from Daesh, but the aftermath of victory is a big and unsolved problem. Inclusive governance is what the country needs but seldom gets, in particular in Baghdad. Shia militias were too active in Tikrit in the wake of victory there over Daesh, rendering the town unsafe for Sunni returnees initially. Only once local leaders and reconciliation mechanisms were put in place was the stabilization effort more successful. At Ramadi, the governor has been doing well but there is much more damage and a lot of demining to be done. At Fallujah, there is less destruction but a serious humanitarian crisis, with 85,000 civilians fleeing from the city and living in unacceptable conditions in the desert. UNDP resources are grossly inadequate to the stabilization effort it has been tasked with.
Little planning has been done for stabilization in Syria. What is needed there is a political settlement. Sunni alienation and grievance are the the problem, enormously aggravated by the presence of Hezbollah. Ignoring it gives the impression that the West will support “ABS”: anyone but Sunnis. Post-Daesh, governance needs to be far more inclusive.
The Kurds in both Iraq and Syria are getting a lot of Western support because they are willing to fight Daesh. The support should be more conditional. The US should insist that Iraqi Kurdistan reach a pact with Baghdad and that the Syrian Kurds help with peace talks between Turkey and the PKK, which is closely tied to the Syrian Kurds.
Looking ahead, there is a real risk that with Russian and Iranian support the Syrian regime will manage to capture Aleppo as well as Raqqa, form some sort of “national unity” government with elements of the loyal opposition and rewrite parts of the constitution. The US might then declare victory and abandon the field entirely, leaving reconstruction inadequately resourced. This would not really solve anything and would allow grievances to worsen, ungoverned spaces to grow and the conflict to spread, possibly to Lebanon and Jordan.
There is a glimmer of hope for Iraq, but even that is limited. Splits in both the Sunni and Shia communities are opening the possibility of cross-sectarian mobilization in Baghdad. The Popular Mobilization Forces (PMF) are often viewed as under Tehran’s control, but some of them are not and might join with Sunnis who have also fought against Daesh. The Kurdish issue would still be unresolved, however, which will create problems for the liberation of Mosul. Kurdistan Regional Government President Barzani is entirely dedicated to consolidating his own power, both vis-a-vis other Kurdish political forces and vis-a-vis Baghdad. Without clearer definition of the political end-state, defeat of Daesh could lead to a follow-on civil war pitting Kurds against Arabs.
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Continued dependence on Gulf oil
Doug Hengel, formerly at the State Department and now at the German Marshall Fund (and also teaching at SAIS), allowed me to republish his excellent notes for his talk at Woodrow Wilson last week, already posted here:
There is a great deal of uncertainty in oil markets at the moment. The big questions, beyond when the market will rebalance, include:
- Are we in the midst of another boom and bust cycle in the oil market or are there structural changes that define a new paradigm? Has U.S. tight oil changed market dynamics forever?
- Has the Saudi/Iranian rivalry evolved to the point where geopolitics now dominates Riyadh’s approach to oil? Are the Saudis using oil as a weapon?
- Is the Saudi 2030 Vision OPEC’s “obituary notice” as some have declared? Will the Saudis continue to invest in oil or are they pumping all out now due to concerns that oil demand is going away?
- Are we in a “lower for longer” scenario for oil prices? Or have the large cuts in investment by oil companies in the past couple years simply planted the seeds for the next price spike?
As we think about these questions, and more importantly what the future of oil geopolitics might look like, it is helpful to ground ourselves with a few facts. It is important to remember:
- The countries of the Persian Gulf account for almost 1/3 of global oil production and hold roughly 50% of proven oil reserves. They generally have the lowest cost oil to produce.
- About 17 million barrels a day (mbd) of crude oil and refined products move through the Strait of Hormuz, only a small fraction of which could get to market via alternative routes if the strait was blocked.
- Oil fields have a natural decline rate averaging 3-6 percent a year, much higher for U.S. tight oil. This means that every year investment in existing or new fields is needed to bring to market about 4 mbd of additional oil just to keep global production at current levels (not including any increase in demand). Those 4 mbd are equivalent to the total surge in U.S. tight oil production over the 2011-14 period. It also means we need to add the equivalent of a new Saudi Arabia to the market every 3 years.
