The Middle East, as virtually everyone knows, is the repository of half of the world’s proven oil reserves, the locus of vital shipping lanes and the heartland of Islamic fundamentalist terrorism. Events there directly affect the U.S. economy and its national security, which is why we almost universally view this region as one of paramount importance. That the U.S. military presence has declined since the end of the Cold War in every part of the world except this one is a natural reflection of the region’s strategic centrality. This line of argument is so familiar that it is almost impossible to conceive of its being mistaken. Yet it is.
As the 21st century unfolds, the Middle East (leaving Israel aside for the moment) will matter less and less to the United States and to most of the rest of the world. Only when we recognize this fact will we be able to forge a coherent and effective foreign policy in the Middle East and elsewhere. As a consequence, we have much more to fear from a U.S. posture that strives to accomplish too much in the region than we do from one that strives to accomplish too little.What Energy Insecurity?
Surely, the first objection to an argument for the Middle East’s irrelevance is oil. Over the past quarter century, concern over high oil prices has become as American a pastime as baseball. Between 2002 and 2006, oil prices more than doubled, and public anxiety over energy vulnerability increased accordingly. In a spring 2006 Public Agenda survey, U.S. respondents cited rising energy prices as their top policy concern.11. Cited in Daniel Yankelovich, “The Tipping Points”, Foreign Affairs (May/June 2006). Interest groups across the political spectrum feed the public’s preoccupation. For the domestic energy industry (including ethanol producers), the threat posed by dependence on foreign oil justifies an assortment of wealth transfers; for environmentalists, it is a rationale for championing investment in renewables; for jihadists and anti-globalization protesters, it provides a clear and persuasive explanation for their belief in U.S economic imperialism; for military hawks and neoconservatives, it is a key justification for “democracy building” projects or armed expeditions in the region. Seeming to state the obvious, President Bush famously pronounced in his 2006 State of the Union speech that “we are addicted to oil.” The nation’s intellectual leadership has followed gamely along as pundits of all types have sought to outdo themselves in elaborating the harmful effects of oil dependency.
Yet what have been the actual consequences for the nation of the oil price run-up in this decade? What crippling effects has the long-dreaded price doubling produced? None. Zip.
U.S. economic growth has continued apace. The slowdown in growth rates that did occur in the fourth quarter of 2005, and again toward the end of 2006, was more directly attributable to monetary policy, notably the Federal Reserve’s steady increases in interest rates, than to oil price changes. For consumers, the impact of rising oil prices, though severe for particular groups like low-income residents of rural areas, has been minimal for most. At the same time, for producers, particularly stockholders and executives in U.S. energy companies, the surge in oil prices has resulted in historic windfalls, like ExxonMobil’s record $36.1 billion in profits for 2006. Such widely divergent distributional impacts do constitute a short-term political and policy challenge, but a short-term political challenge should not be confused with a long-term security threat to the nation.
Theory and history both indicate that oil is an inherently feeble strategic weapon. The most common arguments to the contrary typically rest on an undergraduate-level economic analysis that assumes technological stagnation even as growth in demand outpaces that in supply. Currently, demand is growing because 15 years of very low oil prices eroded U.S. consumer interest in energy conservation, and because long-suppressed economies in China, India, Vietnam and elsewhere have surged forward. The spare production capacity of OPEC countries is today down to less than two million barrels per day, or about 2 percent of global demand. (Twenty years ago, when gas was last at $3 per gallon in real terms, spare capacity was 15 million barrels per day, or about a quarter of global demand.) Under these conditions, a simple application of “Econ 101” would seem to suggest that oil exporters can cripple the economies of import-reliant countries by sharply reducing supply and driving up prices. In the real world, however, it’s not so simple.
