Welcome to Hell in the Middle East – It is economy, stupid (Part V)


For those of us who are over forty years old, we could find many similarities between the Middle East now and Eastern Europe during the 1990s. However, many in this region would mistakenly think that the ongoing fight in Iraq, Syria, Yemen and Libya occurs, more or less, along sectarian lines. But if we look deeper, we will find that deposits of oil and gas in the region are formulated along those sectarian lines thanks to Sykes-Pico re-demarcation of borders after World War II. It was clearer in Iraq which hosts the world’s second biggest oil reserves. The fighting that erupted close to the oil fields in Mosul and within the Kurdish areas in northern Iraq, which happens to be selling oil to both Turkey and Israel, is just an example. So what about Syria? Large swathes of the two states (Iraq and Syria) are now occupied by the so-called Islamic state (or ISIL), which has been churning out a big chunk of northern Iraqi and Syrian oil. ISIL has been trafficking more than $2 million worth of oil every day or about $800 million per year. Oil experts say that ISIL is probably producing 50,000 barrels of oil per day, but the territory it occupies is capable of producing 350,000. ISIL is also selling oil to smugglers for $60 per barrel, when its international price is approaching $100 per barrel. Thus, the future of oil revenues and the growth of ISIL remains to be determined and will be heavily influenced by the territories gained or lost in the current fight.

A Syrian man works on manually refining crude oil in Al-Raqqa province in 2013. Al-Raqa, Albu Kamal and Deir Ezzor are some of the Syrian provinces where ISIL has been selling the country’s oil wealth to black market traders (photo: Shorfa)

If we come to understand that the US has become the number one oil producer worldwide then we should realise that ISIL is a rough competitor. Furthermore, both Syria and Lebanon were part of the US-NATO planned Silk Road which is basically meant to avoid Russia’s gas supplies to the EU and to control the needs of China, the expected economic challenger of the US economy.

A pumpjack brings oil to the surface in the Monterey Shale, California (photo: VOA News)

The main reason for occupying Afghanistan was the TAPI gas pipeline which is part of the Silk Road. The TAPI pipeline was supposed to go through Turkmenistan, Afghanistan, Pakistan and India. Remember that Turkmenistan is a runaway republic from the Soviet Union. But this part of the American Silk Road plan was disrupted and the Turkmenistan gas is now travelling through a 7,000 km pipeline to China thereby restricting the ambitions of US allies in Central Asia, especially when this gas also reaches Iran.

One of the dimensions of Eurasian integration: Iron Silk Road map (photo: Oreitnal Review)

TAPI pipeline ‘perfect example’ of energy diversification (photo: Pakistan Today)

Very recently, and as a result of American pressure, Bulgaria (which is completely dependent on Russian gas) and Serbia halted the construction of the Southern Stream pipeline, Russia’s project competing with the Nabucco pipeline, which was due to be launched next year. The pipeline was slated to carry around 60 million cubic metres of gas into Europe. Yet the gas from Azerbaijan was not enough to fill the pipes and thus the construction of this White House pet project – with the goal of decreasing European reliance on Russian gas – was frozen. Because the construction of the Nabucco has also been frozen, it cannot begin to pump Iranian gas.

Russia plans to start building the Serbian segment this year (Photo: South-Stream.info)

Moreover, the US also wants to begin exporting its own oil, which is why they don’t need competition at all. Incidentally, imposing new sanctions against Iran would allow the West to shelve any plans for developing this country’s gas industry and the Southern Pars deposit in particular which is the world’s number one gas reserve. This means that the Qatari regime will remain the main supplier of liquefied gas in the Persian Gulf while the Americans continue to impose their projects of exporting its liquefied shale gas into Europe.

It is thus evident that there is a battle for restructuring the oil and gas market in the world and it is currently being waged by the White House through the conflicts in Ukraine, Syria and Iraq. To maintain its hegemony, the United States, which imports only 3% of its oil needs from Iraq, wanted to ensure its control over all exports from this region as well as the consumption of its competitors: Europe, China, Japan and India.

