Drone attacks allegedly by Houthi rebels this past weekend on the Abqaiq facility and the Khurais oil field effectively knocked out five million barrels of processed crude oil from the world market. If this number doesn’t sound impressive, it amounts to about 5% of the world’s energy supply. Although the Iranian-supported Houthi rebels have been targeting Saudi Arabia in retaliation for their participation in the civil war in Yemen, this attack is different. Knocking out this critical facility will potentially cause prices to rise significantly for almost every commodity due to the reduction of global energy supplies. Since energy influences the price of transportation, which in turn influences the price of food and other commodities, this may cause prices of goods and services of all types to rise globally. Recent estimates suggest that the price of oil may rise from $60 to over $100 per barrel. That is an enormous shock that will be felt worldwide.
At the 2015 Atlantic Council Energy and Economic Summit in Istanbul, twenty-one Ministers and senior officials from Europe, Asia, North America, and the Middle East met to assess the changing geopolitics of energy security. The assembly was a reminder that energy security — the ability of a nation to secure affordable, reliable, and sustainable supplies to maintain national power — is very different for each nation.
It was clear that advances in technology — in oil and gas, and renewables — have changed the geopolitics of energy dramatically, and mostly for the better, from the world of 2008 or even 2011. We have moved from an era of resource scarcity to abundance, from a concentration of resources to ubiquity of access, and from monopoly power in oil and gas to gas on gas competition in Europe. There is now a clear de-linkage of oil and gas pricing, more hub pricing and a growing spot market in LNG. Floating LNG and containerized shipping are enabling lower cost and quicker access of nations to gas, helping them move away from coal. US shale, with huge resources, low extraction costs, and rapid drilling times may help put a ceiling on the price of oil. Changes in wind, solar, and energy efficiency technology have driven down the cost of renewables in many countries, making them cost competitive with coal or gas in many cases.
An old territorial dispute between Venezuela and Guyana has flared up once again as the Guyanese government contracted ExxonMobil to look for offshore oil in an area that Caracas claims as its own. While it is unlikely that this particular instance will escalate into an armed conflict, these tensions highlight how non-violent incidents over coveted resources will continue to occur. Moreover, should clashes over this disputed territory continue, Venezuela will, in this author’s opinion, come out as the loser as it will be inexorably regarded as the aggressor against a militarily weaker neighbor.
Moreover, while this dispute has thankfully been non-violent, it could affect U.S.-Venezuela relations as the two governments have been at odds for over a decade and a half. Washington could capitalize on Venezuela’s aggressive stance in order to strengthen relations with Guyana to better monitor developments in Caracas.
On 26 March 2015, the ISN hosted an Evening Talk on “The Politics of Oil in Today’s Middle East.” The featured speaker was Dr. Gawdat Bahgat, who is currently a Professor of National Security Affairs at the US National Defense University’s Near East South Asia (NESA) Center for Strategic Studies. The following video excerpts highlight the observations Dr. Bahgat made in his prepared remarks and in a follow-on question and answer (Q&A) session which was moderated by the ISN’s Peter Faber.