The oil is the backbone of the global economy
The oil is of the most important causes of international conflicts on the face of the earth, since its discovery in 1859, and until this moment, as it contributed to the tremendous revolution in the form of machine and its size and capabilities, and has become the lifeblood of industry and war, transport, technology and an important scientific stimulus for further inventions noting that the airplane , rocket , satellite, and other advanced machines were not to see the light without oil.
Oil is the main backbone of energy, when its prices were risen after the October 1973 war, and the major industrialized countries felt, especially in Europe and America , the possibility of the control of producing countries on prices or linking it to the political positions , therefore the scientific community for those countries tried to look for an alternative to oil and to promote that idea at reasonable prices, but with time everyone discovered that was but only a media trick.
And the control of oil, means ensuring the continuation of the work of the military machine and industrial machine together which means prosperity and strength.
Since oil is the most prominent material in the landscape of the world economy, it was natural that the major industrialized countries are trying to control its resources, as the equation was entered Since that time , the so – called blood for oil that means the willingness of those countries to deploy its armies and fight wars in order to achieve a safe and cheap flow of this vital material of low – cost which was the best known source of energy so far.
The Arab region replete with crises the each of it is inflammable at any moment, and what combines these crises , especially in the area extending between the Este of Mediterranean and Arabian Gulf that it is linked to the American- Iranian conflict, which reduces the contrast between the two projects for the future of the region and for two different identities of them , as this struggle and contradiction had become the first mover of political interactions , and this is what makes the specter of war to shed in the skies of this region, after the Arab- Israeli conflict was the only tense source for it and then the major ones for several decades .
Political influence on the economies of the oil countries
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Oil is linked to a close relationship for, along time with the political crises and conflicts , and experts attributed this relationship to the beginning of the last century , specifically in the year 1914 , where the oil commodity has become a key and important driver for the merits of international crises and conflicts , and after the end of world War 1 , oil prices recorded levels up $100 a barrel , where the need was grown to secure energy sources for military operations and industrial production , and oil has become one of the most important military targets , the basic foundations in the formulation of political and economic boundaries .
oil was continued to be of the leading factors influencing the international policy where it had a new role, as a pressure paper in October war of 1973 when the Arab used the oil as a weapon to put pressure on the West, to force Israel to withdraw from Arab occupied land in the 1967 , and the use of Arab of oil paper has emphasized of the importance of this item and its role in international relations.
Confidential documents indicate to , (according to the book of d. Abdul Hai Zaloom) the future of the Arab oil in the casino of globalization, the importance of oil for the major states where a British secret document revealed at the time that the United States was thinking seriously in sending airborne troops to take control of major oil fields, in some Gulf countries during the ban on oil exports imposed by the Arab states.
Since then , the issue to secure the oil supply has been started to raise the concern for the major powers, so it is not surprising if we say that one of the most important reasons for the damage and ravages of wars happened to the area was to secure the flow of oil to those countries that move the helm of conflicts in the region.
In spite of what the international community is witnessing today from conflicts and wars, the world stands shocked in front of the drop in oil prices to record levels, a strange case rarely occurred . The international alliance against al “Daesh” in Iraq and Syria, and the collapse of the situation in countries such as Yemen and East Africa, and the crisis in Ukraine, it is assumed that all lead to the insane rise in oil prices, and the intensification of demand for it, but the matter was on the contrary to these expectations.
The reasons of the decline of oil prices
Experts and analysts addressing the oil crisis of research and study, and attributed the current crisis in the oil sector to many reasons, which are divided among the political, economic reasons noting that the political reasons are more likely and significantly including: – Shrinking of global consumption; as the economic analysts and oil experts thought that prices are heading to rise in a crazy way , because of what is taking place in parts of Asia, the Balkans and Africa, but expectations did not come as expected and assumed.
– Crises and conflicts in which oil experts expected prices to rise to a ceiling of $ 120 a barrel, but it was not taken in to their account that prices will be declined to below $ 50 per barrel, where oil prices continued to retreat rather odd to less than that for up to around $ 45 a barrel, which it is unusual in cases of conflicts and international crises with political tensions prevailing in the Arab region in particular, which calls for a redefinition of the players in the oil markets and the forces that dominate the market, and those who are using oil for bargaining and subjugation and political pressures .
However , with this frightening decline of the prices of the black gold , cries of claimants for OPEC to cut production to the limits of two million barrels per day have been risen , to maintain the cohesion of the price, here experts argue that it is purely political matter , regards to a conflicting Saudi Arabia – Iranian accounts , and due to the entry of illegal producers to oil market such as “Daesh” in Syria and Iraq, and militias in Libya, and other groups.
