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Peak Oil Crisis: The Middle East in Context

While awaiting further developments in the Syrian poison gas crisis, it is a good time to review the general deterioration going on across the Middle East and the outlook for oil production from the region.

Hardly a month goes by without some new Middle Eastern crisis arising with implications for the region’s oil exports. Last week we had the Syrian poison gas; a few weeks before, the Egyptian coup; and for September it is starting to look as if the cessation of Libya’s oil exports will be in the fore. Then we have the ongoing Sunni-Shiite terror bombing war in Iraq which is taking about 800 lives a month; the insurrection in Yemen which periodically halts oil exports; Al Qaeda in the Algerian desert which is slowing foreign investment; and Lebanon on the verge of yet another civil war.
 
This does not even get to the big issues such as how long the hereditary rulers in the Gulf can hold on in the face of uprisings across the region or Iran’s quest for nuclear weapons. Just the run-up to this seemingly endless crisis has already taken a million or two barrels of oil off the world markets.
 
Moving beyond all these geopolitical disputes, which in the long run may turn out to be of only minor significance, we have some real issues: excessive population growth, climate change, food and water growing short, and medieval cultural practices that are out of tune with what takes place in most contemporary cultures.
 
Take Egypt as a prime example. Here we have a civilization that has survived for thousands of years. Their underlying problem today, however, is that there are now about 84 million Egyptians, up from the 2 million or less that got along so well for all those millennia. The Nile simply can’t support a population of this size and the country is already dependent on imported food while continuing to grow at a breakneck pace. This was OK for a while, except that Egypt can no longer afford to pay for their imported wheat, or their oil for that matter, and are dependent on the richer Gulf Arabs for handouts.
 
Now Egypt is no longer an oil exporter as 84 million people are more than enough to consume the 700,000 b/d the country produces. As the country no longer has much income, except for Suez Canal tolls, Egyptians are becoming dependent on the rich Gulf Arab states to keep the lights on and the tractors harvesting.
 
Over the weekend, somebody took a shot at sinking a container ship in the Suez Canal. This attack did not work, but 1500 ships go through the canal each month so there will be plenty more opportunities to block the canal, stopping canal revenues, and seriously disrupting the flow of 400 tankers through the canal each month.
 
Egypt’s water crisis has not attracted much attention, but Ethiopia is hard at work building a giant dam to harness the Blue Nile which supplies about 60 percent of the Egyptian Nile’s water. Although the Ethiopians deny that Egypt will have any problems, it is obvious that a lot less water is going to be coming down the river should the dam get built. Another reason for yet another crisis in the Middle East.
 
The region’s cultural problems may turn out to be worst of all especially if Sunni-Shiite hostility spreads. When Egypt’s Muslim Brotherhood was voted into office following the Arab Spring uprising, instead of making the country’s manifold and life-threatening economic problems a top priority, they launched an effort to turn Egypt into a fundamentalist Islamic state complete with a new constitution that would ensure Islamic rule in perpetuity.
 
This of course, led to the events of the last two months in which the crowds took to the streets, the Army moved in, the Brotherhood’s leaders were tossed into jail, and we are off on another round of military dictatorships or perhaps chaos that will close the canal or set off a mass migration of millions of Egyptians across the Middle East looking for food.
 
Other countries in the region are facing problems similar to those of Egypt, though perhaps not as dramatic. All are facing global warming, which in mostly desert nations can mean some very uncomfortable temperatures and increasing demands for energy to keep cool and treat water. The oil resources in many countries are starting to run thin or are being kept at home to meet the needs of increasing populations. Cultural patterns ranging from the status of women to endemic intolerance of other religions or even other flavors of Islam are leading to conflicts that seem mindless to much of the world.
 
Few of the Middle East’s manifold problems are so dramatic that they warrant much media attention, but taken together they are slowly taking a toll on the world’s oil supply. Last week the US’s Energy Information Administration reported that unplanned production and export outages, mostly in the Middle East, are now up to 2.8 million b/d and this was before the recent Libyan crisis took another 500,000 b/d off the market. Despite all the hype about America’s shale oil production, it still amounts to well less than half the unplanned drop in Middle Eastern production.
 
The International Energy Agency reported that production shortfalls this summer resulted in the world consuming about 2.2 million b/d more than it produced with the remainder coming from inventories. These are now thought to be down about 95 million barrels from recent levels.
 
World oil prices are now about $115 a barrel. Some of this is due to concerns about what will happen if we start bombing Syria, but the rest is due to slowly tightening supply/demand situation around the world. The Chinese are still growing their demand at prodigious rates and the world is still adding about 70 million new “oil consumers” to its population each year. Anyone who thinks that a short-lived burst of shale oil fracking in North Dakota and Texas is enough to counter the tides of history flowing across the Middle East simply does not understand the situation.
 
Image credit: Nasser Nouri/flickr

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