Petro-alarmism focused on the Middle East ignores the adverse impact on oil-producing countries of withholding output. The near-apocalyptic scenarios frequently offered up require oil producers to behave in ways that would be at least as damaging to their own interests as to those of oil-consuming countries. 2 2. See James Woolsey, Testimony Before the Senate Committee on Agriculture, Nutrition and Forestry, May 6, 2004; and Anne Myers Jaffe, “United States and the Middle East: Policies and Dilemmas”, National Commission on Energy Policy, Ending the Energy Stalemate (December 2004). In reality, the economies of the oil-producing countries of the Middle East are even more dependent on oil revenues than the economies of consuming countries are on the crude they import. (Saudi oil export revenues account for 90–95 percent of the Kingdom’s export earnings, 70–80 percent of its state revenues and roughly 40 percent of the country’s GDP.) As a result, producers have at least as much reason to be concerned about sustained high oil prices as do oil consumers. Regardless of the strident, politically motivated pronouncements selected leaders from the late Saddam Hussein to Ayatollah Ali Khomenei may make about their “oil weapon”, it does them (and their local political patrons) little good to sell at very high prices today if the effect is to provide their globally distributed customers with an incentive to develop substitutes for their product tomorrow. Producers who wish to maximize long-term revenue will seek stable oil prices at the highest level that does not induce substantial investment in substitutes. They will want particularly to dissuade research investments by customers with an advanced ability to develop alternatives—a category that includes the United States. For the past twenty years, oil producers have had good reason to celebrate success in this regard.
That leading oil producers care at least as much about future profits as they do about present ones is borne out by both word and deed. Adel al-Jubeir, a former foreign policy adviser to then-Saudi Crown Prince Abdullah and now Saudi Arabia’s Ambassador to the United States, offered this candid summary for the May 27, 2004, Wall Street Journal, when the strategic leverage of oil producers was arguably at its height: “We’ve got almost 30 percent of the world’s oil. For us, the objective is to assure that oil remains an economically competitive source of energy. Oil prices that are too high reduce demand growth for oil and encourage the development of alternative energy sources.” The Saudi response to the recent surge in oil prices provides credence to this claim: The U.S. Energy Information Agency estimates that from 2002 to the first half of 2005 Saudi Arabia’s total oil production increased dramatically from 8.5 to 11.1 million barrels per day. Explaining why the Saudis chose to “help” the United States and other oil-importers by boosting production does not require resorting to conspiracy theories. It requires only understanding Saudi self-interest.
For those not persuaded by theory, consider the historical record between 1981 and 1999: An Islamic fundamentalist regime consolidated power in Iran; Iran and Iraq fought an eight-year war literally within eyeshot of oil and gas installations; Hizballah bombers killed more than 300 U.S. Marines in Lebanon; al-Qaeda staged multiple successful attacks on U.S. interests, including the first attack on the World Trade Center; the first Gulf War came and went; and the first Palestinian intifada raged in the West Bank and Gaza. Yet oil prices, adjusted for inflation, trended downward throughout this entire period. The price fluctuations that did occur were by no reasonable measure greater than fluctuations in other globally traded commodities during that interval. If anything the numbers suggest that the price of oil is less volatile than other such commodities.33. I am hardly the first to point out all of this. Already in the early 1980s the economist Eliyahu Kanovsky predicted an extended period of low real oil prices. For this he was ridiculed and excoriated, but he proved to be correct. Peter Schwartz reached similar conclusions and provided lucrative advantages to those of his corporate clients who took him seriously.
Petro-alarmism often takes a different angle, emphasizing the concentration of oil reserves and spare production capacity in Saudi Arabia in particular. Because shifts in prices are determined on a global scale, many analysts—for example, John Deutch and James Schlesinger in a much-discussed fall 2006 Council on Foreign Relations report—assert that the market power of countries in the Middle East is greater than their total output would suggest: Although Middle East countries today produce little more than 25 percent of the world’s oil output, Saudi Arabia alone is believed to possess as much as 30 percent of the world’s proven oil reserves. Tighter world supply-demand dynamics, it is argued, enlarges the economic and political clout of those with spare capability—above all, Saudi Arabia.