Secretary Kerry joins President Obama for Meeting With Ukrainian President Poroshenko

The construction of the pipeline from the Southern Pars deposit in Iran has also been halted for the duration of the wars in Syria and Iraq, which was planned to span 6,000 km and join the Persian Gulf with the Mediterranean Sea by going through Iraq, Syria and Lebanon. In this environment, Qatar, Turkey and Israel are relieved as Tehran can no longer fortify its economic might.

Iranian President Hasan Rouhani speaking at the parliament in Tehran, Iran (photo: Times of Israel)

However, the US is not only suffering from the disruption of its gas pipelines but it risks the collapse of the petro-dollar system. The Voice of Russia said:  “The US dollar’s position as the base currency for global energy trading gives the US a number of unfair advantages. It seems that Moscow is ready to take those advantages away.”

The radio outlet added, “The existence of ‘petrodollars’ is one of the pillars of America’s economic might because it creates a significant external demand for American currency, allowing the US to accumulate enormous debts without defaulting.”

The petro- dollar system, which replaced the old system as the world’s currency reserves at the Bretton Woods conference practically means that if a Chinese buyer wants to buy a barrel of Saudi oil, he has to pay in dollars even if no American oil company ever touches the said barrel. Until recently, a significant part of the EU-China trade had been priced in dollars. But this is not what is currently happening in the international market.

Acting Secretary of State Dean Acheson, standing at center, and representatives of 28 Allied nations met in Washington in 1945 to sign the pact reached at the Bretton Woods conference (photo: NYT)

Today things are dramatically changing. Lately,China has been launching a fierce war against the dollar. It has led the BRICS’ efforts to dislodge the dollar from its position as the main global currency. China opened two centers to process yuan-denominated trade flows, one in London and one in Frankfurt.

A 100 yuan banknote (R) is placed next to a $100 banknote in this picture illustration taken in Beijing (photo: Blogspot)

In March 2013, Australia and China also agreed to erase the dollar as a means for payment in their bilateral trade. Literally, they enabled direct currency convertibility and will trade in their own currencies: Australian dollars and Chinese yuan. It is estimated that the exchange between the two countries exceeds US$30 billion per year.

The trade between China and Japan is estimated to be worth around $350 billion USD, about 11-12 times the trade between China and Australia and an agreement has been in practice to sell and buy using the local currencies of the two countries. This agreement (as many others) will weaken the dollar and strengthen the two currencies (in this case: the yuan and the yen). Although they have not excluded the US dollar from bilateral trade, Germany and China are intensifying the use of euros and the yuan. If China and Germany choose to totally exclude the dollar from bilateral trade, then this will have a similarly powerful negative influence on the ‘greenback’ as the Japanese-Chinese pact.

Chinese Premier Wen Jiabao (R) shakes hands with visiting Japanese former Prime Minister Yoshihiko Noda in Beijing, capital of China (photo: China)

Venezuela, Iran, and Brazil are some of the numerous countries avoiding the dollar in bilateral trade. They’re usually selling their oil for other currencies (often their own) or they’re selling it for gold (Iran has been selling oil to India in exchange for gold). So, who is still kneeling at the mercy of the petro-dollar system and the hegemony of the White House? The Arabs, who happen to be sitting on the world’s largest oil and gas reserves and thus should be controlled either peacefully or through fighting or through diplomatic means or militias. Once the US became the legitimate heir of Britain in this region as an occupying power, it held dearly the oil and gas plans as its own treasure. The saying goes that when the Soviets threatened the US’ well- orchestrated set up in the Middle East, a member of the US administration proposed to seal off all the oil fields with long lines of dynamite that would ignite fire all over the region. For the US, it is better for the world to lose this treasure chest of oil than leave it to someone to benefit from, even if it will go back to its legitimate owner.