We are pleased to welcome once again Dr. Robert Wescott, President of Keybridge Research and a long-time adviser to Pioneer, as a guest contributor. Dr. Wescott attended our recent Macro Advisory Forum, chaired by Giordano Lombardo, CEO and Group CIO, discussing how geopolitical risks could shape the investment landscape.
In the fourth of this series of blogs, Dr. Wescott looks at what is happening in the Middle East.
After importing nearly 3 million barrels a day from the Middle East as recently as 2000, the U.S. imported about two million barrels a day in 2014, and only 1.3 million barrels of oil a day by 2015. This is hugely significant for the investment and geopolitical landscape.
To understand the geopolitical risks in the Middle East today, it helps to take a historical view that takes into account global changes over the past 60 years, says Dr. Wescott. The Cold War—the bipolar world dominated by the U.S. and the Soviet Union—was a defining factor in geopolitics of the Middle East for some 40 years. This era brought clear ‘rules’ about power and provided a structure that everyone understood and respected. Iran and Syria, for example, were client states of the Soviet Union, while Jordan, Saudi Arabia and Kuwait were in the U.S. sphere, Dr. Wescott said. Potentially rebellious religious factions or minority groups never considered challenging the leaders of these countries, because these leaders had weapons, planes, and tanks supplied by their patrons and military forces trained by them. This helped keep the peace in many countries.
Three key developments have now changed the situation in Dr. Wescott’s view:
→ First, the breakup of the Soviet Union in 1990 caused a shifting of tectonic plates and led to a uni-polar world in which the U.S. military might was totally dominant.
→ Second, was the U.S. decision to invade Iraq in 2003. This was fateful and led to a reopening of the historic schism between Shiite and Sunni Muslims, leading to further armed conflicts.
→ A third key change has been the rapid development of fractured oil in the U.S., which has greatly reduced U.S. dependence on oil from the Middle East.
In combination with its Strategic Petroleum Reserve which holds roughly 750 million barrels of oil, Dr. Wescott believes that this reduced dependence on Middle Eastern oil has started to reduce U.S. strategic interest in the region and reduced the American public’s interested in further military action in the region. In response, tensions between Iran and Saudi Arabia have festered and “proxy wars” in Syria and Yemen have emerged and continue to be fought. According to Dr. Wescott, this new environment in the Middle East has spawned ISIS and the rise of the terrorist threat that is causing increasing international concern. Indeed, the decision of nearly 5 million Syrians to flee their country and seek safety in Turkey, Western Europe, and other countries only serves to highlight these shift and the increased global nervousness.