Experts point out that the “OPEC” as an International organization and being a producer of nearly a third of the world ‘s oil, it is required to take an urgent action in order to protect the market and to maintain its position, after the appearance of some bodies who are trying to plunder its position in the recent period, through the shale oil and making deals behind the scenes in order to collapse in prices .
That which creates a state of anxiety and panic due to a continued decline , coinciding with the decline in oil demand and abundance of supply , in this case , which controls the world , which has seen a decline in Brent crude oil prices since the beginning of last summer , which amounted to less from $48 a barrel , which means a decrease of 20% .
Experts argue the big media clamor that occurred in 2013 that the US has surpassed in its production of the oil production in Saudi Arabia and it achieved independence in the field of energy and no longer need to Saudi Arabia , was not accurate , and Arab oil will remain the best in the world in terms of cost of production and type and proximity to the sea and the ports of export and the quantities of reserves and despite the revolution of the energy technology that made it possible for the US to occupy a leading place in oil production and in the field of exploration and production in deep sea water and production of gypsum oil (tight oil) and the rocks of the shale oil, as well as the great achievements of the control on the quantities of oil and gas of possible production from the field (Recoverable oil) by placing sensors in different parts of the field that are linked with computers doing more accurate calculations for optimal utilization of field and observation works as well , noting that despite all of these achievements the oil production of US would not exceed the
Saudi Arabia production after all the new discoveries of Shale Oil by new methods of hydraulic fracturing (Fracking) and horizontal drilling , and we will take all the different factors to show that the US dependence on Arab oil will remain as long as the United States or Arab oil remained before the it was inexhaustible , which one comes first. Oil is for the United States is energy, and its production will not cover consumption until now , nor in the medium term , not even in the long term , as well as the oil that its price paid in dollar is a cover to the dollar , a basis of its financial system.
Comparison of oil production in Saudi Arabia and the United States
if we compare between the Arab oil production , especially Saudi Arabia, and the oil of the US , we will find these observations:
First , shale oil
wells produced by horizontal drilling for wells of shale oil are short life. and the age of the technology used is too short , but it seemed clear as stated in the Business Week Magazine (October 10, 2013) that the production in the well H Serenity with a number which is relatively high , a 1200 barrels / day in 2009
and fell in the middle of 2013 to 100 barrels / day only. This was in the state of Oklahoma, and is another example, it was in the state of North Dakota with a capacity of 2358 barrels / day in 2004, but production has fallen 69 percent in the first year only.
In order to keep investors on the amount of output per field , they are forced to drill more wells to compensate for the shortage of the rapid production.
This phenomenon is called by the oil men ” the Red Queen” phenomenon , which is ” you have to run with all your energy to be able to stay in the same place ,
” and regarding the the US production , it is with high cost much more than the production of Saudi Arabia or any of the other Arab states, as the consulting firm of Global Sstenblta estimates that the United States needs to drill 6,000 new wells each year at a cost of $ 35 billion to maintain the current level of production only.
Studies prove that the new discovered wells that its production capacity was weak from the beginning ; which means that the most productive places has been exhausted , and studies expect that the production of this type of wells to reach its peak up by the year 2017 , but this production will decline within two years in a year of 2019 to levels in 2012 .
Drilling of wells :
Drilling one well requires millions of gallons of water; causing many problems to provide this source in Texas and Nevada, in spite of these problems are not existed in the Arabian oil production, but this production is actually a technological and economic revolution, and improved the US balance of trade payments but it did not save it.
The US oil reserves on land and sea of 23 billion barrels , while Saudi Arabia reserve is 268 billion barrels, or it means the Saudi reserves is bigger than the US reserves by about 12 times. While Saudi Arabia ‘s reserve is the second largest in the world, the US reserves rank fourth ten, which comes after Iran , Iraq, Kuwait, the United Arab Emirates, Libya, Qatar.
We note here that the order of the reserve countries has changed in the last ten years, so Venezuela became the first reserve as the result of adding a very heavy oil reserves to total reserves after the work began to use it and became classified as economically viable. As well as Canada , which owned 5 billion barrels of reserves only became the third owner of the large reserves in the world after starting the economic production of sand oil , and exported millions of barrels.
The increase in production in the United States contributed greatly to increase oil reserves of 16 billion barrels in 2008, to 17 billion in 2009 to 19 billion barrels in 2010 to 21 billion in 2011, and to 23 billion barrels in 2012, however that this increase in those four years means an increase of 44% , but it is quantitatively modest increase.