What this argument fails to note is that reserve numbers are themselves a function of price levels. At current prices, Canada’s tar sands make our northern neighbor a strong second in oil reserves. (Most discussions regarding U.S. oil insecurity fail to note that Canada is currently our number one supplier of oil, with Mexico second.) More to the point, reserves are only useful as a strategic weapon in pushing prices down, because they offer the potential of increased output. While the capacity to push prices down, not up, clearly does not hurt oil importing countries directly, it can keep other oil producers in line and keep oil consumers from investing in substitutes. However, the very fact that several Middle Eastern countries, most notably including the Saudis, have recently exhausted most of their spare production capacity means that, until they make significant investments to boost capacity, their ability to influence oil markets in this manner is diminished.44. World spare oil production capacity, of which countries of the Middle East hold more than 80 percent, dropped from five million barrels per day in 2002 to less than a million barrels per day in 2005, a 14-year low, before growing slightly in 2006. Energy Information Agency, Short-Term Energy Outlook, March 6, 2007.
Because oil, like all other commodities, is traded on global markets, U.S. import prices are determined by world aggregate output and demand, not simply by the output of countries that supply the United States. Even if all U.S. oil imports came from Canada and Mexico, we would still pay the world price. The upward trend in oil prices in this decade has closely tracked that of other global commodities not concentrated in the Middle East, strongly suggesting that events in Baghdad and Tehran have less to do with energy price levels than do those in Shanghai and Mumbai.
Nonetheless, it is possible that leadership in one or more of the major Middle Eastern oil-exporting countries might at some point put ideological objectives ahead of economic ones, thus acting “irrationally” from a profit-maximizing standpoint. The primary economic weapon at the disposal of such a rogue oil-exporting country would be to sharply reduce exports in an effort to destabilize prices. In doing so, a rogue state would drive prices only marginally higher, but it would punish itself with sharply reduced revenues. It would also benefit other oil producers and induce consumers to change their behavior. In short, the rogue would suffer, oil-producing competitors would absorb the abandoned market share, and users would substitute.
The worst-case scenario most frequently cited in this regard is a sudden change of regime in Saudi Arabia, resulting in an abrupt termination of Saudi oil exports. Those with such concerns forget that we have seen a close approximation of that scenario once before. A look at the output behavior of Iran following the ascent of Ayatollah Khomeini is instructive. An initial sharp drop in Iranian oil output between 1979 and 1980 was followed by steady output growth through the 1980s (despite a war with Iraq) and that accelerated its pace in the 1990s. The bottom line is that, for the past quarter century, the oil output decisions of Islamic Iran have been no more menacing or unpredictable than Canada’s or Norway’s.
Finally, what of the oft-mentioned threat of a terrorist strike on a critical node in the Middle Eastern oil production infrastructure? Amory Lovins and his co-authors have written that “[o]ne attack on a key Saudi oil facility could crash the world economy at any moment.”55. Lovins, E. Kyle Datta, Odd-Even Bustnes, Jonathan G. Koomey and Nathan J. Glasgow, “Winning the Oil Endgame: Innovation for Profits, Jobs, and Security”, Rocky Mountain Institute (2004). Gal Luft and Anne Korin made a similar argument in the November/December 2006 issue of this magazine, citing a terrorist near-miss in attacking the Saudi Abqaiq facility in February 2006.
Macroeconomic evidence to support such dramatic claims is simply non-existent. Even with reference to the oil shocks of the 1970s, the causal link between oil supply disruption and economic downturn is not as clear as is widely believed. Among macroeconomists who have studied that era, policy decisions—in particular, monetary policy and Nixon-initiated price controls from 1971 to 1979—are generally agreed to have been important, if not the dominant, contributing factors to the recessions of that period. Indeed, a study co-authored by current Federal Reserve chairman Ben Bernanke in 1997, based on 1965–95 data, found that interest rate adjustments historically accounted for most of the depressing effects of oil price shocks on the economy. While one can construct a macroeconomic model in which oil shocks do cause recessions of the magnitude observed in the mid 1970s, early 1980s and early 1990s, most models predict substantially smaller effects. A rough consensus suggests that a 100 percent increase in oil prices today should lead to a 1 percent drop in aggregate output. And, as already noted, recent experience indicates that even this far-from-cataclysmic impact is likely an overestimate.
