Middle East Revolts and the World Energy Supply


As events unfold in the Middle East, many are asking not just what this means for democracy, world diplomacy, and  freedom, but what does it means for the world energy supply? The United States has long backed, let's say, less than democratic regimes in the past in the name of stability, but now this policy seems to be shifting as these regimes fall like dominoes. This is not to say that the potential fall of Muammar Gaddafi in Libya is bad for the United States; indeed we have attempted to oust him in the past. The question is: What if this movement spreads to more major oil producing nations? 

When the U.S. stood by and watched Hosni Mubarak get trounced in Egypt, the world, especially the Arab parts, took notice. Mubarak is no Gaddafi; he and Egypt were long standing American allies and his abandonment by the U.S. must frighten similar nations that the U.S. has ‘guaranteed’ security. I have written before on this site about energy security, and this region in particular is where idealism and democracy have consistently lost out to concerns over stability and energy security for decades. But could this be changing? And how far will this go? 

It is one thing for Egypt and Tunisia to fall, but if Saudi government were to be toppled, we would be in a completely different ball game. The collapse of these regimes, and the possibility of the disruption of oil supply, however, is not as disastrous as it may seem for the U.S. Yes, America is dependent on oil imports to meet demand (foreign oil constitutes roughly 60% of our current demand) but only about 20% of those imports come from Middle Eastern nations. Most U.S. oil imports come from Canada, Mexico, Venezuela, and increasingly from West Africa. So in total, Middle Eastern oil supplies only account for a little over 10% of U.S. oil supplies, a number in stark contrast to the economies of Asia and Europe, which are increasingly reliant on Middle East oil.

The question now becomes, is it worth it for the U.S. to continue to bail out these regimes as it has done in the past? The situation has changed and U.S. interests are no longer directly threatened as they once would have been. But, perhaps this is not just about where U.S. oil imports come from, but the global price of oil; since oil is traded on international markets, and any disruption would cause a major price spike. 

This situation is similar to the banking crisis of 2008. As bigger and bigger banks began to fail, the government was forced to step in and bail out those once thought to be 'too big to fail,' such as AIG and CitiGroup before confidence in the entire banking and financial sector collapsed. So, if similiar logic were to applied to the oil/international energy markets, that would make the Tunisian government's fall akin to that of Bear Sterns and Egypt's to that of Lehman Brothers. The question becomes: Will the United States bail out the government of Saudi Arabia if its survival is threatened, as it is truly too big to fail?

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