Therefore we come to a conclusion in the light of these facts, which are : Does the United States need to import oil to cover the deficit? Because consumption is currently about 18.5 million barrels a day, the need to import about 6 million barrels a day, after all of this revolution, and those achievements, a figure roughly equal to the total production of Kuwait and the United Arab Emirates or Saudi Arabia’s half of production.
shale Oil
Oil shale is an organic –rich fine –grained sedimentary rock containing kerogen (a solid mixture of organic chemical compounds) from which liquid hydrocarbons called shale oil(not to be confused with tight oil-crude oil occurring naturally in shale) can be produced. Deposits of oil shale occur around the world , including major deposits in the United States.
United States sees the so – called ” shale oil boom”, which have a clear role in the decline in global oil demand, where many experts in the field of energy attribute to it the falling oil prices.
The British newspaper , ” The Times” wrote on 16 October 2015, Saudi Arabia has taken calculated position accurately, supporting drop in oil prices to below $ 80 a barrel, in order to make the extraction of shale oil uneconomical, prompting Washington to finally return to import oil from Saudi Arabia and the removal of shale gas from the market.
Here , oil experts indicates that the intervention “OPEC” to stop the decline in prices, it will also help producers and investors in the shale oil “competitor” to increase their profits, as well as the entry of new investors to the sector, and increase US exports of petroleum products to the world, and this is what the “OPEC” do not want to happen .
Most experts agree that conventional oil , which is known by the world throughout the twentieth century , will expire before the end of this century including the Arab oil.
Actually the decline phase in conventional oil reserves outside the Arab world has began and also in the oil of North Sea and in many of the fields in different parts of the world .
Premise: Low Arabian oil production
that what came in the study of the article of the case 096-383-9 in the Graduate College of Management at Harvard University, which says: “control the price of oil and the quantity of production are two of the pillars of US national security.” It is that the United States is to determine the quantities of production of oil especially the major oil producing countries of this material , as well as control over more than one way in the price.
So it ‘s no secret that most Arab countries produce much more than the needs of economic development, which transfers the values of surplus to the treasuries of the United States to fill the budget deficits or at best into shares in their companies to strengthen its economy.
If we assume for the application of the theory of sufficient production for the development of a country ‘s economy , producing ten million barrels per day and its stock of 200 billion barrels, then the oil will run out during the 55 years.
But if it produced only it needs to assume it ‘s 4 million barrels per day , then its oil reserves would run out after 137 years, but only enough production to development without surpluses that to exchange valuable item such as oil in exchange for paper money, but this needs basic factors may not be currently available.
The strategic importance of the Middle East:
this region enjoys with the richness of its natural resources , especially the oil and gas , there is no doubt that this privileged position for the countries of the middle east , which controls a set of canals and seas strategic water and important passages , allows it to serve as a link in the transport paths of crude oil , gas and raw materials to industrial countries and major powers over the vast dimensions of globe on the geographical cosmic space.
It is recognized that competition for energy resources is one of the goals of major great powers seeking to assert its influence, and to secure its needs of crude oil and gas, in light of the accelerated pace of production and in the light of financial turmoil affecting the global economy with consecutive vibrations, and in the race for the reservation outposts in international market.
Here lies the importance of the Middle East in the accounts of the states, especially after the end of the Cold War and the emergence of new poles on the international stage.
The Middle East, of the most important areas where the major countries in the world compete as a result of its important strategic location extremely in the world, and as a result of international competition and internal conflicts and tensions, which made them suffer of disturbances and tensions from time to time, and the wars and armed conflicts were erupted in it . Most of the governments of major countries pay great importance to this region.
With the end of the Cold War, the Middle East , turned, a theater full of tense international relations, which it requires to defend it by US .
But after the fall of the Berlin Wall and Hantengwn thesis of “clash of civilizations” and the demise of the Soviet Union, it has emerged a new talk of a “confrontation between the Islamic and Western civilizations , ” and that the Middle East is the line of contact between the two civilizations.
And despite the fact that many did not agree with the thesis of Huntington in ” The Clash of Civilizations”, led by US President Bill Clinton at the time, this thought reflects the aspirations of some American elites around this area which they considered a threat to them and a source of primary resources.