Nearly everyone agrees, moreover, that thanks to policy, organizational and technological innovations, the oil-consuming economies of developed countries are far more resilient in the face of short-term oil supply disruptions today than they were thirty years ago. The strategic oil reserves of the OECD countries have grown to more than a billion barrels, representing a significant short-term response capability. We also use energy inputs far more efficiently than we did thirty years ago. And for all their negative lessons, Hurricanes Katrina and Rita demonstrated that the U.S. economy can adapt quickly to infrastructure disruption. How many terrorist cells would it have taken to damage Gulf Coast production and refining facilities as thoroughly as did those two storms? And even then, with the aggravating impact of the war in Iraq and speculative activity in the oil markets, the observed macroeconomic impact has been negligible.
In short, the persistent belief, distributed throughout American politics, that U.S. energy dependence is a serious strategic and economic liability is simply not true. Straining to solve a problem that really is not much of a problem at all is a waste of effort and a distraction from the policy goals on which we ought to be focusing.Catastrophic Terrorism as a Globally Distributed Threat
Even if oil itself is a feeble strategic weapon, the use of oil revenues to finance terrorism and other forms of aggression might still justify the existing level of attention paid to the Middle East. The use of weapons of mass destruction against the United States by states or sub-state actors is an obvious, and wholly legitimate, point of concern. According to this view, which was seemingly validated by the events of 9/11, the Middle East is important to the United States because it contains a disproportionate number of people and organizations with the resources and the motivation to kill Americans in large numbers.
Even as we resist the temptation to exaggerate the threat of catastrophic terrorism, reducing vulnerability to some potential modes of attack is rightly a public priority. But we do ourselves no favor if we mischaracterize both the threat and the response as being regional in nature. Consider the particularly important case of nuclear terrorism.
It is perfectly legitimate to worry about an Iranian bomb, but not more so than a bomb in North Korea. In either case, if the threat is the use of nuclear weapons by a state actor, it is not clear why a strategy of conventional nuclear deterrence, as employed for more than forty years throughout the Cold War, should be any less effective today than it was in the past. Indeed, there is reason to think that deterrence would be more effective against a weaker nuclear adversary than a stronger one—destruction in such a case is no longer mutual, but for the disadvantaged party it is still very much assured.
If we’re concerned about nuclear bomb materials falling into the hands of sub-state actors (that is, terrorists), then the Middle East should not be the main focus of our attention. Why would potential perpetrators of a nuclear attack bide their time awaiting the development of an Iranian bomb? The material and technology needed to develop a nuclear weapon are already in circulation. Indeed, if there are regions to which we should pay attention to address the threat of nuclear terrorism, they are less in the Middle East than in North Korea, South Asia, and especially in Russia and the states of the former Soviet Union. More than five years after 9/11, the American public commitment to secure nuclear material in former Soviet space is still inadequate. A misguided emphasis on threats posed by Middle Eastern countries and groups like al-Qaeda and Hizballah contributes to continued inaction elsewhere. In short, the threat is real—resource rents can finance dangerous behaviors—but the Middle East is not even close to being at the center of that threat.
If the Middle East as a region is particularly threatening, it is not because its countries are unusually powerful or menacing but because most of its youth are engaged in a virtually hopeless battle against political repression at home and economic irrelevance abroad. Otherwise deeply divided populations—including the intelligent, disaffected middle-class youths who feed Islamic fundamentalist movements—share in a recognition that the status quo in the Middle East does not serve most of its inhabitants well. The Middle East (again, excluding Israel) is an economic and technological backwater. A region that was for centuries the world leader in science and mathematics is now the global laggard.66. The turnaround is striking. Take patents, for example: Without Israel, the patent production of countries in the traditional Middle East is one-fifth that of the countries of sub-Saharan Africa.
The stagnation of the resource-rich countries in the Middle East should come as no surprise. Experts of all stripes noted long ago that countries rich in natural resources are frequently poor in everything else. It is now apparent that this irony is a consequence of predictable distortions of microeconomic incentives that undermine political and economic development. Of the few countries that appear to have at least partially escaped the so-called oil curse, most have done so by virtue of small populations. There, the elites who control the oil wealth comprise a large enough share of the total population that some degree of equity and stability have been achieved—statistically, at least. Elsewhere, particularly in populous countries such as Iraq, Iran, Indonesia, Nigeria and Russia, the corrosive effect of resource wealth on political development is manifest. Because behavioral distortions increase along with the relative price of the resource, it follows, as Thomas Friedman has recently argued, that, all else equal, oil price movements and democratic change will move in opposite directions.77. Friedman, “The First Law of Petropolitics”, Foreign Policy (May/June 2006).