By one estimate, global upstream project cancellations could create a 4 mbd ‘‘hole” in global oil supplies by 2020. Estimates of production in Brazil, Canada, Mexico and elsewhere in coming years have been revised downwards. There is growing concern that the large reduction in investment by the international and national oil companies will lock in the world’s reliance on OPEC, and in particular on the lower-cost supplies from the Persian Gulf, for decades. The International Energy Agency (IEA) and the U.S. Energy Information Administration (EIA) have pointed to this risk in their most recent global energy outlooks.
Are there structural issues that might mitigate against greater reliance on OPEC and the Persian Gulf? Two are often cited – the U.S. tight oil boom and climate change.
U.S. TIGHT OIL: While U.S. tight oil production jumped by an average 1 mbd per year from 2011 through 2014, over the past year U.S. tight oil production is down about 1 mbd. In the meantime U.S. gasoline consumption has increased sharply and is expected to hit a record in 2016. So U.S. oil imports are growing again. Last year U.S. net crude oil imports dropped to only a quarter of U.S. consumption, the lowest level since 1970. This year it looks like we will need to import one-third of our oil. Some believe that with prices of $50 or more per barrel there could be a renewed surge of U.S. production this year adding perhaps as much as 1 mbd to U.S. output by the end of the year. But that is a very optimistic scenario. And after that? There is no doubt U.S. production could resume an upward climb with higher prices, but almost certainly not enough to offset reduced output elsewhere in the world.
CLIMATE: All scenarios that would reduce carbon emissions enough to keep global warming to 2 degrees or less require a huge shift away from petroleum for transportation. Both Statoil and the IEA have modeled what very aggressive introduction of electric vehicles (EVs) might do to oil demand, in the case of Statoil’s “renewal” scenario new car sales would be 90 percent EVs or hybrids by 2040. Even with such an enormous change in how light duty vehicles are powered global oil demand would still be in the range of 75-80 mbd by 2040 — as much as 20 mbd below today’s consumption but still requiring very large investments to compensate for the decline of existing fields. Supply could well decline much faster than demand.
So what does this all mean for the U.S. and the world?
- We are not in a new paradigm. Oil is not going away and the world’s dependence on the Persian Gulf for global supplies is very likely to increase going forward. Therefore the U.S. will need to play an active role in the region to ensure the oil keeps flowing, including protection of sea lanes.
- U.S. “energy independence” remains a chimera even if we were self-sufficient in oil, which is very unlikely to happen in any case.
- OPEC is not dead. Notwithstanding the Saudi/Iranian rivalry, they are likely to be able to and want to work together to influence the oil market once markets are more in balance. Recent statements by the new Saudi oil minister indicate they will continue to invest heavily in maintaining their production capacity.
- We need to keep our eye on the ball regarding constraining oil demand – continued progress on more efficient vehicles, facilitating the move to EVs, to natural gas for trucking, etc.
- Innovation is essential (e.g., autonomous vehicles), ideally in cooperation with international partners.
- We should continue to encourage and assist new and non-OPEC oil producers seeking to boost their output, in particular Mexico and emerging suppliers in Africa.
- We should not be treating our Strategic Petroleum Reserve as a piggy bank – selling off oil to meet other budgetary requirements. We may need the SPR to cushion a supply disruption, U.S. tight oil is not a substitute. At the same time we should continue to promote cooperation by China and India with the IEA on a coordinated response to an oil supply disruption given their increasing importance to the market (and since they are building their own strategic reserves).
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The Gulf’s still risky future
Wednesday the Middle East Program at the Wilson Center hosted The Gulf, Iran, and Future Oil Geopolitics, featuring David Goldwyn, President of Goldwyn Global Strategies; Douglas Hengel, Senior Resident Fellow at the German Marshall Fund; Elizabeth Rosenberg, Senior Fellow and Director of the Energy, Economics, and Security Program at the Center for New American Security; and Jean-Francois Seznec, Non-Resident Senior Fellow and Director at the Atlantic Council’s Global Energy Center. Jan Kalicki, Global Fellow at the Wilson Center and Senior Fellow at the Watson Institute for International and Public Affairs at Brown University, moderated the discussion.