Western countries and Europe, mainly rely on one source of energy which is coal, where it meets more than 90% of its needs, but after World War II and during the fifties and sixties and the decades that followed through to the present day, the consumption of petroleum products has increased rapidly for the following reasons:
The low price of oil , as a result of the reopening of the crossing and a activation via the Suez canal , and the increase in the Soviet Union sales , the increase of the competition of independent oil companies and its response to the investing companies of Petroleum , members of monopolistic Union , and the cleanliness of the oil and the lack of pollution associated with its use, ease of transport and use of it , making Western Europe to increase its dependence on Middle East oil significantly , the degree of dependence has increased from 20% of the total oil consumption by the second World War , to 43 % in 1947 and then to 85% in 1950 , and later the Western demand and other industrialized countries was increased on oil of Middle East ,throughout the decades followed in the last century and up to our current phase with an increased proportions due to the following :
The proximity of middle east oil fields to the European market.
– The great influence of European countries in the Middle East, where France was in control of the Maghreb countries (Algeria), and England , dealing extensively with the Gulf States (Kuwait, UAE, Qatar, Bahrain and Oman).
The European countries were enjoying of wide privileges in the oil fields of Middle East countries , through its subsidiaries, including: the French Petroleum Company CFP British company BP and Shell (owned by a partnership between England and the Netherlands). The These companies sell its oil to European countries in local currencies of these countries
. – The inability of the United States to meet the needs of the Europe and Japan of oil supply , because it has anticipated the shortages of global oil, and are therefore interested in finding alternatives to cover these needs.
The current price of oil:
Many experts and analysts and politicians believe that what is happening in today ‘s oil markets, was a “collective punishment”; as the major producers of oil in the world and the United States of America, agreed that despite the loss in the subject of shale oil to lower prices in order to punish Russia economically; because of its position on the crisis in Ukraine, as well as to punish Iran , which has been an easing of sanctions imposed on it after the conclusion of the nuclear deal with the big five, and now has a greater ability to sell its oil abroad.
This is not the first time the oil weapon was used against Russia and Iran, but also used by President Ronald Reagan in the eighties of the last century, to make a significant deficit in the budgets of Moscow and Tehran.
Some analysts point out that the political goal of this decline seems clear to put pressure on Russia to cut the price of oil to produce a deficit in its budget, which the oil sales represent the most important sources of income for the economies of Russia and Iran, and here , many experts believe that the continuation of oil prices at low levels may direct powerful Moscow slap , which Russia may come in a financial crisis.
The same applies to Iran, which accused of countries in the Middle East , of conspiring with the West, to reduce oil prices to make further damage to its economy , which has been undermined by sanctions.
Implications of lower oil prices ,
the implications differ on lower oil prices considerably from one country to another, and according to experts, that the sharp drop in oil prices, it seems a blessing for the countries of the major oil – consuming nations, at a time concerns were renewed about economic growth, but it may be a curse for produced countries .
Depending largely on what followed from foreign exchange policies, the sharp fall in the Russian currency (ruble) , for example , helped the Kremlin to mitigate the effects of lower oil prices, and has allowed the authorities to continue the high domestic spending, but Moscow , in fact, it will have to be strongly shrinking imports of high costs increasingly.
The situation is similar in China, where falling oil price helps to activate the industrial and technological and commodity production and the increase of exports and enhance the purchasing value of the Yuan as an international upward currency .
The situation is similar for Iran emerging from a long sanctions with the side effects of a definite reflection of lower oil price on the financial returns that can be earned in the opening stage after ending the sanctions, despite that the assessment of the effects of foreign exchange rates is the most difficult, because the official currency of both countries not characterized by freely trading in wide range.
In a remarkable report of the International Energy Agency early in 2016, it stated that “in countries where its currency is not pegged to the US dollar, fluctuations in foreign exchange rates helps to revoke the side of the impact of the recent declines in oil prices .
Thus, the nominal revenues for exports of Russian with a ruble increased recently despite the falling of its value with the dollar “, and on the contrary , the countries which are members of the” OPEC “from the Gulf states such as Saudi Arabia and the United Arab Emirates, which its currencies are linked with the dollar, they have witnessed a decline in revenue in local currencies as a result of falling of oil prices.
Vision of the Saudi economy:
Saudi Arabia ‘s economy varies according to the elements of its sustainability, and despite the fact that oil and gas are a mainstay of the economy, but it is expanding in investment, and seek to overcome challenges.
The average growth of the Saudi economy has reached during the last (25) year more than 4% per year, which contributed to saving millions of jobs, and is the strongest ones of 20 economy in the world.
The Saudi Arabia is seeking to occupy a more advanced position in order to diversify the economy and launch of the potentials of its promising economic sectors, and the allocation of a number of government services, by the year (1452 – 2030), in spite of the slowdown of global economy.
Shatha Khalil
Unit Economic Studies
Translated by: Mudhaffar al-Kusairi
Rawabet Center for Research and Strategic Studies