Iraq Is Now Asia's Problem

With the United States becoming a net energy exporter in early 2014 and expected to be the world’s largest producer of oil in 2015, the United States’ 40 years of investing massive financial resources and diplomatic clout to maintain stable access to Middle East oil has come to an end, as only 16% of Americans support sending troops to Iraq according to a June 17th Public Policy Poll. 

With the 60% of Middle East oil being exported to Asia, rising to 90% over the next two decades, providing stability for Iraq and the rest of the Middle East is now Asia’s problem.

With 4.4% of the world’s population, the United States accounts for 26% of the world’s GDP. To power this disportionately large economy, the 2014 BP Statistical Review of World Energy, dated June 16th, states that the U.S. consumes 20% of the world’s oil production and 22% of the world’s natural gas production. The U.S. also consumes 14% of the world’s coal production. Fortunately, America’s biggest energy resources are natural gas, oil, and coal. 

U.S. total annual petroleum and other liquids production rose by 31% from 2011 to 13.3 million barrels per day (bpd) by 2014. Imports fell during the same period by 43% from 9.25 million to 5.25 million of bpd. About half of the fall in U.S. imports during this period was offset by an increase from 2 million bpd to 7 million bpd Chinese imports.

The U.S. has always been self-sufficient in coal and doubled its annual exports since 2005 from 50 million tons to over 100 million tons. The U.S. recently achieved self-sufficiency in natural gas and is expected to begin exporting huge amounts of natural gas by pipeline and LNG in 2016. 

At the International Energy Agency (IEA) 40th anniversary in November 2013, Chief Economist Fatih Birol predicted that the U.S. will pass Saudi Arabia to become the world’s largest producer of oil by 2015. IEA President Maria van der Hoeven noted, “Forty years ago, the demand in OECD countries was three quarters of world demand and now it is a little bit more than 50 per cent, while by 2035 we expect it to be reduced to just one third of energy demand.” She added, “Southeast Asia is, along with China and India, shifting the center of gravity of the global energy system to Asia.” By 2035, IEA predicts Asian imports will rise from 57% to 90% of Middle East crude oil exports.

Despite restrictions on U.S. crude oil exports, American exports of refined products leaped from about 50,000 bpd in early 2013 to 268,000 bpd in April of 2014. This ability to capture international pricing for energy explains why U.S. consumers have not seen a big fall in gasoline prices at the pump.

Over that forty year period, stable access to Middle East oil was ensured by the United States Navy. With 10 aircraft carriers in service and three on order, America today seems invincible on the seas. But now that Asian nations know they are existentially reliant on Middle East oil imports, they have been building their own naval fleets. India has two aircraft carriers in service and two on order; China has one in service and one on order; Thailand has one in service; and Japan has two helicopter carrier ships that are referred to as “aircraft carriers in disguise,” because they are also capable of launching aircraft.

The capture of a shocking percentage of Iraq by the Islamic State of Iraq and Sham (ISIS) may result in the permanent bifurcation of the country. It took 170,000 U.S. soldiers and cash payments to 100,000 Sunni militiamen for America’s 2007 Iraq surge to be successful. With most of those 100,000 Sunni militiamen changing sides to ISIS, neither the government in Bagdad nor their allies in Iran have the firepower or the commitment to eject ISIS from central Iraq.

Knowing it is no longer realistic as OPEC’s second-largest producer to rely on the Americans to provide for their internal stability, the Iraqi government has recently gone “all in” by dramatically increasing their crude oil exports to Asia. The southern port of Basrah loaded a record 5.43 million barrels of crude oil on the day of June 11th. The Iraqi government is forecasting exports will reach 2.8 million bpd next month, 11% higher than last year and close to a three-decade record. 

Kyle Stelma, managing director of Dubai-based Dunia Frontier Consultants, told Business Week, “They are systematically increasing production and export capacity, so, on average; we should keep seeing new monthly records being set.”

The United States will continue to buy Middle East oil, but only if it sells at a favorable price. Because of domestic production increases, America can now cover any shortfall by purchasing crude oil from its neighbors in Canada, Mexico, Venezuela, and Ecuador. In a major global rebalancing of strategic interests, Iraq and the Middle East are now Asia’s problem. 

The author welcomes feedback and will respond to comments by readers.