New grand plan needed for Middle East's energy security

Franklin D Roosevelt talks with King Abdulaziz aboard the USS Quincy on February 14, 1945. AP Photo.

It was February 1945, and the Second World War was drawing to a close. Franklin D Roosevelt, the US president, was returning from the Yalta conference involving Joseph Stalin and Winston Churchill, at which the map of post-war Europe had been drawn.

Roosevelt had another important meeting. Landing near the Suez Canal, he went aboard the USS Quincy. Another American ship, the USS Murphy, drew up alongside, bearing King Abdulaziz of Saudi Arabia. The two men talked intensely for five hours, a conversation that set the pattern for American involvement in Middle East oil.

As the US pollster and columnist for The National James Zogby noted in a speech at the Dubai School of Government recently, every US president since Vietnam has had his presidency decided partly by events in the Middle East. As if Iraq were not enough, Barack Obama, the current US president, faces the same judgement over Egypt.

After the protests against Mr Mubarak, oil prices rose on Friday, with Brent crude in London almost touching $100 a barrel for the first time since the onset of the global downturn.

The dramatic events in Tunisia and Egypt raise the question of whether the pursuit of stability in the Middle East, designed to protect oil supplies, in fact created a more dangerous situation.

After the historic meeting on board the Quincy, James Forrestal, the navy secretary, said in 1945 he did not "care which American company or companies developed the Arabian reserves" as long as they were American.

Eventually, five US oil corporations, the forerunners of ExxonMobil and Chevron, together with British Petroleum and Anglo-Dutch Shell, emerged as the "Seven Sisters" that dominated global oil production.

The US steadily took over the UK's role as the guarantor of Middle East security and bulwark against communism, guaranteeing the cheap, abundant oil that the post-war economic boom required.

When, in 1951, Mohammad Mossadegh, Iran's democratically elected prime minister, nationalised the country's oil industry and ejected the British-owned Anglo-Iranian Oil Company, the Americans and British organised first a boycott of Iranian oil, then a coup that ejected Mossadegh in 1953 and returned the pro-western Shah Mohammad Reza Pahlavi to power.

Iran was soon bound into the US-inspired security structures in the region, aimed at containing the Soviet Union and its regional allies such as Egypt under Gamal Abdel Nasser, its president.

The Baghdad pact linked Turkey, Iraq, Iran and Pakistan. After the overthrow of the Iraqi monarchy in 1958, and Iraq's realignment towards the Soviets, the Americans shifted to a "two pillars" policy, in which the Shah and Saudi Arabia would police the Gulf and its vital oil supplies.

After the 1973 October War and the short-lived Arab embargo on oil sales to the US, Opec nations completed taking control of their oil industries. The two events together drove oil prices to previously unimaginable records, bringing unprecedented wealth and development to the Gulf, but also wrenching social change. Henry Kissinger, then the US secretary of state, even welcomed high oil prices as a way to channel funds to pro-western governments.

In 1979, one of the two pillars came crashing down. Anger in Iran over inflation, corruption and repression led to mass protests that drove out the Shah and ushered in the Islamic republic. Almost at once, Saddam Hussein's Iraq attacked the new regime, waging an eight-year war with the tacit, and often overt help of the US.

For the first time, the US became involved in actual military operations in the Gulf, escorting oil tankers and destroying the Iranian navy. And the US found a replacement pillar: Egypt, under Sadat and then Mubarak, had moved into a pro-Western stance, and the vital Suez Canal had reopened in 1975, allowing Middle East oil to reach Europe directly.

US financial and military support to Iraq would rebound in 1990 when, with his regime mired in debt after the Iran-Iraq war and suffering from low oil prices, Saddam Hussein attacked Kuwait. The subsequent operation to drive him out deepened the US-Saudi alliance but left unresolved the "Iraq question" until the 2003 invasion, with consequences still being played out today.

After the end of the Cold War ended the communist menace, new threats to energy supplies have been perceived: first Iraq, then Iran and al Qa'eda. The Egyptian revolt is the latest factor to make oil traders tremble.

Yet none of these threats have led to serious disruptions in supplies. Oil revenues are the lifeblood of Middle East producers, no matter what the regime. Even revolutionary Iran resumed exports as fast as possible. Democratic governments, with a restless population to satisfy, are under even more pressure to keep the taps open.

The latest oil boom, over the past decade, has driven modernisation with the opening up of many Middle East economies to the world, the spread of new communications technologies, the transformation of Arab news by Al Jazeera, backed by Qatar's gas revenues, and the wave of young people hungry for opportunities.

As Turkey has shown, an elected Islamist government can have friendly relations with the West.

A policy created on the deck of a cruiser in 1945 requires transformation for 21st-century realities. Although its shape is still unclear, a new paradigm is needed for Middle East energy security.

Robin M Mills is an energy economist based in Dubai, and the author of The Myth of the Oil Crisisand Capturing Carbon