Iraq’s new crisis has everyone, including energy guru Daniel Yergin, worried about what it’s going to do to the price of oil. And certainly we’ve all been here before.
War and chaos in the Middle East shuts down oil wells and closes pipelines and refineries; the world’s oil supply dips and oil prices spike.
So is that our fate, as Iraq melts down, again? This time, maybe not. A big change has occurred since the last time a major Middle East crisis threatened to disrupt world oil supplies.
Thanks to hydraulic fracking, the United States and Canada are taking over a bigger share of global production, and that’s going to have far-reaching consequences — not just for what’s happening in Iraq now but for U.S. policy in the Middle East in the future.
During the First Gulf War in 1991, for example, average monthly prices doubled. During the Second Gulf War world oil prices quadrupled, not just because events in Iraq but because of political turmoil in Venezuela, a big oil producer, while Saudi Arabia decided to cut its production as a way to boost the price and make more money.
Then came the fracking of shale oil, as well as natural gas, and a major revolution on the supply side of global oil occurred.
In 1991, Iraq was pumping out 3.4 million barrels a day in oil, while U.S. production was less than 7.5 million barrels, and Canada less than 2 million. By 2000, American oil wells were barely managing 6 million barrels a day.
Today, while Iraq was inching back across the 3.4 million barrel mark before the rebels struck, the United States is producing 8.5 million barrels a day, and Canada 3.5 million.
Today, we produce almost 10 percent of the world’s crude oil thanks to fracking, and, by 2020, we’ll replace Saudi Arabia as the world’s biggest producer.
The U.S. still doesn’t export any of that crude, as Canada does. But we’ve cut our own crude imports by more than 10 percent since 2005 to the lowest level since 1996, which means there’s more oil in the global market for everyone else.
It’s what enabled the U.S. to organize a sanctions regime against Iran, because shutting down Iran’s oil and gas wells wasn’t going to trigger a world recession.
It’s what enables us now to take a wait-and-see attitude about what’s happening in Iraq, so far.
Increasing chaos could mean a major spike in prices down the road — but while the price is up to its highest level since last December, but it’s not soaring, as it would have a decade or two ago.
This means that Americans are going to look on the Middle East in a whole new way.
In the past, the doings in distant desert dictatorships had a huge impact on what happened to our economy, even whether we had gas for our cars at all.
It’s why we went to war in 1991 to drive Saddam out of Kuwait, and why restoring Iraqi oil production after Saddam’s fall in 2003 was such a high priority.
That’s increasingly no longer the case. Fracking means Americans are going to care less and less about what happens in places like Iraq or Libya or Bahrain the Arab Emirates, even Saudi Arabia.
That’s probably good news for Americans. But it’s also bad news for the Arab Middle East. Not only is the window closing on OPEC’s ability to threaten to cut production and raise prices.
It’s also closing on those countries’ ability to get their political act together in ways that arouse our national interest.
Increasingly, if they choose to murder each other in large numbers, as they are in Iraq, or turn the Middle East into a living hell, we won’t care.
No one wants failed states to become haven for terrorists—and that’s a clear and present danger with the current meltdown in Iraq.
But Americans will have no stake in sacrificing American treasure, let alone blood, for dictatorships and peoples living under them, even oil-rich ones.
So President Nouri al-Maliki shouldn’t expect U.S. airstrikes to save his tottering regime any time soon.
Fracking is, of course, controversial and frowned on by many on the Left. In fact, the anti-war Left should be cheering.
Remember “no blood for oil?” For Americans today, blood for no oil makes even less sense. And fracking is making that happen.