Oil and the Future of U.S. Strategy in the Persian Gulf

May 15, 2019

Will the so-called “shale revolution” allow the United States to disengage from the Persian Gulf? A rich body of scholarship argues that since the United States no longer depends on imports of Gulf oil, it can extricate itself from the region militarily and even disengage politically with minimal negative repercussions. The United States cannot, in fact, afford to radically downsize its footprint in the Persian Gulf in the immediate future.

The staggering growth in U.S. shale oil production in recent years should not obscure the fact that the Gulf still possesses half of global reserves — something worth recalling in the wake of the Trump administration’s decision to stop giving other countries waivers to purchase Iranian oil. It is unclear which region besides the Gulf can quickly replace the 1.9 million barrels per day Iran exported before the re-imposition of U.S. sanctions. It is unwise to think that U.S. oil exports can stabilize global markets. Recent boasts of America’s “energy dominance” are beginning to ring hollow due to fears that geological factors and the ebbing of cheap financing for small shale companies may soon stall U.S. production growth. Small shale firms are losing ground to larger, vertically integrated companies more interested in boosting profit margins than production rates.

Until the world can make the necessary transition to a post-hydrocarbon economy, preserving access to Gulf oil will remain one of the pillars of U.S. predominance — even if the United States never consumes a single drop of oil from the region. To understand why, we must grasp that the United States did not get involved in the Gulf after World War II because it needed the region’s oil for U.S. consumption. Rather, the aim was to guarantee access for U.S. allies and companies supplying foreign markets. Then, as now, energy independence was of secondary importance — what mattered more was building an international system that delivered widespread prosperity and security. Today, the question worth asking about U.S. strategy in the Gulf is not whether Americans still need the region’s oil, but whether they are still willing to serve as guarantors of the complex international oil market that, in many ways, underpins the postwar international order.

The Origins of the U.S. Commitment to the Gulf

Since 2008, U.S. oil production has more than doubled, surpassing the previous peak in 1970, and net U.S. imports (i.e., imports minus exports) have plummeted from 13 million barrels per day in 2006 to below 2 million today. This is the ideal time, according to some analysts, for the United States to reconsider its military presence in the Gulf. They argue that the threat (economic or otherwise) posed by any disruption of oil exports from the Gulf is exaggerated. Consequently, the United States should reduce or eliminate its military commitment to the region and develop more cost-effective means of safeguarding U.S. energy security closer to home. Unfortunately, advocates for U.S. disengagement — and even some of their critics — make the common mistake of overlooking the perspective of U.S. allies and partners, who may not, in fact, want the United States to wash its hands of the Gulf.

To understand the contemporary relationship between the United States and the Gulf, it’s necessary to go back to the end of World War II. In 1945, the United States produced two-thirds of the world’s oil, compared to just 16 percent today. Why, then, was Washington fixated on Gulf oil even before the war ended? As U.S. policy documents from the period make clear, the United States had two objectives in the Gulf. The first was to ramp up oil production to satisfy postwar European and Japanese consumption, thereby reducing the drain on the reserves of the Western Hemisphere. The second was to prevent a rival power — specifically, the Soviet Union — from monopolizing the region’s oil production and using oil exports as an economic tool to coerce U.S. allies and partners.

Consequently, securing access to the region’s oil for U.S. allies while denying it to potential adversaries was an integral element of America’s “conception of national security” after 1945. Beyond preserving a balance of power in Eurasia, Washington was obsessed with safeguarding the future of liberal capitalism beyond North America. U.S. leaders feared that an economically isolated United States might become an authoritarian “garrison state.” Avoiding such a fate depended upon preserving some form of capitalism within Eurasia’s noncommunist industrial heartlands, which meant that Europe and Japan needed access to the raw materials of the Third World to fuel reconstruction. Not surprisingly, oil, largely from the Gulf, accounted for the largest share (in dollar terms) of Marshall Plan aid between 1948 and 1951. By 1973, 80% of European and Japanese oil imports originated in the Gulf or North Africa. It is fair to say, therefore, that ample supplies of Gulf oil were one of the foundations for Europe and Japan’s economic prosperity and an integral element of the U.S. victory in the Cold War.

