Effectiveness of the Oil Embargo - Research Paper Example

Effectiveness of the Gulf s’ 1973 oil embargo as their foreign policy tool Introduction This paper will explore howthe Gulf States have used the oil weapon (mainly the oil embargo of 1973) to influence the foreign policy of other countries (mainly the US); given the rapid shifts in global energy perspectives, thanks to the heightened global sustainability concerns and the U.S.-led exploration of alternative innovative energy solutions, the Gulf States can no longer use the oil weapon for geopolitical mileage. Historic Background (1973-2000s) Following a surprise attack on Israel by Syria and Egypt and other Arab nations in 1973, the U.S. overtly supplied Israel with weaponry after the Soviet Union started aiding Syria and Egypt thereby prompting OPEC to announce a 70% increase in oil prices (Myers). Oil ministers agreed on an embargo that would see a gradual reduction in production in 5% increments over time until they had achieved their economic and political objectives; after Libya embargoed all oil shipments to the U.S., Saudi Arabia and all other Arab oil producing nations followed suit leading to the 1973 oil embargo that was equally extended to Western Europe and Japan. The onset of the 1973 oil crisis, when members of the Organization of Arab Petroleum Exporting Countries (OAPEC) announced an oil embargo led to high rises in the price of oil per barrel, from US$3 to nearly $12; the short and long term economic as well as political effects of the oil embargo left devastating impacts all over the world (Ross). Price increases were also imposed in the embargo to accelerate the fall in demand of the new lower level oil supply thereby triggering a market rise in the oil price from $3 to $ 12 per barrel; since the global financial system was already under pressure from the collapsed Bretton Woods Agreement, recessions and high inflation kicked in and persisted up to the early 1980s and oil prices continued to rise until 1986. From the mid 1980’s to 2003, the inflation-adjusted price of a barrel of oil remained stable at around 25$ per barrel but rose dramatically from 2003 beyond $30 per barrel reaching a high of $60 per barrel in 2005 and its peak was $147.30 in 2008. Many factors have been attributable to these dramatic increases in the prices of oil including the depreciation of the U.S. dollar, subsequent reports of the declining oil reserves, the tension in the Middle East, as well as the heightened speculation over oil prices. Geo-political events as well as natural disasters that are indirectly linked to the global oil market have had a significant impact on oil prices; for instance, the 2006 Israel-Lebanon conflict and the North Korean missile tests as well as the Hurricane Katrina and concerns regarding Iran’s nuclear plans led to short-term effects on oil prices. However, the 2008 global recession greatly diminished the pressures of geopolitical events and natural disasters thereby significantly reducing their impact on global oil prices. Consequently, the global recession triggered a collapse in demand of oil and the subsequent fall in oil prices from a high of $147 in 2008 to a low of $32 in the same year; however, since October 2009, oil prices have stabilized by establishing a trading range of between $60 and $80. Formation of OPEC Twelve countries including Iran, the seven Arab nations, Venezuela, Indonesia, Ecuador and Nigeria had come together to establish the Organization of the Petroleum Exporting Countries (OPEC) at a conference held in Baghdad earlier on in 1960. The motivation behind the formation of the first OPEC was to resist pressure by the so-called “Seven Sisters,” comprising of the seven leading oil companies belonging to the U.S., British and Dutch nationals, to reduce the prices of oil and payments to countries that were producing it (Ross). In the first five years of its existence, OPEC was head quartered in Geneva Switzerland, but later moved to Vienna, Austria and its major objective was to co-ordinate and unite petroleum policies amongst member states to guarantee fairness and stability in oil prices for petroleum producers; OPEC also aimed to guarantee the oil consuming nations an efficient, economic as well as regular supply of petroleum while assuring industry investors a fair return of capital. OPEC in the 1960s and in the 1970s OPEC’s formation in the 1960s coincided with the transition in the global economic and political landscape, as well as the widespread decolonization and birth of numerous new independent states in the developing world (Myers). At the moment, the “seven sisters” multinational companies dominated the global oil market, which was nothing like the market of the previous Soviet Union or any other Centrally Planned Economy, and this greatly undermined the effectiveness of OPEC in governing oil prices. However, OPEC rose to global prominence in the 1970s with its member countries gaining massive control of their own domestic petroleum industries as well as exerting significant influence on the pricing of crude oil in the global oil market. Third world nations that were endowed with oil resources leveraged OPEC as an informal bargaining unit for the sale of oil while the outfit largely focused on attaining the biggest share of all the profits made by the companies producing oil in the west as well as control over their level of production. These and other events that occurred in the onset of the 1970s prompted OPEC to exert greater economic as well as political strength, thus the leading oil businesses in the west alongside the importing nations found themselves under the watchful eye of a unified