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Will Political Turmoil Collapse the Old Oil Order?

A rebel walks inside a destroyed weapons dump near Benghazi, March 5, 2011
A rebel walks inside a destroyed weapons dump near Benghazi, March 5, 2011

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Joe DeCapua

The political turmoil in the Arab world may not only lead to much higher oil prices, but greater competition for resources and a shift in priorities for oil-producing nations.  So says the author of Rising Powers, Shrinking Planet.

What’s happening in North Africa and the Middle East, says Michael Klare, is the collapse of what he calls the “Old Oil Order.”

“The old oil order, as I see it, is a network, a constellation of governments in the region, largely authoritarian, that were devoted to producing oil and making it available for sale to international markets.  And these governments were supported to a great deal by the United States and the West, not all of them, but most of them, because these governments favored the international market – the trade in oil,” he says.

Klare is a professor of peace and world security studies at Hampshire College in Amherst, Massachusetts.  He says some cracks were seen in the old oil order over the years in such countries as Iran and Iraq.

Now what?

The new oil order that’s emerging, he says, will cater less to Western desires.

“I think it’ll look a lot like Venezuela, in some cases, where (President) Hugo Chavez rules the state oil company, PDVSA, and uses the money for social purposes and political purposes in his country and to promote what he sees as the welfare of his people.  And he’s not very interested in improving the capacity, the efficiency of the company.  So, Venezuela’s oil production has fallen since he’s been in power,” he says.

He says any new governments that emerge in the Arab world, whatever their political orientation, will face “tremendous social and economic challenges.”  Those challenges will arise from growing populations and high unemployment.

“Their priority is going to be to use their money from oil production to improve employment, not to feed the thirst for oil in the rest of the world,” he says.

Pumped up price at the pump

Klare says, “With the demise of the old oil order, we will see the end of cheap petroleum forever.”  That means much higher fuel prices.  How high?  That depends on Saudi Arabia.

“Saudi Arabia,” he says, “is the linchpin of the global oil order because it has the world’s largest reserves.  It is the largest supplier of oil to international markets and it has the largest spare capacity – the ability to ramp up production in times of crisis like you have today.  So, as long as Saudi Arabia remains stable and keeps producing, I think oil won’t go beyond the record it set in 2008 of about $140-$150 a barrel.”

But, he says, if Saudi Arabia goes the way of Egypt, Tunisia and Libya, then there are no limits to how high the price of oil could go.

“$200 a barrel wouldn’t surprise me,” says Klare.

That could mean gasoline costing at least $5 a gallon here in the United States.  He says tapping the U.S. Strategic Oil Reserve to hold down gasoline prices would only have a temporary effect.  One thing, he says, that could cause oil prices to drop suddenly is another global economic crisis like the one in 2008.

What's food got to do with it?

The professor of peace and world security studies says it’s important to remember that oil and food prices are intertwined. And that prior to the economic crisis, a food crisis gripped the world.

“While the price of oil is rising, we have also seen a huge surge in the price of food, partly because oil is so expensive.  When oil rises, the price of food rises.  And it’s been the high price of food that triggered many of the uprisings, first in Algeria, then in Tunisia and Jordan and in some of the other cases.  And the price of food continues to rise, too.  And I expect that we’ll see more uprisings about food.  And I fear that there’ll be more of this in the future because of global climate change,” he says.

Climate change has been blamed for many droughts and floods, both of which destroy agricultural land.

Klare says the 21st Century brings greater competition for food, fuel and water among the western powers, as well as India, Russia and China.  Sub-Saharan African oil producing nations, such as Angola and Nigeria, he says, will be pressured to solve domestic problems, while trying to meeting growing demand for oil.

Klare says the world must develop some type of new energy system soon, not only to meet greater demand, but to deal with climate change, as well.

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