Geopolitical Notes From India
M D Nalapat
MIKE Pompeo, the personal pick of President Donald J Trump to be the US Secretary of State, is proving to be as effective as Vice-President Dick Cheney was in the George W Bush era in boosting oil prices. The global oil demand is still in slow motion as compared to past periods, while “green” technologies for generating power (wind and sun) are steadily becoming competitive with fossil fuels. Simultaneously, shale oil output in North America is rising at speed. Despite all this, economic fundamentals have taken a back seat to geopolitical perceptions in the determination of oil prices, which have reached $ 80 a barrel after a long time when half that would have been the price but for the “booster dose” of geopolitical tension created by Pompeo and his global partners in the effort to create a perception of impending war in the Middle East. $ 80 per barrel is exactly the rate Saudi Arabia needs to balance its budget, and comfortably more than what is needed by Kuwait and other major oil producers.
Of course, such a rise in oil prices will benefit Russia, Iran and Venezuela as well, but sanctions and technology denial led by Washington will continue to reduce their production of the liquid which fuels their economies. Even over a 5-year period, the $ 80 a barrel price will accelerate the ongoing switch to “green” technologies, but that is a long time in the world view of a Cheney or a Pompeo, who are more attuned to a 6-month horizon while deciding policy. While Barack Obama was cautious, sometimes to a fault, Donald Trump is much more secure in his assessment of himself and consequently does not walk away from taking risks that another US President would never have taken. Among the most consequential is the baiting of Iran, which has found that the returns on the nuclear deal between itself and other powers have been derisory, and may become even more so, should President Trump abrogate the Iran deal on May 11, as both he as well as Secretary of State Pompeo give indications of doing. Such a move would terminally weaken the influence over policy of President Hassan Rouhani and other moderates who seek to integrate Tehran into a global order that is still largely led by the US.
Over the past sixteen months, it is clear that Trump is a shrewd bargainer who knows when to retreat and when to advance, so far as his objectives are concerned. The US President is clear-eyed about China being the primary – indeed, the only – competitor to Washington in the global primacy sweepstakes, and has gone much further in nudging that country towards opening its markets to the US than his previous three predecessors combined. At the same time, he has backed away from threatened action whenever it became clear that President Xi Jinping was reaching a red line and would retaliate in force were Trump to go further than he already had. Such a move would impact a major reason for Trump’s 2016 victory over Hillary Clinton, which is that tens of millions of voters saw him as better able to raise economic performance than his Democratic Party competitor. Whether it be Xi Jinping, Narendra Modi or Trump, all three need to show their people that they will be able to assure growth adequate to raise living standards. A full-blown trade war with China would send the US economy to the ICU, and being joined by China and several other countries there would be scant compensation. So while threats of a trade war may be uttered, these are unlikely to be acted upon by Washington.
In much the same way, although Trump will join with Israel’s Netanyahu and Saudi Arabia’s Al-Jubeir in heaping calumny on Tehran, the US President will be wary of actually beginning a conflict with a country that has over the past decade built up significant capability (albeit recessed) to subvert governance structures throughout the Middle East. Should Saudi Arabia actually succeed in goading its US ally into a major military confrontation with Iran, their response would not only be in the conventional battlefield, but in the Shia-populated pockets of the country. Similar eruptions would take place in Bahrain as well, which is why no other Arab capital barring Riyadh is behaving in a diplomatically aggressive manner towards Tehran.
Both Kuwait and the UAE, for example, are plainly restless at the way in which the joint rhetoric of Pompeo, Al-Jubeir and Netanyahu are shaping up in front of television cameras. They are aware that the most emphatic foe of Iran of the trio, Netanyahu, is playing to a beat different from the largely make-believe warlike sounds made by Pompeo and Al-Jubeir. The Prime Minister of Israel would like to see chaos throughout the Middle East, confident as he is in the ability of his administration to wall off Israel from such turmoil. War between the US and its allies with Iran would create a meltdown throughout the region, except in Israel. Oil prices would climb back to three figures, and the world economy would get into the same danger zone as it entered in 2008 owing to the greed of moneymen within the NATO bloc.
Dick Cheney ensured that the George W Bush administration fashioned policies that oversaw a steep rise in oil prices, to beyond $ 140 a barrel at one stage, before prices fell after it became clear that the incessant talk of war by the Bush administration on Iran was bluff. In 2018, even without a war, tensions created by the tearing up of the Iran nuclear deal by US (a step which would make the deal with the other signatories sharply diminished in value to Tehran) would have effect of pushing up oil prices. This would be bad news for the world economy, and therefore for US and Europe as well. It would affect China, Japan and India particularly hard. But oil-producing states (except those under US-EU sanctions) would enjoy a few years of plenty, and it is clear that Secretary of State Pompeo is aiming for that by his admittedly deft moves on Iran, Venezuela and Russia.
—The writer is Vice-Chair, Manipal Advanced Research Group, UNESCO Peace Chair & Professor of Geopolitics, Manipal University, Haryana State, India.