War and the Oil Price Cycle

Oil FireBy Amy Jaffe & Jareer Elass

Journal of International Affairs

Oil has shaped international conflict for many decades. According to one estimate, between 25% to 50% of interstate wars between 1973 and 2012 have oil-related linkages. Still, the cyclical nature of oil’s contribution to global conflict is not well understood. Not only are oil prices cyclical, but the geopolitics of oil is linked inexorably to the same boom and bust price cycle. Military adventurism, proxy wars and regional pathologies in the Middle East expand and contract with the ebb and flow of massive petro-dollar accumulations and recycling related to the oil price cycle. The massive inflow of petro-dollar revenues when oil prices are high create disposable income that can be easily dispensed on regional arms races, especially since oil consuming countries like the United States and Europe are incentivized to increase arms sales to solve oil import-related trade deficits. Then as oil prices recede following the impacts of prolonged high prices, which stimulate new supplies and slowing demand through economic slowdown, substitution and conservation, social and political problems in the region reemerge. Regional governments have less resources to spend on restive populations who have become accustomed to generous hand-outs enabled by high oil prices. Job creation and visible social programs slow, dissatisfaction rises, and the consequences of economic down-cycles incite support for militants inside the borders of petro-states. Ensuing instability forces governments to use newly purchased arms, which ironically begins the cycle yet again by putting oil producing geography in the path of violence, leading to oil price spikes and disruption that drive the next boom and financing for replenishment of military equipment.

In this manner, the world experiences perpetuating repeating patterns of Middle East military conflict, followed by oil supply crises, and accompanying global financial instability. In effect, the Middle East resource curse has become globalized and the challenges this is currently presenting on humanitarian, security and economic fronts has become increasingly dangerous.

The arms race that accompanied the rise oil prices over the 2000s has been no exception and is now rendered all the more complicated than in the past by the violent participation of sub-national radicalized groups whose interests differ from regional governments and are less susceptible to diplomatic pressures or initiatives. In this emerging geopolitical context, the rise of sub-national groups and insurgencies like the Islamic State (IS) and Al-Qaeda is increasingly putting oil infrastructure at risk, laying the groundwork for a future oil crisis that may prove harder to solve than in the past. The violent protests in Saudi Arabia and Iran following the execution of Shia cleric Nimr El-Nimir by the Saudi government in early January not only further strained relations between Riyadh and Tehran but also included the firebombing of bus transportation used to take Saudi oil workers, many of whom are Shia, to the oil fields in the eastern province – a reminder that disruptions to oil operations can arise quickly and take unexpectedly different forms.

Continue to full article . . .

Picture: https://commons.wikimedia.org/wiki/File%3ABergan_oil_field_fire.jpg

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