bloc of exporters (Ross). In 1971, the United States unilaterally exited the Bretton Woods Accord, which meant that it was no longer on the Gold Exchange Standard and the value of its dollar would now henceforth float; the US was shortly followed by Britain, which also floated the value of the pound sterling, and later all other industrialized countries followed suit by floating their respective currencies. The industrialized countries took advantage of the fluctuation that was to follow as the currencies gained strength against each other to increase their reserves beyond previous capacities thereby greatly depreciating the value of the U.S. dollar and other major currencies respectively. Oil producers suffered the brunt of this developments since their incomes went down, which prompted them to price a barrel of oil against gold, thereby prompting the first oil shock; in that respect, unlike in the 1960s, OPEC was very effective in influencing oil prices and supplies of member states. Embargo as a foreign policy tool The gulf countries have utilized the 1973 embargo as a foreign policy tool by creating geopolitical situations that allowed them greater influence on global oil production and pricing of oil (Quiggin); the embargo represents the third world’s first ever successful weapon that humbled the west. Since the Persian Gulf nations such as Bahrain, Qatar, UAE, and Saudi Arabia are the leading producers of crude oil, supplying nearly 25% of the world’s oil while owning nearly two thirds of the global oil reserves, they have been able to exert significant control over global oil supplies as well as prices, consequently utilizing their advantageous geopolitical position in the global oil market to influence their relations with the west. The U.S. had embarked on a 5% annual increase in its energy consumption while paying low prices for oil and selling highly-priced goods to the third world nations whose refined crude oil it was selling back to them at exorbitant prices. The embargo enabled the Gulf States to achieve their economic and political goals successfully leading to the prosperity of the Gulf nations due to the large transfer of American and European wealth into the area (Myers). The oil embargo was effective since it met its objectives of bringing the west, especially the U.S. and Europe to their knees, while enabling the Gulf States to achieve their economic as well as political goals accordingly. Consequently, the embargo prompted the U.S. and its allies, mostly found in Europe to completely alter the nature of their relations with the Gulf States since oil was seen as a strategic resource; nonetheless, subsequent years have seen the U.S. progressively shift its policy to focus on increased exploration, energy conservation, as well as monetary policy in response to inflation. OPEC acts as a group OPEC acted as a group in the early 1970s, thereby achieving great influence that prompted the rise in global oil prices that lead to the 1973 oil crisis in reaction to the U.S.’s intervention to Israel’s aid in the Yom Kippur War (Myers). OPEC broadened its scope in the wake of 1974 by making the sale of oil for socio-economic development of its poor member states one of its primary responsibilities, thereby helping a vast majority of these nations in becoming centrally planned economies. Since OPEC triggered the increase in payments for oil, the oil exporting countries in the Gulf who had been dominated by the west for so many years, at least for the first time, gained control of the most strategic resource in the world, and this gave them real power. The embargo became known as a strategic “oil weapon’ to the Gulf states since it pressured Israel in the Arab-Israeli war in 1973 while attempting to influence the foreign policies of the target governments’ (including the U.S., Great Britain, Canada, Netherlands and Japan) on Israel; in that case, the threat to cut of oil supplies to the U.S. and its allies was aimed at swaying Israel towards a pro-Arab position and to undermine its allegiance to the west. Current foreign policy tools in the Gulf Nearly forty years have elapsed since the 1973 embargo that triggered incredible change and turmoil; nonetheless, shifts in the last four decades have seen the U.S. embark on serious counteractive measures to overturn the energy world enforced by OPEC and the Gulf nations. The embargo has gradually been rendered ineffective over the years since the U.S. has championed exploration of alternative renewable forms of energy, which have contributed to the opening up of new market opportunities while reducing overreliance on fossil fuels. These new opportunities and the major global shifts towards green energy and innovative energy solutions has attracted investment from smaller oil and gas exploration companies all over the world, thereby granting the U.S. a chance to retake control in determining how energy is bought and sold globally. The embargo was the last attempt of the Gulf Nations to use oil to their geopolitical advantage since the west has brought the leading oil producing countries in check by turning to Japan, South Korea and even China to counterbalance the Gulf State’s, particularly Iran’s crude imports (Robehmed). The U.S. has gained adequate capacity to withstand a repeat of the conditions that led to the 1973 oil embargo through energy innovation programs that have created major export opportunities; in that respect, the Gulf States do not have the advantage of using an oil embargo as their strategic foreign policy tool given the rise in oil and gas production from the U.S. as well as from the Canadian Shale. Nonetheless, the Gulf States are still