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Expect Dire Consequences if Syrian Contagion Spreads to Oil

Iraq Syria and Regional Chaos

Among the dismal reports coming out of Iraq, a seemingly minor but highly significant item was news that ISIS and the Iraqi government were battling over the Baiji oil refinery near Tikrit. The Baiji oil refinery, news reports noted, could be a key installation in providing fuel. Indeed, back in the day so-called “insurgents” often stole fuel from the Baiji refinery for use and sale on the black market in the aftermath of the US invasion of Iraq in 2003. Cleverly, the insurgents would take fuel from the refinery and then attack the refinery to close it temporarily, raising the value of the refined products in their possession and depriving rivals of fuel.

The fact that Baiji came into play again as a military target is disturbing and raises as many questions as it answers. Are rebel forces simply trying to deny the Iraqi government fuel? Or if they intend to take over the refinery for their own use, what crude oil would they be able to put in it? Iraq’s crude oil fields are controlled either by the Kurds or by the Iraqi central government, presumably neither of which would be selling feedstock to militias with ties to ISIS. It seems farfetched to think that the plan was to smuggle crude oil into Iraq from Syria and use the Baiji refinery to process it so one has to assume that the attackers were aiming at the oil complex, which also fed some local power generation services, just to cripple the local economy and deny their military rivals of fuel. By denying basic energy services, militias across the Middle East have learned they can undermine the authority of existing political leadership in the region. A prime example of this strategy has been amply demonstrated in Libya where what might have been a successful transitioning government fell into disarray as rebel factions grabbed and turned off key oil installations and denied access to eastern Libyan export ports.

The battle for the Baiji refinery may seem minor at first glance but it raises the specter that regional oil facilities will be considered both strategic assets and spoils of war in not only the greater battle for Syria and Iraq but potentially in the struggle for geopolitical power across the entire region. This turn of events would be a serious challenge to stability across the Middle East and for the global economy. My research with econometrician Mahmoud El-Gamal shows that oil facilities damaged during wartime can dramatically reduce access to oil from a country for years, if not decades.

The concern that oil will drive military actions on the ground in Iraq cannot be overstated. Already, the Kurds have taken the opportunity of chaos in Iraq to grab the Kirkuk oil field. And, there are rumors that Iran has positioned military “advisors” in and around Iraq’s southern oil fields. As the United States mulls its options to diffuse the crisis, it might want to consider this: If Iran could, would Tehran want to control by proxy or otherwise, Iraq’s southern oil fields and infrastructure in the long run? What would the implications of that be for the regional power balance and global energy security?

And, in thinking about quiet negotiations with Iran about cooperation on the Iraqi situation, the US administration must also ask itself: is the US sure Iran would be satisfied over time with just “effectively” controlling the Basrah oil fields? Might the very nearby oil-rich Saudi Eastern province, with its large Shi-ite population, be yet another tempting target once Iran digested other assets in the Northern Gulf?

US military cooperation with Iran on the ground in Iraq is not only inconsistent with our regional alliances, it conflicts with our long term interests in global economic stability. Providing military support for an Iraqi leader beholden to Iran for his survival has the same strategic deficit.

Countries have strategic interests and the idea –often bandied about in Washington- that countries “need to sell their oil and gas” no matter how hostile they are to the West is a stupid one. The tense situation between Russia and Ukraine should be proof enough of that. Much ink has been spilled to explain that a cutoff of Russian energy exports to Europe will hurt Russia itself and therefore acts as a constraint on Moscow. But can we actually count on Russia to take the economically rationale path? Even if Russia is clever enough not to pull the trigger on its oil and gas weapon, it is not desirable for Russia to have that kind of economic leverage over important economies and allies of the United States. It can use that leverage to wrest other kinds of concessions from Europe. Moscow has indeed already cut off natural gas supplies to Ukraine. Europe’s overwhelming dependence on Russian energy has put the entire continent at tremendous risk. So I ask US leaders: How in the world would it be desirable to concentrate even more oil monopoly power in the hands of Iran?

While clearly it is politically incorrect to say this aloud, we still have to consider energy supply in forging our immediate policies in Iraq and Syria. Whatever the inclination to believe that we can use renewable energy to solve all our energy problems, for the time being, the world has over 1 billion liquid fuel cars on the roads today. Oil, therefore, remains a vital fuel for economic activity. This reality, no matter how unpleasant to those pushing a green energy agenda, keeps us stuck in the morass of worrying about war’s effect on global oil supplies. The consequences that sectarian conflict in the Persian Gulf region might escalate to involve oil installations across the region are dire both for local populations and for the global economy.  There are only so many petro-state failures that can be counter-balanced by rising US shale oil production.

