by Elliott Morss
Westerners believe in democracy. Westerners are also dependent on Middle East oil. Democratic movements are unsettling. Democracy throughout the Middle East? Maybe not such a great idea. Why not? Table 1 shows that 44% of oil traded globally comes from the Middle East and two of its North African neighbors. The US imports more than 60% of the crude oil it consumes.
Before Iraq became “democratic”, it exported 3.5 million barrels of oil daily (mbbls/d). It is now exporting 2.0 mbbls/day. And Libya, recently exporting 1.2 mbbls/d, has shut down. Saudi Arabia has increased production to make up some of the difference. But with a surging demand for oil in China and India as their middle classes buy cars, further disruptions would be problematic.
Two articles in last Sunday’s New York Times got me thinking. One, by Vali Nasr, speculated on what would happen if the “Arab Spring” turned nasty. The other, by Bill March and Joe Burgess, was a graphical depiction of Shiite and Sunni “countries in the Middle East. In Table 2, I have taken their work a bit further. It is a gross oversimplification to characterize the Middle East/North Africa as an all out battle for supremacy between Shiites and Sunnis. The area has always been governed by tribes who use force. And the tribes do not line up as Shiite or Sunni. However, it is informative to look at the area thru a Shiite/Sunni prism, and I do this in Table 2.
What is the point of looking at the 18 countries listed in Table 2? An “incident” could occur in any one of these countries causing further disruptions in global oil supplies. The world would be hard-pressed to cope with further disruptions.
In the simplest terms, the Middle East consists of Sunnis, led by Saudi Arabia and Shiites led by Iran. As long as Saddam Hussein ruled Iraq, Iran and Iraq spent much of their energy fighting one another. Saddam’s Sunni dictatorship controlled in a country where there were far more Shiites than Sunnis. With Saddam gone, Iraq in all likelihood will come under Iran’s sphere of influence as soon as the US leaves. The US invasion of Iraq a good idea? Probably not.
The gorilla in the room is Pakistan with a huge Muslim population and nuclear weapons. Israel is not included in Table 2. But Turkish-Israeli relationships have recently deteriorated….
More democracy in the Middle East? Be careful what you wish for.
About the Author
Elliott Morss has a broad background in international finance and economics. He holds a Ph.D. in Political Economy from The Johns Hopkins University and has taught at the University of Michigan, Harvard, Boston University, Brandeis and the University of Palermo in Buenos Aires. During his career he worked in the Fiscal Affairs Department at the IMF with assignments in more than 45 countries. In addition, Elliott was a principle in a firm that became the largest contractor to USAID (United States Agency for International Development) and co-founded (and was president) of the Asia-Pacific Group with investments in Cambodia, China and Myanmar. He has co-authored seven books and published more than 50 professional journal articles. Elliott writes at his blog Morss Global Finance.