important in the U.S.’s foreign policy agenda because it still needs to pursue its interests of security, democracy and human rights around the world, and more so in the Arab world (Telhami). Stability of the Gulf States is central to the U.S. since it will promote its interests in the region while enabling the U.S. to contain Iraq and Iran’s nuclear threats; furthermore, the U.S.’s allies in the region such as Israel are not safe unless the U.S. cooperates with the Gulf States to ensure security and stability in the gulf region (Cooper). Globally, the foreign policy pursued by the Gulf States currently is that of influence since they no longer have autonomy in the global oil market, or the capacity and resources to dominate global affairs. However, foreign aid is regarded as the single most important foreign policy tool utilized by the Gulf States at the regional level as it can be used as a great source of power projection in the foreign as well as security policies of states in the Gulf region. The immense wealth and financial resources amassed from the oil production that is the core of sovereign power is the new form of foreign policy tools used by the Gulf States to influence their regional affairs, thereby reducing overreliance on protection from the great powers of the west. For instance, the Gulf States exploited foreign aid during the Arab spring to influence each other’s behavior at the regional level significantly; for instance, Qatar, Kuwait and UAE used aid greatly, leading to the support, rise and fall of non-state actors like the Muslim Brotherhood (Rickli & Mezaini). Foreign policy goals The Gulf States have resorted to maximizing their influence through a cooperation strategy by joining alliances with the west to protect their interests, especially against the devastating security threats that have recently rocked the Arab world (Walt). By adopting a cooperative strategy against threats in the Gulf region, Gulf States benefit from the protection and dissuasion of the west while still retaining a significant proportion of their autonomy given their vast financial resources accumulated from oil production; evidently, the Gulf States have focused their foreign policy on safeguarding their interests through exploration of alliances of foreign and security policies especially against Iran’s nuclear threat (Goldman). Security is a major concern for the Gulf nations, particularly the recent uprising in the Arab world commonly known as the Arab spring, was deemed a great threat to the survival of the regimes in the Gulf region, thus prompting security responses. Increasingly, the cooperation and unity among the Gulf States has diminished given that the recent regional and international activism has accentuated domestic threats that have magnified domestic divisions in the region as typified by the division between Saudi Arabia, UAE and Qatar due to Qatar’s disregard of the pact of the Gulf Cooperation Council (Kerr). Concerning the Egypt case, Qatar supported the rise and influence of the Muslim Brothers in Egypt but it was the UAE that played a significant role in the decline of the outfit; the domestic threat of the Muslim Brotherhood greatly harmed the relationship between Qatar and UAE. Conclusion Ultimately, whereas the 1973 oil embargo gave the Gulf States massive control over the single most significant global energy resource, recent developments over the years such as the U.S.-led innovative energy programs and a shift towards green energy given global concerns over sustainability of oil reserves, have created new market opportunities that have challenged the Gulf States control of global energy supplies and prices. Consequently, the Gulf States may have succeeded to effectively hit back at the west by utilizing the embargo as a strategic geopolitical tool back then but they can no longer do so, thus, they have pursued cooperative foreign policies with the west as strategies of increasing their influence on the global scale while exploiting foreign aid as their only geopolitical foreign relations tool at the regional level. Works Cited Cooper, Hellen. “Converging Interests May Lead to Cooperation Between Israel and Gulf States.” Nytimes.com. 2014. Web. 15th May, 2014. http://www.nytimes.com/2014/04/01/world/middleeast/converging-interests-may-lead-to-cooperation-between-israel-and-gulf-states.html?_r=0 Goldman, Zachary. “Gulf Reconciliation Council: The Right Way to Reassure the Gulf Monarchies.” Foreignaffairs.com. 2013. Web. 15th May, 2014. Kerr, Simeon. “Diplomatic crisis as Gulf states withdraw ambassadors from Qatar.” Ft.com. 2014. Web. 15th May, 2014. Myers, Amy. “The End of OPEC: Forty years after the Arab oil embargo, new technologies are dramatically reshaping the geopolitics of the Middle East.” Foreignpolicy.com. 2013. Web. 15th May, 2014. Quiggin, John. “Embargoes: An Effective Political Weapon?” Nationalinterest.org. 2014. Web. 15th May, 2014. Rickli, Mark & Mezaini, Khalid. “The GCC States’ Foreign and Security Policies after the Arab Spring.” Grm.grc.net. 2014. Web. 15th May, 2014. http://grm.grc.net/index.php?pgid=Njk=&wid=OTI=&yr=2014 Robehmed, Natalie. “Gulf To Benefit From Iran Oil Embargo?” Forbes.com. 2012. Web. 15th May, 2014. Ross, Michael. “How the 1973 Oil Embargo Saved the Planet: OPEC Gave the Rest of the World a Head Start Against Climate Change.” Foreignaffairs.com. 2013. Web. 15th May, 2014. Telhami, Shibley. “The Persian Gulf: Understanding the American Oil Strategy.” Brookings.edu. 2002. Web. 15th May, 2014. Walt, Stephen. “Oil, Iran, and stability in the Gulf: Why the Gulf States want to keep Iran in a box.” Foreignpolicy.com. 2012. Web. 15th May, 2014. Read More