The Obama Administration needs to play a wiser role in Middle East diplomacy in trying to diffuse the current crisis in Iraq and think more carefully about how to best involve itself in the protection of key regional oil installations and for whom. To date, the United States has not done a particularly good job in its diplomatic efforts to assist local leaders in managing oil revenue sharing conflicts in places like Iraq and Libya, and this failure has crippled US efforts to stabilize those countries. In promptu statements about the US taking a role in the defense of the Baiji refinery before proper diplomacy could take place on the ground in Iraq falls into a similar category of ill-planned policy. The administration would do well to count to 100 before it speaks about conflicts over oil facilities in the future and to consider the strategic elements of oil supply when considering diplomatic solutions to current conflicts.

Photo Credit: Energy Security and Regional Chaos/shutterstock

Content Discussion

Bob Meinetz's picture
Bob Meinetz on June 23, 2014

Ill-planned policy? Amy, perhaps George W. Bush should have counted to 100 before he invaded Iraq. Or 1,000. Or…

None of us know the intricacies of closed-door policy discussions on Iraq. Maybe Obama could be doing better; he certainly could be doing worse. What’s undeniable is that the ongoing Iraqi cataclysm was completely avoidable, and is the direct result of misguided policy under the Bush Administration eleven years ago.

There are millions around the world who see the scenario in Iraq unfolding exactly as predicted, yet you suggest that once again we base foreign policy on fear, as we did in 2003. Once again, I’ll take the long view and suggest that nothing could be more ultimately beneficial for the planet and its inhabitants than for the price of oil to skyrocket.

Ed Dodge's picture
Ed Dodge on June 23, 2014

Amy,

You make important points.  Of course US policy across the Middle East is intimately wrapped up with the energy markets.  The political class consistently tries to play down the importance of oil in our foreign policy, claiming that it is simply “American interests” that drive our actions in the region. God forbid the public at large call the Iraq invasion a war for oil (that we lost).

The green left for its part is no better at grasping reality and continues to hold to the fantasy that renewables will magically displace the central importance of fossil fuels in the industrial revolution and our economy to this day.

We cannot separate energy security and pollution in discussion of energy policy, two sides of the coin. 

Bob Meinetz's picture
Bob Meinetz on June 23, 2014

Ed, I’m curious what you think the effect would be of closing the spigot on that whopping 12.9% of our oil (or “energy”, if that conjures a more pleasant image) which America derives from the Middle East. Would it put the final nail in the coffin of the American RV industry, ending life as we know it? Would if force us to carpool with people we don’t even know, or to limit ourselves to weekly trips to the mall? What about the plight of American respiratory therapists and the eroded patient base they’d face with all that clean air?

Something tells me we’d get by just fine. In fact, this drumbeat sounds familiar to the one being played by the API twelve years ago as they desperately tried to remind us how much we desperately needed oil. It sounds like the one the U.S. Chamber of Commerce plays when they seek to portray us as delicate flowers certain to wither, had we to scale back our overconsumptive lifestyles.

Americans are dependent on oil very much because the most powerful industry in the world wants it that way, and US policy across the Middle East is “intimately wrapped up with the energy markets” only because the most powerful industry in the world is intimately wrapped up with U.S. policy.

Ed Dodge's picture
Ed Dodge on June 23, 2014

Bob, my point is that we have plenty of domestics resources and don’t need the Middle East.  We should be focusing our efforts on developing all of our North American resources and not fighting hydrofracking or the Keystone pipeline even as we promote renewables and nuclear.

Robert Bernal's picture
Robert Bernal on June 24, 2014

It’s about time to consider a focused and well funded international “top priority” commitment towards the prevention of failure and the standardnized, global deployment of advanced nuclear made liquid fuels.

Such well funded research and development would be FAR less expensive than meddling with other country’s resources (not counting wasted money).

Furthermore, resulting excess CO2 is a global killer. Loss of biodiversity, from ocean acidification, and ocean anoxia, from melted icecaps will end the Holocene as we know it (and poison the very air with hydrogen sulfide).

Advanced nuclear is unlimited in scope, and therefore, would allow for cheaper fuel (such as ammonia, methanol and DME, if made in factory mass produced meltdown proof units.

Nathan Wilson's picture
Nathan Wilson on June 25, 2014

We in the US need to accept that over the next few decades, we will remain dependent on fossil fuel for transportation.

However, we can help the situation somewhat by diversifying our vehicle fleet to include natural gas as a fuel.

More importantly, we can help to relieve pressure on the global fuel supply and environment, by helping developing nations to transition their vehicle fleets to use syn-fuels made from sustainable energy (with water and air).  Countries like China and India pay the same price as we do for imported oil, but they are able to make nuclear and renewable energy for about half of the US cost (see here).

The low cost of sustainable energy in these countries means that fuels like hydrogen and ammonia can be made for about the same cost as imported oil.

We started development decades ago on hydrogen production technology, but never productized it, since the economics are not attractive in the US.  But now is our chance to develope the technology for export.  We need to complete the HTGR and build a hydrogen production plant to go with it.  We need to complete development of solid state ammonia synthesis (which would produce ammonia fuel directly from water, nitrogen, and electricity, using a fuel cell operating in reverse).

See this presentation on the advantages of ammonia fuel, and this presentation on making ammonia fuel from nuclear power.