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Breaking Out of the Middle East Boom/Bust Oil Cycle

It’s a common refrain in (progressive) American foreign policy discussions about the Middle East: everything comes back to oil. As various participants in our recent video conversation explained, it’s really not just about oil. Conflicts in the Middle East also have much to do with the sectarian divide between Sunnis and Shias, government oppression, and unequal wealth distribution. Trying to simplify the current conflicts in the Middle East to fights over oil, without considering these other factors, can be reductive.

For instance, while the decision of U.S. policymakers to maintain our close relationship with Saudi Arabia may seem questionable in light of the country’s various human rights violations and America’s decreasing dependence on foreign oil, there are other important strategic advantages to the relationship. Amy Myers Jaffe, Executive Director of Energy and Sustainability at UC Davis, and former U.S. Ambassador to Saudi Arabia Chas Freeman argued that regardless of our decreasing dependence on foreign oil, it’s in the best interests of the U.S. to have continued access to Saudi airspace. “Imagine how difficult it would be to travel from Europe or the U.S. to China or India if you couldn’t change planes in the Middle East,” said Jaffe.

Flights paths over saudi air space

Freeman pointed out that in addition to commercial flights, the U.S. military also heavily utilizes Saudi airspace. “We have a tremendous stake in flight over Saudi Arabia,” Freeman said. “Thousands of military flights are cleared through Saudi airspace individually every month, flight by flight—there’s no blanket approval.”

While everything may not be all about oil, it’s difficult to deny the tremendous—and often devastating—impacts that the boom/bust oil cycle have had on the region. The shift to clean energy provides an opportunity for the world to ease, and eventually cease, its dependence on oil, thus ending this cycle for good.

Before we break the cycle, it’s important to understand how it works. Amy Myers Jaffe lays out the typical boom/bust cycle, including examples from its latest iteration:

  1. Price rises. As demand for oil rises, oil prices go up (the basic supply/demand curve from your high school economics class applies here).
  2. Revenues increase. Oil revenue pours in, and oil-rich countries feel no need to diversify their economies because they have so much money coming in from oil.
  3. Military arms sold. Oil-rich countries spend their excess revenue on military arms. The U.S. and other Western countries are eager to sell weapons to Saudi Arabia, Egypt, and Iraq, among other Middle Eastern countries, because increasing exports shrinks the trade deficit.
  4. Prices rise too high. Oil producers overreach how much revenue they can get from oil. In 2003, for example, Al Qaeda said they could get $125 a barrel for oil if they controlled Saudi Arabia. This put the Saudis on the defensive, and they spent the next few years trying to get $125 oil.
  5. Energy alternatives develop. In the early 2000s, geologist and scientists were incentivized by high oil prices to develop new extraction techniques, which primarily took the form of fracking in the U.S. This increased the supply of oil on the market. Clean energy alternatives, like solar panels, became more affordable and begin to scale, driving the price of oil down.
  6. Demand collapses. During this last iteration of the cycle, demand falls not only because of energy alternatives, but also because of the 2008 global recession. This results in a lack of revenue flowing to oil-rich nations.
  7. The Middle East destabilizes. Middle Eastern countries dependent on exporting oil have just bought an excess of fighter plans, tanks, guns, and bazookas. Government handouts to the populations of oil-rich nations shrink or disappear, and many disenfranchised youth join ISIS or other terrorist groups. This fuels a colossal war (or series of wars) in the Middle East, and the U.S. gets involved in trying to save the outcome.

Chaos in the Middle East disrupts oil production in the region, the price of oil goes back up, and the cycle starts all over again.

We’ve been trapped in a cycle similar to this once since the 1950s, said Myers Jaffe, until we realize that diversifying away from oil is imperative, not only for reasons of climate change, but also to break out of the harmful pattern that has destroyed the futures of generation after generation of Middle Easterners. The population of the Middle East is extremely young—Middle Eastern Millennials make up 40 percent of the Middle Eastern population (by comparison, American Millennials make up 25 percent of the US).

This next generation’s prospects are being shaped by violence and oil, as were the generation’s before it. Now is the time to break this cycle and choose diplomacy and clean energy over violence and oil-based industries and economies.