The reality of the resource curse is not debatable; what is debatable is what it has to do with national security. If poor governance (or, on the extreme end, civil war) resulting from resource wealth is the definition of a threat to the United States, then Sierra Leone, the Congo and Nigeria should concern us at least as much as Iran and Saudi Arabia. They do not. This is because misery created by corruption and poor governance is, regrettably, the norm globally rather than the exception. Nothing could be more misguided or dangerous than the inference that an existential threat to the United States is created whenever political elites steal from and then bully their countrymen.
The issue is not democracy, but dollars. Potential adversaries own a valuable asset buried under their soil. We can not separate them from that asset. Employing military force to remove despots from power in such asset-rich countries is a strategy whose shortcomings have been revealed in Iraq with tragic clarity.88. Sanctions are little better. As the experience in Iraq between 1991 and 2003 demonstrated, economic sanctions can easily end up benefiting the repressive political elites they were originally designed to punish. Furthermore, coalitions of ostensibly well-intentioned countries seeking to enforce sanctions are little more effective than coalitions of apparently menacing countries seeking to enforce embargoes; in either case, enormous incentives to cheat undermine coordination and fuel corruption. More important, in a globalized world, our own resource consumption behavior has far less impact than is often presumed (including by Friedman) on the revenues these leaders have at their disposal. They will be able to sell their asset on world markets, at world prices, no matter what we do.We should therefore focus our attention not on futile protestations about the growing riches of our current or potential adversaries, but instead on taking practical, cost-effective actions that enhance our actual security and address other related urgent concerns.
First and foremost, addressing the myriad social and environmental costs (now notably including global climate change) associated with the consumption of oil and other fossil fuels requires challenging the long-term economic viability of such fuels by dramatically increasing conservation and the rate of development of alternatives—preferably ones derived from an abundant and widely dispersed natural resource not itself subject to a future curse. As has been understood for decades, this worthy objective could be advanced overnight in the United States with the imposition of a serious gas tax—now reframed as a carbon tax. Yet so far, the political will and public commitment to enact this most obviously beneficial of all potential energy and environmental policies has been absent. Why this continued failure? Only a cynic—or someone with access to either the contents of the Energy Policy Act of 2005 or the resumes of the President and Vice President—would suggest that part of the reason might be that powerful political interests who benefit from “oil dependency” have been at work. Certainly there is more to the story than that—including the apparent irony that the Baby Boomers are well on their way to taking their place in history as the “softest generation”, collectively averse to any form of serious sacrifice in the public interest.99. The veterans of the Vietnam War together represent a supreme exception that proves the rule. For context, see Steve Gillon, Boomer Nation: The Largest and Richest Generation Ever, and How It Changed America (Free Press, 2004). But when it comes to the corrosive impact of resource wealth on political processes, it is worth at least considering the proposition that we should direct our attention at home rather than on countries half-way around the world.
Second, we need to build more resilience in U.S. counterterrorism policies. Granted, the “middle” in Middle East is there for a reason: Shipping lanes vital to global commerce traverse the region. However, the economic and strategic significance of these shipping lanes to U.S. national security is easy to exaggerate. If the Suez Canal and the Strait of Hormuz are vital choke points, they are no more vital to the world economy than the Panama Canal, the Cape of Good Hope, the Strait of Malacca, or, for that matter, the port of Long Beach. Furthermore, transport is but one of 13 infrastructure categories widely accepted as critical to the U.S. economy. Even in the transport category, the shipping lanes of the Middle East are of far less importance than domestic transportation hubs and rail lines, whose vulnerabilities have been exhaustively chronicled but not yet seriously addressed.1010. Philip Auerswald, Lewis Branscomb, Erwann Michel-Kerjan and Todd La Porte, Seeds of Disaster, Roots of Response: How Private Action Can Reduce Public Vulnerability (Cambridge University Press, 2006).
