Our Way to Mideast Peace
By Walter Russell
Wall Street Journal
December 11, 2017
Whatever you think of President Trump’s decision to
recognize Jerusalem as Israel’s capital, it points to the most important
strategic reality in the Middle East: Arab power has collapsed in the face of
low oil prices and competition from American frackers.
The devastating oil-price shocks of the 1970s, orchestrated by the Organization of the Petroleum Exporting Countries, nearly wrecked the world economy. Ever since, the U.S. has looked for ways to break OPEC’s parasitic and rent-seeking grip on the oil market—and thereby to reduce America’s geopolitical vulnerability to events in the Middle East.
Victory did not come easily. Intense conservation efforts made the U.S. much more energy-efficient. New oil discoveries in Africa and elsewhere significantly broadened the available supply. Renewable energy sources added to the diversification. But the most decisive development was that decades of public and private research and investment unleashed an American oil-and-gas boom, leading to a revolution in energy markets that has sent geopolitical shocks through world affairs.
The consequences reverberate in the Middle East and beyond. Future oil revenues to countries like Saudi Arabia, Iran, Venezuela, Russia and Iraq will fall trillions of dollars short of what once might have been expected. The shift in energy markets will benefit consumer economies like Japan, China, India and the nations of the European Union. The U.S. and similarly situated nations, like Australia and Canada, can look forward to faster growth and greater foreign investment, since they will capture much of the oil revenue that Russia and OPEC lose.
Low energy prices already have given the EU’s struggling southern countries a chance to return to growth. They have limited Russia’s prospects and forced Vladimir Putin onto a tight budget. They have largely offset the gains Iran had hoped to make from signing the nuclear deal and escaping Western sanctions.
But the greatest consequences are being felt in the Arab world, where the long-term decline in oil revenues threatens the stability of many states. It is not only the oil producers that will suffer; the prosperous Gulf economies have been a major source of opportunity for Egyptians, Pakistanis, Palestinians and many other Middle Easterners.
The shining cities that rise where the desert meets the Gulf may be in for harder times. The sheikhdoms’ glassy skyscrapers, gleaming malls and opulent apartment complexes were conceived for a world in which runaway energy demand and limited sources (remember “peak oil”?) led to inexorably rising prices. These fragile and artificial economies require hothouse conditions that a weakened OPEC can no longer provide. Now the great Gulf Bubble seems set to slowly deflate.
There’s more. The staggering affluence of the Gulf countries during the OPEC era concealed the Arab world’s failure to develop states and economies capable of competing effectively in the 21st century. As their dream of revival through oil riches fades, they are waking to a new era of weakness and dependency.
The Gulf states increasingly see Israel not as an insect to be crushed by resurgent Arab power, but as a lion that can defend them from Iran. Syria, once a citadel of Arab nationalism, now haplessly hosts Russian, American, Iranian and Turkish forces that the Assad dynasty can neither control nor evict.
Arab diplomats, lobbyists and financiers must brace for more bad news: As the declining long-term prospects of the OPEC states become apparent, their diplomatic and economic influence across the West can be expected to wane even further.
Many analysts look at the frustrations of America’s policy in the Middle East and conclude that the U.S. is in retreat and hegemonic decline. That misses the deeper truth. American diplomacy has had its share of failures, but the region is now being fundamentally reshaped by drillers in Texas, Pennsylvania, North Dakota and elsewhere.
Even with OPEC’s hold broken, the Middle East will remain a problem for American policy. Moreover, not all the consequences of OPEC’s decline are good. In the short term, Russia and Iran are likely to double down on adventurous foreign policies as a way of distracting their populations from the tough challenges ahead. Instability in America’s key Gulf allies and in Egypt could create major headaches for the U.S.
Nevertheless, reducing OPEC’s ability to capture rents, while forcing more corrupt petrostate oligarchies to contemplate reform, is likely over time to reduce both the costs and the risks of American foreign policy. This is what winning looks like.