Why Gulf Oil Remains Vital

Does the United States still have to worry about protecting its allies’ access to Gulf oil and preventing a potential adversary from dominating the region? The answer to both questions is yes. While Europe’s oil consumption is plateauing, and its dependence on oil from the Gulf is dwarfed by its reliance on Russia, South and East Asia have taken its place. The bulk of future demand growth will take place in the Asia-Pacific region, which accounts for over one-third of global oil consumption but less than one-tenth of production. The oil Asia requires comes largely from one region. India and China get half of their oil imports from the Gulf. Besides Australia, most U.S. allies and partners in Asia are even more dependent on the Gulf. Japan, South Korea, the Philippines, Singapore, and Taiwan all draw more than three-quarters of their oil imports from the region. This could become a crippling vulnerability if a hostile power frustrated their access to that oil, which brings us to the second point.

During the Cold War, U.S. officials fretted over the Soviet threat to the Gulf. Recently, scholars have questioned whether the elaborate security infrastructure the United States built in the Gulf during the Cold War was truly necessary. In particular, they have dismissed the economic threat posed by a Soviet occupation of the Gulf. The Soviet Union, as a large oil producer and exporter, had little need for Gulf oil and lacked sufficient foreign exchange to compensate local oil producers for ending exports to the West.

Ironically, the threat today may be greater than during the Cold War. Contemporary China is a far more capable adversary than the Soviet Union. The latter was a pariah within the global economy, whereas the former is one of its manufacturing hubs. In 1946, Soviet per capita income was one-fifth that of the United States. Although the Soviets closed the gap by the 1970s, the collapse in oil prices and stagnation of their economy wiped out any gains. By 1989, the Soviet Union’s GDP (in current dollars) was $506.5 billion, compared to America’s $5.685 trillion. China’s nominal GDP today, by contrast, is more than 60 percent that of the United States, and its foreign exchange reserves total more than $3 trillion.

Combined with its growing demand for oil, China — unlike the Soviet Union — has both the means and the opportunity to incentivize Gulf oil producers to redirect their exports to China and away from other consumers — including U.S. allies in East Asia. A similar scenario occurred in 1915, when Britain bought any cotton the United States was planning to export to Germany and Austria-Hungary after Whitehall added cotton to the list of items covered by its blockade of the Central Powers. This act mollified U.S. cotton exporters (including their congressional patrons), who might have otherwise objected to the loss of their European export markets.

In the past, China was happy to leave the burden of promoting security in the Gulf to the United States. That no longer appears to be the case. Over 80 percent of Chinese oil imports travel through the Indian Ocean and are susceptible to U.S. interdiction. To counter this threat, China is hard at work across the Gulf building partnerships as part of its Belt and Road Initiative. To date, China has secured several long-term supply contracts for oil and liquefied natural gas, measures to facilitate greater Chinese trade and investment, and joint ventures between Chinese firms and local companies in both the Gulf and China. Besides creating new markets for Chinese manufactured goods and supplies of energy less vulnerable to a U.S. blockade, China’s budding economic influence in the Gulf may eventually give Beijing leverage to induce oil producers to adopt policies consistent with Chinese strategic objectives. China analysts warn  that Beijing is poised, at least for the time being, to expand its political influence in the Gulf, where its state-directed model of economic development, indifference to human rights concerns, and lack of historical baggage make it an appealing partner.

Would China use this economic leverage in the Gulf to hurt U.S. allies? In the case of U.S. firms with significant business interests in China, Beijing has demonstrated little hesitation in using economic threats — specifically limiting access to China’s domestic market — to extract political concessions. China did the same to a number of South Korean firms in 2017 following Seoul’s deployment of the Terminal High Altitude Area Defense missile system (THAAD). This pressure, and the complaints of South Korean businesses, likely influenced Seoul’s decision to suspend further deployment of THAAD. As the nations of the Gulf become more dependent on their trade with the Far East, so too will their sensitivity to Chinese pressure grow. This is particularly true of Saudi Arabia, which is partnering with Chinese firms to build downstream (oil refining and marketing) and petrochemical assets in China.

 

 

The Past and Future of U.S. Strategy in the Gulf

For previous generations of U.S. policymakers, the entry of a rival great power into the Gulf would have been a source of grave concern. Since 1945, the United States has applied a variant of the Monroe Doctrine to the Gulf and the wider Middle East, opposing any effort by an external or internal power (e.g. Nasserist Egypt, Baathist Iraq, or a revolutionary Iran) to dominate the region. The means Washington used to achieve that end varied. The United States depended on Britain to garrison the Gulf until 1967, when Whitehall determined that the costs were exorbitant and the risks of withdrawal manageable. Britain’s departure forced the United States to come up with a new strategy. Two emerged over the subsequent decades, and they have dominated U.S. strategic thinking about the Gulf ever since.