Rosenberg discussed how lifting most sanctions on Iran has influenced Iranian politics. While the economy has opened up considerably since January, there are still many obstacles to doing international business in Iran. The prohibition on doing business with the Iranian Revolutionary Guard Corps (IRGC) leaves much of the economy untouchable by foreign investors. Many of the remaining sanctions are secondary, which requires Iranian companies to cut ties to groups like the IRGC that control 20-60% of the Iranian economy.
Iran is currently producing 3.5-3.8 million barrels per day and exporting 2 million. Iran could get up to 4 million per day. Beyond that, Iran would have to make substantial infrastructure investments. Several international oil companies have signed exploratory contracts, but there are still a lot of unknowns. With Iran upping the ante in Syria and around the region, the future of the broader Middle East is in question.
Goldwyn said that Iraqi oil production had recently reached 1.8 million barrels per day, its highest level ever. This is Iraq’s peak. It will not even be able to maintain this level. Iraq suffers chronic problems:
- the government is weak and unable to make plans or execute them;
- failure to resolve ethnic and sectarian conflicts opened the door to the Islamic State (ISIS) and maybe worse in the future;
- the government is spending a huge portion of its budget on the war effort: $33 billion between 2009 and 2014.
The Iraqi army’s progress in retaking Fallujah is promising, but Fallujah has been liberated many times—each time escalating ethnic tensions to still higher levels.
Iraq will barely be able to maintain production in the coming months. The Iraqi government is spending all of its diminished oil revenue on its military, and low oil prices have limited the government’s ability to function on a basic level—let alone invest in infrastructure to boost oil production. Iraq’s near future looks grim.
Seznec commented on how Saudi Arabia’s deputy Crown Prince Mohammed bin Salman is transforming his country in dramatic ways. His new “Vision 2030” intends to wean Saudi Arabia off oil dependence and diversify its economy. Saudi Arabia intends to maintain its current production of 10.2 million barrels per day, while growing its private sector. To accomplish this, King Salman bin Abdulaziz Al Saud appointed Khalid al-Falih as minister of the newly revamped Ministry of Energy, Industry, and Mineral Resources.
A major component of “Vision 2030” is selling 5 percent of the government’s shares in Aramco. Aramco is currently valued at 2 trillion dollars, so this will likely be the biggest IPO (initial public offering) in history. Part of Mohammed bin Salman’s plan is to revolutionize the workforce. By 2030, the government hopes that women will fill 45 percent of public and private sector positions. There are big changes on the way for the Kingdom, and we will have to wait and see what else the young deputy crown prince has in store for us.
Hengel addressed major factors that will affect all the countries discussed. His bottom line is that dependence on the Gulf will continue. The natural decline in current production means that continued investment in existing oil fields and new discoveries are essential. Hengel predicts that the United States and the world will continue to be dependent on OPEC. There is much uncertainty about the future of consumption. Many countries have started shifting towards electric vehicles and are moving away from their dependence on oil. But the United States continues to lead in consumption with the lion’s share, 10%, of global consumption. Gulf oil supplies are likely to remain important for the foreseeable future.
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Better than surrender
Colleagues at RAND have updated their peace proposal for Syria. This should be taken seriously, both because Jim Dobbins, Phil Gordon and Jeffrey Martini are sharp guys and because their previous version turned out to be prescient, or maybe just reflective of Administration thinking before the recent, now mostly lamented, cessation of hostilities. They want to put aside the difficult political question of transition, including the fate of Bashar al Assad, to focus on reducing the violence and extending the cessation of hostilities.
What they’ve done this time is to suggest four different ways in which decentralization could be implemented with Bashar al Assad still in place: one based on existing legislation, a second based on that plus additional taxing and security authority, a third acknowledges existing Kurdish autonomy, and a fourth that extends that autonomy to opposition and government controlled areas, more or less along the lines of their previous proposal. Wisely dropped from their original proposal is the ethnic/sectarian definition of “safe” zones, with the exception of the de facto majority Kurdish area along Syria’s northern border with Turkey.
