Life in the Middle East never stands still. The inexorable progress of Iran towards some form of nuclear capability has not been halted by the negotiations which began at the end of last year and which have now run on for almost six months. In the absence of a deal others are assuming the worst. Unilateral direct action by Israel still cannot be definitively ruled out. Meanwhile, other countries are feeling the need to prepare their own deterrents. Having lost confidence in the umbrella of US security the Saudis are developing their own capabilities. The dangers for the region and for the world’s energy markets are enormous.
The issue is set out in an excellent new paper for the Belfer Center at Harvard by Olli Heinonen and Simon Henderson. The Saudis’ explanation of their newfound interest in nuclear technology is that they want to use it to produce electric power and to converse oil supplies which can be exported. There is a core of truth in this of course – Saudi Arabia’s domestic oil consumption is rising inexorably and is now more than 3m barrels a day. But, of course, this is exactly the argument used by Iran for its own nuclear research.
Heinonen and Henderson believe the Saudis are preparing the way and giving themselves the option of being able to move beyond civil nuclear power to the point where they could within a matter of months produce some form of weapon. The country undoubtedly has the money to buy whatever is needed and they have close and dangerous allies within Pakistan, a country which is already a nuclear state. Scrutiny by the International Atomic Energy Agency is minimal (bizarrely the organisation spends more money monitoring Jordan) and the Saudis could go a long way down the path to nuclear capability without it becoming obvious until very late in the day.
The prospect of nuclear weapons in the hands of the fragile government of Saudi Arabia is bad enough. The country is fundamentally unstable – held together only by force and by the flow of oil money to an ever growing number of citizens who high expectations and low productivity. But equally concerning is that any further conflict in the region – even at a level below the nuclear threshold – could shake the global energy economy to its foundations.
Over time the world is moving away from dependence on Middle East oil. Improvements in efficiency, and the development of all sorts of alternatives from shale gas and tight oil to solar and wind will give consumers new choices. Pretty soon oil demand will peak globally – as it has already in the US, Europe and Japan.
But the crucial point is that we are not there yet. It is common place to talk about oil and gas self sufficiency in North America and the potential for development of Chinese shale gas. The hard reality though is that neither will be achieved before 2020. In the shorter term there are new sources of supply gradually coming onstream – for instance in the Caspian, Brazil and west Africa. But in every case the pace of those developments is slower than promised. We cannot afford to misunderstand the fact that the positive prospects for the medium and long term do not remove the dependence of the oil market on Middle East exports for most of the next decade.
Saudi Arabia now produces about 11.5m b/d of which about 8.5m b/d are exported. That is a sixth of world oil trade. If Iraq fails to live up to the hype which promises production of 6m b/d by 2020 the dependence on Saudi will be even greater. Trade routes, especially through the Straits of Hormuz which take oil from other countries as well as from Saudi and Iran are also vulnerable. Over time less and less of that oil will flow westwards and more will go to Asia. That is strategically very significant, especially for China and India, but the world market for oil is singular and any disruption will have an impact on prices which will be felt right around the world.
I do not know if the process of proliferation can be stopped. Much will depend on whether the US and Israel tolerate continued Iranian nuclear development to the point at which weapons can be developed within months. But the risks are very high. Energy security as Mr Putin has helpfully reminded us is not a matter of history. The importance of developing a wide range of alternative supplies should be a strategic priority for every nation which relies on imports.
* This post has been amended since initial publication to reflect the fact that 3 mbd is 3m oil barrels a day, not 3,000 b/d as incorrectly inserted during the editing process.