In the long term, our counterterrorism policy should be more focused on addressing the profound shortcomings of the U.S. domestic response and recovery capability than on action in the Middle East. The countries most experienced in fighting terrorism (Israel, Spain and the United Kingdom, among others) learned long ago that resilience through well-developed response and recovery capabilities is a critical part of effective deterrence. The actions required to build such resilience are mostly taken at home, not abroad, and they involve deep collaboration between public and private actors. As Hurricane Katrina and its aftermath decisively demonstrated, many such actions have not yet been taken in the United States.1111. Concerning homeland security, see Business Executives for National Security, “Getting Down to Business: An Action Plan for Public-Private Disaster Response Coordination” (BENS, October 2006).
Some Middle Eastern countries and some groups originating within them have succeeded in harming U.S. interests, primarily when they have created fear. In recent years, their successes in this regard are highly visible. Illusory threats, if not recognized as such, can provoke reactions far more costly and dangerous than the threats themselves. And when leaders deliberately exaggerate threats to create fear for political purposes, the success of such adversaries is enhanced further.
Such successes are not inevitable. Wise leaders do have the option of responding to vulnerabilities by honestly acknowledging the fact that Americans, like any other people who enjoy an open society, will always be vulnerable to terrorism and to the actions of rogue states. A responsible democratic government should act to minimize these threats, particularly when they involve potentially catastrophic outcomes, but innovation, resilience and adaptability are ultimately the most powerful tools to counter such threats. When political leaders and private citizens band together to cultivate technology, cut through red tape and build the capacity for response and recovery at home, lasting security may be achieved even under the shadow of persistent threats from abroad.The End of Middle Eastern Exceptionalism
Until now I have not mentioned the Israeli-Palestinian conflict. This is because there has been no need to. If we reframe the analysis of the long-term interests of the United States in the Middle East along the lines suggested here, it will not change the longstanding and irrevocable U.S. commitment to protect Israel’s right to exist, nor its support for a viable Palestinian state. What such a reframing will do is address how the United States (of course, taking into consideration the interests of its closest allies) should set its strategic priorities. If we understand that the Middle East as a whole is not as critical to our security as it has seemed, then it follows that the region’s many problems aren’t all that strategically important either. Furthermore, sometimes simply paying less attention leads to better outcomes; look at Vietnam since 1975, as opposed to the thirty years prior.
As events in Iraq are making clear, it is vital that we correctly identify our long-term interests. It is easy to overlook the fact that the first, most severe, and likely most enduring mistake made with regard to Iraq was believing that any country in the Middle East matters enough in the 21st century to justify starting a war. Iraq is central to U.S. foreign policy today not because of its inherent potential to be a major contributor or spoiler for U.S. interests. It is central because we blundered our way into its problems. Now we must face the enormous challenge of extricating ourselves. We will leave to the Iraqis the even greater challenge of building a viable, economically vibrant nation. Those linked challenges are the residue of decades of illusion and misrule in Baghdad and failed policies imported from abroad; they are not evidence of Iraq’s future regional significance. To use Iraq as a justification for continuing to exaggerate the strategic importance of the Middle East is to close the circle on a dangerous policy tautology.
Is the Middle East totally irrelevant to the American interest in the long term? No, of course not. However, the long-term importance of the Middle East is roughly proportional to the share of the world population for which the region accounts—less than 5 percent. The time is long overdue for policymakers and analysts alike to put the many urgent issues that confront the people of the Middle East in the context of dramatic and unprecedented global transformations in process today. If current trends continue, more people’s lives will improve in the next quarter century than in all of human history. Yet at the same time, the magnitude of the human presence on the planet is now such that the climate itself is affected by the daily choices made by billions of people. Collective opportunities as well as shared risks have never been greater. The United States can either be a leader in addressing the real headline issues of this century, or it can continue to squander resources on the fixations of the past. Any country that persists in focusing intently on peripheral concerns risks ultimately becoming peripheral itself. Even a massive power like the United States is not immune to such a fate.