A Crude Restructuring: How America's Shale Revolution Changes the Calculus in the Middle East

In 1979, a political revolution in Iran caused a worldwide panic over the sudden drop in oil production, leading to surging global prices and significant economic downturn. It also laid bare just how many nations depended on the import of crude oil from the Middle East to power the various forces of industry, and the consequences if such imports were left unguarded in the face of regional instability. In the United States, the 1979 crisis was one of the main factors in toppling then-President Carter and in forcing the United States to create a strategy that committed it to defend the oil fields of the Persian Gulf against any and all threats: the Carter Doctrine.

Since then, both Republican and Democratic administrations have upheld this doctrine, viewing the protection of energy assets in the Middle East as central to supporting the system of alliances, both military and economic, that constituted the international order since 1945. When Iran placed mines in the Gulf and began harassing oil tankers in the 1980s, a US carrier battleground sank Iran’s only blue-water fleet in order to prevent another energy panic. When Iraqi dictator Saddam Hussein invaded Kuwait and threatened Saudi Arabia in 1991, the United States and an international coalition deployed half a million soldiers to chase Saddam out of Kuwait in the Gulf War and obliterated Iraq’s ability to project military power in the process. However, in the time since the birth of the Carter Doctrine, the United States has undergone a revolution of its own, one that has changed the entire geopolitical calculus of how the United States views its relationship with the Middle East: the shale revolution.

Under the shale revolution, US oil production has more than doubled in just the past decade and the United States has turned from being an oil importer reliant on a constant stream of Middle Eastern crude into an oil exporter that can now impact global prices and be energy independent. Extraction productivity has increased eight-fold for natural gas and nineteen-fold for oil, allowing the United States to surpass Russia as the largest natural gas producer in 2011 and Saudi Arabia for oil in 2018.

For the technically inclined, shale refers to the type of crude oil that is produced from the sedimentary shale rocks which contain a high degree of kerogen, which can be refined into oil (hence its terminology as “tight oil”). Historically, the process for extracting and refining oil from shale has been difficult and extremely expensive. For most of the 20th century, the technology necessary to extract the oil from the shale rock simply didn’t exist, and even when massive shale rock formations were discovered in the 1980s, it was too costly to make it profitable for oil companies. As such, the United States continued to depend on cheap domestic energy resources, like coal and the importation of heavy crude oil from countries in the Persian Gulf, namely Saudi Arabia.

However, through a combination of government restructuring and technological developments, the United States has finally been able to tap into its enormous energy resources. In the aftermath of the 1979 crisis, the government realized that its stranglehold on oil supply and regulation had prevented an effective response and for markets to properly adapt to the temporary shortage. Starting with President Carter’s decision to repeal price controls on crude oil in 1980, and Reagan’s to end federal controls on experimentation in new production, the entire industry was allowed a far greater degree of flexibility in order to innovate and invest.

More recently, a number of new technologies have begun to come online, drastically increasing access to shale crude. For one, horizontal drilling, as opposed to the traditional vertical wells, have allowed for access to a much larger area of underground rock formations. Another is hydraulic fracturing, commonly known as fracking, which is a new process that uses water, sand, and chemicals are pumped into wells to expose cracks in rocks to release the oil hidden inside. Perhaps most importantly, though, is the unprecedented use of data analytics, decreasing the cost for human labor and adding to the flexibility shale prospectors had to improvise.  

As a result of the more open market and the plummeting cost of shale prospecting due to new technology, oil companies have rushed to take advantage of America’s vast shale deposits, such as those in the Bakken Shale as well as the Permian and Appalachian Basins. Since 2013, thousands of new shale fields have come online and flooded the oil market with an overabundance of supply, with many more already scheduled for construction in the years to come.

While the United States does still import some crude for the sake of efficiency, it has also managed to diversify the source of such imports to protect its energy supply. Today, the United States imports almost four times as much standard crude from Canada as it does from Saudi Arabia, and total imports from the Persian Gulf represent less than 15 percent of its portfolio. In its place, US domestic production of petroleum and biofuels now makes up more than 80 percent of its consumption, with new shale tight oil plays representing as much as 59 percent of US oil production in 2018. In short, shale has finally allowed the United States to break its dependency on Middle Eastern oil. It may not be completely independent, but it is nowhere near as vulnerable as it was in 1979.

On June 24, President Trump sent out two tweets that, in one move, upended the entire 40-year-long Carter Doctrine. Pointing out that China and Japan are heavily dependent on energy imports from the Middle East, and that the United States is no longer reliant on such imports, he questioned why the United States was doing the hard work of patrolling the Persian Gulf and guaranteeing the security of international trade if it was not deriving the benefits of it. While foreign policy under the Trump administration has been defined by inconsistency and irregularity, these statements speak to a larger belief on the role of the United States in the Middle East, namely that the Carter Doctrine itself may no longer be in the best interests of the United States.

