Today’s unconventional crude oil and natural gas basins such as the Marcellus, the Bakken, and the Eagle Ford teem with activity, having already injected multiple benefits of a resurgent U.S. energy industry into the broad fabric of the country’s economy.
Yet in spite of this historic rebirth, there remains the broader picture of 2014 global demand, now forecast at 92.5 million barrels a day, implying a slim surplus production capacity of 2-3 million barrels per day. Thus, despite America’s jubilant cries of energy independence, the global nature of the crude oil commodity and the continued vulnerability of the world’s supply network to regional political discord are not to be dismissed.
The most important region where high oil production intersects with political turmoil is the Mideast. It is here and in North Africa where the Arab Spring, originally embraced by a naive Western press as a movement toward political moderation by the area’s regimes, has instead birthed a chaotic paradigm, and in many respects, a U.S. foreign policy nightmare.
Egypt, for example, is a nation currently producing 680,000 barrels per day, but the nation remains in turmoil as today’s military-led government remains under siege by the long-suppressed Muslim Brotherhood. Heading west to Libya, one sees another country wracked with internal strife. Production volumes here have dropped sharply from the Gaddafi era’s 1.6 million barrel per day levels to today’s 600,000 barrels per day with the current anarchic situation suggesting little visibility for improvement.
Meanwhile, in Saudi Arabia, the royal family has clearly become more anxious with the Arab Spring’s unleashing of destabilizing forces. The leadership’s recent announcement of the deportation of up to two million foreign workers and their close monitoring of the Shiite demographic in the country’s eastern oil-rich region demonstrates its wariness of the influence of dangerous elements within the population.
Saudi Arabia produces ten million barrels a day of crude oil, and holds the bulk of the world’s spare oil production capacity. Directly across the Persian Gulf to its north lies Iran, now viewed as an increasingly threatening neighbor given the Chamberlainesque Geneva Agreement and the theocracy’s presumptive belief that it has won the right to continue uranium enrichment.
A second prong of Iran’s overtly belligerent regional strategy, its fomenting of internal unrest in various Mideast countries such as Lebanon, is pursued through the targeted use of al Quds and Hezbollah forces. Iranian oil volumes are down to 2.75 million barrels per day, and even if economic sanctions are lifted, the country is unlikely to see a quick restoration of pre-sanction production volumes given the lack of well maintenance and a high base decline rate.
In Syria, the butcher Assad continues his stand, a U.S. red line having been drawn then quickly erased. Syria’s pre-civil war oil production rate was only 85,000 barrels a day, but on the margin, the loss of those barrels matter. More pernicious, however, is the unfettered flow of rogue militant groups across Syria’s eastern border into Iraq’s Anbar Province. Thus has Iraq’s three million barrels per day of oil production become less secure as Sunni-based al Qaeda forces look to reconstitute the animus that precipitated the level of sectarian violence existing several years ago. The recent fall of Fallujah and Ramadi are a signpost telling Shiite Prime Minister Maliki that his grip on the country, now without backing from U.S. forces, could be as ephemeral as a mirage in the western Iraqi desert.
The least reported on area of civil unrest is sub-Saharan Africa. In the west, Nigerian production of 1.9 million barrels per day remains under constant threat by MEND rebels, while to the east in South Sudan, a new civil war places the country’s 360,000 barrels per day of oil production capacity at risk. The entire sub-Saharan region is frankly a transit route for various terrorist groups, from the refugee camps in the Tindouf Province of western Algeria to the Horn of Africa region that lies just across the Sea of Aden from Yemen and their Saudi neighbors to the north.
In considering the mercurial and volatile nature of many Mideast, North African and sub-Sahara African regimes, one should not be surprised by continued interruptions in global oil supplies and the continued presence of a substantial geopolitical premium in global oil prices. Moreover, given a feckless and often misguided regional U.S. foreign policy, we risk exacerbating an already tenuous oil balance situation.