The first strategy was the Nixon Doctrine of 1969, which aimed to reduce Washington’s overseas military commitments by transferring the burden to local allies. Ostensibly a reflection of America’s desire to exit South Vietnam gracefully, the doctrine played a larger role in the Gulf. Unwilling to replace Britain directly, the United States opted instead to cultivate local partners. Officially, Washington placed its bets on the “twin pillars” of Iran and Saudi Arabia. As the senior partner, Iran received a “blank check” after 1970 to purchase whatever U.S. military hardware it desired short of nuclear weapons. Neither oil producers’ demands for higher revenues nor the Arab Oil Embargo of 1973-4 dulled the Nixon administration’s enthusiasm for this arrangement. U.S. officials reckoned that some of the oil revenues could be recycled through arms sales, which would also offset Soviet weapons deliveries to Iraq.

The Iranian Revolution of 1978-9, followed by the Soviet invasion of Afghanistan and the collapse of détente, wrecked the Nixon Doctrine (but not Washington’s enthusiasm for arms sales). These events helped give way to the second U.S. strategy for the Gulf, the Carter Doctrine, which stipulated that the United States would use any means necessary to prevent the domination of the region and its oil by a foreign power. The Reagan administration expanded the doctrine to include regional threats — namely, its former partner Iran. Ensuring access to oil and the security of oil-producing allies were the explicit rationale for evicting Iraq from Kuwait in 1990-1. But the 2003 invasion of Iraq left the Carter Doctrine in ill repute. Among the many consequences of the disastrous invasion, critics noted that the U.S. intervention destabilized the Gulf while doing little to promote global energy security.

With U.S. strategy in tatters, after 2009, the Obama administration resurrected a variant of the Nixon Doctrine by brokering a modus vivendi between Saudi Arabia and Iran. Washington sought to defuse the threat of war with Iran through the Joint Comprehensive Plan of Action, while reassuring Arab partners such as Saudi Arabia by boosting military sales. The Trump administration has continued its predecessor’s generous arms sales to Gulf Arab states while shunning Iran and restoring warm relations with Israel. Whatever their differences, the last two administrations have so far achieved the same result — pushing the Gulf Arabs and Israel closer together, while failing to repair their rift with Iran.

How should this history inform future U.S. strategy? Whenever the U.S. military presence in the Gulf becomes politically inconvenient, there arises a chorus that the United States can simply substitute arms sales for “boots on the ground” to guarantee regional peace. Recent arms sales to Saudi Arabia (worth as much as $139 billion since 2009) should dispel such notions once and for all, since they have only fueled Riyadh’s bellicosity toward Iran without increasing its sense of security. None of this should have come as a surprise. There is no evidence that arms sales increase a donor’s leverage over their client — in fact, they often do the opposite. The United States should accordingly limit future arms sales in the region to defensive weaponry.

If the United States cannot outsource regional security to local partners, then the only remaining option is preserving the U.S. military commitment to the region. The current U.S. footprint is relatively small. According to official figures, the total number of active-duty personnel deployed across the Middle East and North Africa (excluding those in Afghanistan, Iraq, Syria, and presumably special forces) is less than 10,000, although the figure including reservists, National Guard units, civilians, and contractors is several times greater. Even then, as a fraction of total U.S. active-duty manpower, the figures are trivial. What is not trivial, however, is the sophisticated logistical infrastructure in the region, particularly Naval Support Activity Bahrain (which hosts U.S. Fifth Fleet), and Al Udeid Air Base (CENTCOM’s forward operating base). Besides supporting partner nations and security cooperation initiatives, these assets are capable of supporting a significant infusion of U.S. troops in the event of a crisis.

The precise force levels necessary for the Gulf should be a matter for debate. One can, for example, make a compelling case that U.S. Fifth Fleet has less need for the standing deployment of a carrier strike group than it does for smaller vessels better suited to keeping open the Strait of Hormuz or enforcing sanctions against Iran and its proxies. That said, preserving existing U.S. bases and transit rights in the region, as well as the forces necessary to sustain them, should be a sine qua non of any future U.S. strategy.