All of this is perfectly reasonable as an outline of what might happen if the war continues. It just isn’t going to be possible for Assad to re-establish control over all of Syria. Decentralization is unquestionably part of the solution, as it is in Yemen, Libya and Iraq. The opposition already has local governing structures in northern and southern Syria, the Kurds are governing their “cantons” and ISIS unfortunately administers the territory it controls.
But as a proposal that keeps Bashar al Assad in place it looks distinctly like surrender. Assad himself yesterday made clear that he intends to reconquer all of Syria:
There is no sign that he would accept a peace that includes decentralization along any of the lines RAND recommends, even the one based on existing legislation. Nor is there any sign that the Russians and Iranians would compel him to do so. To the contrary: they are doubling and tripling down on their support for Assad’s offensives, most notably right now against Aleppo and Raqqa.
Nor is there any sign that the peacekeeping forces RAND mumbles quietly are necessary in both the original and updated version of its peace plan are going to be available. Even the Iranians and Russians are unlikely to deploy the tens of thousands required on the ground in Syria. Much less so the Qataris, Saudis, Jordanians or even the Turks. Years ago, the UN had polled more traditional troop providing countries and had identified 18,000 that might be made available. Today that number has certainly shrunk. A country the size of Syria would require well over 100,000 by the usual peacekeeping formulas.
The value of this second version of the RAND proposal lies in its careful attention to the pros and cons of different forms of decentralization. Assad is staying, but he won’t be able to achieve his territorial goal. The Americans, whose one real asset in Syria is the local governing structures they have supported, should be thinking about decentralization not with Assad, because he just won’t buy it, but despite Assad. Providing the security resources required to protect local governing structures, and weaving them together into a viable alternative to the regime, is a better plan than the surrender RAND is advocating.
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Fight and muddle
It took longer than anticipated, but it appears now that the cessation of hostilities in Syria is ending, mainly due to regime attacks on relatively moderate opposition forces in the center of the country. Fighting has also erupted in the far northeast, where Kurdish and regime forces had long divided the turf between them but are now going after each other.
The opposition’s High Negotiation Council has been leaving the UN-sponsored talks in Geneva, disappointed that in the minimal progress on humanitarian access and release of detainees, as well as the regime’s refusal to discuss political transition. I suspect they stayed long enough to avoid any American backlash, but we’ll have to wait and see. Technical level talks on some issues are said to be proceeding.
On the regime side, President Assad is feeling strong in the aftermath of Russia’s fall offensive, which succeeded in preventing the opposition from reaching the Alawite heartland it was aiming for. Both Moscow and Tehran have now doubled down on their support for Assad. No matter how often they deny being wedded to him, neither Russia nor Iran can hope for a successor regime even half as friendly to their interests as he has been. They know they are cooked in the long term if Syria becomes even remotely democratic, as the substantial Sunni majority will no doubt remember what they’ve done and seek eventually to exclude them from any substantial influence in the country.
What this amounts to for the US is a short term loss even if it can hope for a long term gain. The cessation of hostilities worked mainly by reducing Russian and regime attacks, which this fall were responsible for most of the violence, and freed the relatively moderate opposition to do what the Americans have long wanted them to do: attack the Islamic State (ISIS). They were somewhat successful, especially in northern Syria but also in the south. That was good news for Washington. So too were the demonstrations that broke out in some cities against Jabhat al Nusra, Syria’s Qaeda affiliate.
Now the big question is whether the Americans have done what is normally done during a cessation of hostilities: prepared its Syrian allies for the renewal of violence. If the relatively moderate opposition has been strengthened, it will be difficult for the regime to make further progress or even hold the territory the Russian offensive helped it to gain. Particularly important is whether the opposition has acquired antiaircraft weapons, which could tilt the military balance against the regime even if the still active Russians remain relatively unscathed. The regime uses vulnerable helicopters to drop so-called “barrel bombs,” which devastate civilian areas.
The situation in the region remains tense and confused. Turkey continues to be more concerned with countering the Syrian Kurds (as well as their own) than with fighting the Islamic State. Saudi Arabia still seems more focused on its support for what it considers the legitimate government in Yemen rather than support for the Syrian opposition or the fight against ISIS. Israeli Prime Minister Netanyahu took the opportunity of a cabinet meeting held on the Golan Heights to declare that they would never be returned to Syria, thus undermining the rapprochement between Israel and the Sunni Arab states even more than Israel’s growing cooperation with Russia.