Unfortunately, this is not the case for many other nations. China has recently surpassed the United States to be the world’s largest crude oil importer, an indispensable stimulus to its fast-growing but debt-heavy economy. South Korea and Japan’s domestic energy production is minimal, and after the Fukushima Nuclear incident in 2011, crude oil has returned to being the only economically and politically viable option for these countries’ energy needs. Nations in Europe, facing severe demographic inversion and slowing economic growth, continue to depend on cheap Middle Eastern crude as more of their workforces move into retirement. Even more important, the presence of cheap crude from the Persian Gulf is not only indispensable but irreplaceable to most of the nations dependent on it.

Indeed, there is too small a supply in South America and Southeast Asia to even begin to make up the difference, and its lack of concentration in Africa makes it risky to import. For decades, this has not been a problem, as the United States has been committed to protecting the Persian Gulf, making it both ridiculously cheap, safe, and reliable to import crude oil from the region. Yet if the United States withdraws from its commitment to protect oil exports from the region, who indeed will be able to step in to fill the role?

European navies have very little real power projection beyond the Mediterranean, and even the sizable fleets of Britain and France engage only in sporadic escort operations. The prized Royal Navy is chronically underfunded as a result of budget cuts; a lack of recent combat experience, combined with its lack of a hard military presence on the ground in the Middle East, makes it unfit to even protect its own tankers in the Persian Gulf, let alone anyone else’s. For example, when Iran seized a British-based oil tanker earlier this year in July, Europe could do nothing but condemn the act of aggression, proving that their power projection beyond the Atlantic Ocean is severely constrained if not non-existent.

Furthermore, while India, another American ally, has been developing a larger and more mobile navy in recent years, it is still young and relatively untested. Additionally, India’s national defense strategy calls for it to focus on operations in the east, not the west, in order to confront China. China itself, while undergoing a significant naval expansion, has been mostly focused on short range operations in the South China Sea as much as 1000 miles from the shore. Its blue-water capabilities are extremely limited, and in any case, as the Persian Gulf is an approximate 5800 miles from Southern China, any intervention would likely be impossible.

Unlike manufacturing, which can be relocated across the world as globalization has proven, commodity production cannot. Nations that are dependent on crude oil imports from an unstable region, like the Middle East, cannot simply find it anywhere else. The Persian Gulf has the highest proven crude oil reserves on the planet, making it indispensable to global energy supply.  Furthermore, the entire market has been working under the assumption that the United States would have a permanent interest in protecting the crude supply chain, and because of that, the oil tankers of today are behemoth vessels that exist for one purpose and one purpose only: maximum capacity. Exporters saw no need to make their vessels small or fast to evade enemies, instead seeking commercial advantage through efficiency and economies of scale. Oil is by far the most traded commodity on Earth, comprising almost a fifth of all maritime shipping, with about a third of that originating from the Persian Gulf, which will face increasing instability without outside protection. In a new scenario where the United States does not consider it a vital national interest to protect them, oil tanker’s size will now turn to become a dangerous weakness in the unstable conflict-prone Gulf.

We have already seen the results of this new geopolitical situation taking place. Over the summer of 2019, the Persian Gulf has played host to almost half a dozen attacks on oil tankers and crude oil processing facilities. Iran seized four oil tankers and has consistently stopped and threatened numerous other vessels trying to travel through the Gulf. On September 14, 2019, a drone attack on a crude oil processing facility in Saudi Arabia threw the region into crisis when it temporarily knocked out half of the nation’s oil production. Subsequent events, such as the massive wave of protests across the Middle East and increased infighting between Saudi Arabia and its allies have caused further crisis to the oil market, with prices increasingly unstable and spiking due to consistent fear of risks to imports. All this time, though, US crude prices have remained fairly stable, a testament to just how much shale has insulated the US energy sector from the rest of the world.

In the first week of January 2020, US special forces executed a strike killing the leader of Iran’s foreign paramilitary arm, Qasem Soleimani, and raised the alarm of an imminent war. The strike came as a surprise to the world, especially because the United States had refused to target Soleimani before in order to not disturb relatively low oil prices. In this new world, however, the United States no longer has the spectre of an energy crisis on its back when making decisions concerning the Middle East. This might be a foreshadowing that in a scenario in which its energy needs are not dependent on stability in the Middle East, the United States might instead become a force for instability. This would be at great danger to many nations still dependent on Middle Eastern crude, but perhaps none more so than China, which now finds itself in the unenviable position that the United States did 40 years ago.

At the end of the day, regardless of the degree to which the United States maintains its current military presence in the Middle East and regardless of whether it continues to take aggressive action against regional enemies, the era of safe and cheap oil from the Persian Gulf is over. The United States will no longer be satisfied subsidizing global oil consumption, even as demand for said oil is expected to rise in the coming decades. Without an external actor able to patrol the Gulf, protect oil tankers, and threaten regional powers when crude exports are put at risk, we are likely to see Middle Eastern oil become even more volatile with no insulation from the tides of conflict in the region. All of this means that, for the foreseeable future, crude oil will be one of the greatest sources of vulnerability and risk in global markets, and there’s really nothing the world can do about it.