Preserving a modest U.S. force posture in the Gulf is only possible if it does not further destabilize the region. Advocates for continued engagement have argued that the best way to forestall destabilization is to avoid being drawn too deeply on either side of the ongoing Arab-Persian “cold war.” Their critics counter that it is foolish to believe that the United States can play a balancing role between the rival camps, labeling this the unattainable “Goldilocks approach.” They also argue that the U.S. military presence creates “moral hazard” by incentivizing riskier behavior by U.S. partners.

Moral hazard is something no policymaker should ignore, but policymakers must (in proper Clausewitzian fashion) evaluate the risks entailed in relation to the alternatives. Reducing moral hazard by limiting the U.S. presence in the Gulf to naval and counter-terrorist forces requires two assumptions: first, that the primary threats to regional security are of the nonstate variety; and second, that Russia and China’s ambitions in the Gulf do not threaten U.S. national interests. Neither assumption appears warranted: Russia and China’s relationship to Iran appears to be fraying, but both countries are nonetheless deepening their ties to other actors in the region.

Russia has longstanding strategic interests throughout the Middle East. While Russia’s relations with the Arab world suffered due to Moscow’s support for the Assad regime during the Syrian civil war, the Russians have repaired some of the damage recently. Today, Russia plays an indispensable role in the Organization of Petroleum Exporting Countries — which still controls 80 percent of global oil reserves — despite the fact that it is not even a member, by mediating disputes between the Gulf Arabs and Iran. While Russia is eventually going to have to make some tradeoffs, in the short run, its “transactional” approach to foreign policy makes it, like China, an attractive source of military and technical assistance for countries frustrated by what they perceive to be an unreliable United States.

As for China, Beijing expects that the Gulf will play a vital role in the mission of the Belt and Road Initiative — sustaining China’s export-driven growth model through overseas infrastructure development while perhaps creating the foundations for an alternative global economic system to the Anglo-American liberal maritime order. Bearing all of this in mind, if containing China is truly in the U.S. national interest, why would that make the Gulf less significant considering its importance as a supplier of oil to Asia?

Conclusion

The fact that the United States is again energy “independent” does not change the underlying rationale for the U.S. presence in the Gulf. The region’s oil remains as vital today as it was after World War II. If we accept the proposition that America’s security is tied to the welfare of its allies and partners, the United States cannot afford to discard the Carter Doctrine, for there is no substitute for the security that U.S. military force provides. If anything, a U.S. withdrawal from the Gulf could encourage China to accelerate the growth of its military capabilities there. U.S. allies such as Japan and South Korea could theoretically redeploy naval assets to the Gulf to protect their oil lifelines, but this would tilt the military balance in the Far East further in China’s favor, thereby undermining the U.S. “rebalance” to Asia.

None of this means the United States cannot learn from its recent mistakes. Rather than serving as a justification for U.S. interventionism in other nations’ domestic affairs, a rejuvenated Carter Doctrine should focus on two things. First is the provision of public goods — ensuring the world’s access to oil and natural gas on nondiscriminatory terms. Second is the attainment of negative aims — denying others the ability to influence conditions in the Gulf to the detriment of the United States. And considering the rich array of resources and infrastructure for sustaining U.S. forces that already exists in the region, and the relatively inexpensive cost of maintaining them, transitioning to a “offshore balancing” strategy seems unwise. Such notions come (as Alfred Thayer Mahan warned) “presented in the fascinating garb of cheapness,” but policymakers should be wary. Redeploying U.S. forces and shuttering bases would yield short-term cost savings, but it might be a case of “penny wise, pound foolish” given the enormous cost of reinserting troops and assets during a future crisis in the absence of any existing infrastructure.

I hope this essay has demonstrated the continuing significance of Gulf oil to U.S. national security even in an age of U.S. energy self-sufficiency. The question of whether the United States should disengage from the Persian Gulf is intimately bound to the question of whether it still wishes to uphold the international order it painstakingly constructed and maintained after 1945. If it turns out that the American people no longer wish to play that role because they consider the sacrifices incommensurate with the benefits, we can at least begin reassessing U.S. strategy in the Gulf upon a foundation of intellectual honesty.

 

 

Anand Toprani is an associate professor of strategy and policy at the U.S. Naval War College, a Term Member of the Council on Foreign Relations, and the author of Oil and the Great Powers: Britain and Germany, 1914-1945 (Oxford: Oxford University Press, 2019). The views expressed here are his own and not necessarily those of the U.S. government.

 

Image: Paul Lowry