President Obama remains determined to minimize American exposure in Syria and the Middle East generally, even as he beefs up aid and advising to both Baghdad’s security forces and the Kurdish peshmerga in Iraq, where the jabber about an impending assault on Mosul belies the shortcomings of the Iraqi army. If his meeting with Gulf states this week produced a new approach in Syria or Iraq, it has not yet become apparent. Washington seems resigned to muddling through until the January end of this administration, when more likely than not Hillary Clinton will begin to serve Obama’s third term. She will then have to decide whether to follow through on her pledges to take greater risks in Syria not only against ISIS but also against Assad by imposing a no-fly zone over part of the country.
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Heresies
The Middle East Institute today published my heresies concerning America’s future in the region. Essentially I agree with President Obama that American interests in the region are declining and shifting: the nuclear deal with Iran has postponed the proliferation threat and American dependence on Middle East oil is declining. Other interests like the fight against terrorism and maintaining relations with our allies require less military presence in the region and more attention to civilian functions like state-building, diplomacy to create a regional security architecture, and continuation of democracy support to those who desire it. Military assistance to allies in no way justifies the current massive US military presence in the Middle East, which attracts more problems than it solves.
This is not as different from Ken Pollack’s recent Fight or flight: America’s choice in the Middle East as might be imagined. Ken also emphasizes the important civilian dimensions of stabilizing the region, especially once the civil wars are brought to an end. But he uses the oil issue as his trump card in arguing for continued US engagement and even re-commitment to the region, as he fears breakdown of Saudi Arabia.
I am perfectly willing to concede that is a possibility, but it is one the Saudis have every incentive to prevent. How redoubling American military commitment to the Middle East would contribute is not clear to me. I am confident that any future regime in the Kingdom will want to protect itself and its oil exports. A disruption of Saudi exports, should it occur, can be met more readily by drawdown of the US Strategic Petroleum Reserve, coordinated with other countries through the International Energy Agency as well as with China and India. Getting those two major importers of Middle Eastern oil to hold at least 90 days of strategic stocks would do much more for stability of the oil market than the Fifth Fleet, which is ill-suited to respond in any substantial way to internal disorder in Saudi Arabia.
Should an oil supply disruption last a long time, the consequent increase in prices will bring back a lot of “non-conventional” oil and gas. The technology for producing it is spreading around the world, so it is unlikely we’ll see a rise much above $70 per barrel during the next decade or more.
The Saudis could also do some things to improve the security of their oil exports. Existing pipelines that circumnavigate the strait of Hormuz are not used to full capacity. New pipelines could be built. The Kingdom would be wise to improve treatment of its Shia minority, many of whom live in oil-producing areas.
Some think Syria demonstrates that it would be better to fight wars in the Middle East than reduce our commitments there. I’d be quick to admit that President Obama’s inattention to Syria during the peaceful phase of its revolution was a serious mistake. He should have ensured that saying Bashar al Assad needed to step down was translated into action. It was clear from early on that his staying would lead to violence, that violence would lead to sectarian polarization, and that polarization would lead to radicalization.
But I disagree with those who claim the best way of ensuring that Assad left would have been to attack his chemical weapons facilities. That option did not arise until August 2013, which was well after the rebellion turned violent. Two years earlier would have been the best time to act, most likely through diplomatic and political means rather than military ones.
The failure to do so has created an enormous mess in Syria, but it is one that does not actually affect oil production and exports much. Even the humanitarian catastrophe should concern the Europeans more than the US, because of their vulnerability to migrants.
The big challenge in the Middle East today is creation of some kind of security architecture to channel competition into peaceful arenas. While American military capacity has a role to play in shaping the environment in which that is achieved, the task is essentially a diplomatic one requiring Iran and Saudi Arabia to come to terms and seek to reduce the threats that each perceives, stemming in part from the other. That should not be impossible. We did at least that well with the Soviet Union during a period of much greater threat to the US than any today. Detente is not a four letter word.
The Middle East today needs more diplomacy, state-building and democracy. It could do with a lot less saber-rattling and killing.
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