Oil Price Warfare

September 1, 2006 Topic: Security Regions: Persian GulfMiddle East Tags: Gulf WarPeak Oil

Oil Price Warfare

Mini Teaser: War with Iran does not appear imminent and the prospect has not been a hot electoral issue. But Howard explains why war with oil-producing nations will likely be wholly unanticipated.

by Author(s): Roger Howard

Waging war in this tight-oil age will be an especially hazardous undertaking, not only tactically and economically, but also geopolitically. Preventing any sudden oil-price spike has become a strategic priority, circumscribing the maneuvering of defense architects and, for all of warfare's inherent risks, posing profound new challenges.

We can no longer assume, as we did as late as 2003, that oil markets will quickly recover from a minimal disruption in supply caused by military action in a major oil-producing region. Given the vulnerability of the global economy to oil-price shocks, as well as the political fallout from high gasoline prices, Washington's ability to use military force in various parts of the world, notably against Iran, will be significantly constrained, not least because a large body of global political opinion would pin responsibility only on Washington for the consequent damage to the global economy.

In the run-up to the first and second Gulf Wars, the Pentagon had the luxury of being able to gradually build up forces in the Persian Gulf for a period of months, taking its time to deploy personnel and supplies. Now, however, in the interest of avoiding an oil-price shock, military chiefs will be much more likely to conceal any preparations for war, while political leaders will have to play down the likelihood of any such attack, even if they know it is inevitable. Financial markets have become so susceptible to rumors of any possible disruption to oil supplies that the attacking party will have to try and surprise not only his opponent, but also the market, in order to minimize the longevity of an economic crisis. Any country that is sensitive to the price of oil, even if it has overwhelming force at its disposal, can no longer so easily make military threats at another, or begin to undertake any obvious military build-up, prior to the onset of a campaign. Military chiefs would therefore be constrained to waging surprise war.

Look at how oil markets have responded to developments in Iran. Commercial sensitivity to regional politics became clear on February 16, 2005, when financial markets panicked amid reports of a small explosion in Bushehr province, which was wrongly assumed to be a foreign missile attack. The sharp price climb in the spring of 2006, as a barrel fetched just over $75, was caused largely by the strength of Iran's nuclear intransigence in defiance of strong UN pressure.

Traits of this form of oil-price warfare were evident in the April 1986 attack by U.S. warplanes on Libya, an oil exporter which was struck without warning on the orders of President Reagan. Such tactics meant that the oil markets, as well as Colonel Qaddafi, were taken wholly by surprise.

Waging surprise warfare does have clear dangers because resources rapidly deployed may be insufficient to sustain more than a single attack or a brief campaign. Against an unexpectedly resilient opponent, like Slobodan Milosevic, such tactics would quickly prove inadequate. Moreover, any country that strikes another without being seen to issue clear warnings is apt to be judged harshly by international opinion and labeled as an aggressor, inflicting serious politcal damage that could perhaps have been averted.

In launching any attack on an oil producer, military tacticians will increasingly seek to pre-emptively seize and secure oilfields and installations prior to making a formal declaration of hostilities, in order to prevent the destruction of such valuable sites by the losing party. Any regime that knows it is losing, or is likely to lose, on the battlefield, can threaten to destroy its oilfields as a way of bargaining with its attacker, or carry out such destruction out of a simple vindictiveness against the winning side. But whereas Saddam Hussein's commanders ordered the destruction of the Kuwaiti fields in early 1991 mainly to distract U.S.-led forces and provide cover during their retreat, in a tight oil market besieged leaders are more likely to take such action as economic retaliation.

It is probably in this spirit, for example, that Venezuelan leader Hugo Chavez has recently claimed that "if the United States attacks, we won't have any other alternative [but to] blow up our own oil fields. They aren't going to take that oil." The Iranians have also threatened to retaliate against the passage of tankers through the Gulf Straits and the region's oil infrastructure if they are attacked by the United States. The emphasis of military planners on the early seizure of oil installations, to prevent such acts of sabotage, became clear during the 2003 campaign in Iraq: Saddam's army had mined some 400 oil wells around Basra and the Al-Fao peninsula, and allied troops prioritized their capture, attacking them within hours of the onset of the campaign, to prevent their destruction.

But in a tight oil market there are much stronger grounds to undertake such assaults pre-emptively, just as the governments to whom the fields and installations belong have a much stronger incentive to bargain with them. A defending side will also be more inclined to make stronger tactical use of these fields in other ways. Knowing that oilfields and installations cannot be bombed by any attacker without wreaking huge economic as well as environmental damage, the military chiefs responsible for defending their homeland will be more tempted than ever before to locate key facilities and personnel in their vicinity wherever possible: nuclear enrichment installations, site locations for weapons of mass destruction and governmental buildings--all of these would be far more difficult targets for any would-be aggressor if they are situated in the midst of a much-prized oilfield. A comparison could perhaps be drawn with the humanitarian value that civilian sites, such as schools and hospitals, had during the Balkan Wars of the 1990s, when they were used as protection from military attack or, in the event of any onslaught, to portray enemies as callous and brutal.

Once any war does break out, the price of oil will also have repercussions on the nature of the campaign that is fought. In a tight oil market, military chiefs are likely to plan for shorter, more intense wars, knowing that the longer a war continues, the greater the threat of any disruption to the flow of oil. Future campaigns would more likely resemble the war against Iraq in 2003 than Kosovo in 1999. Taking allied commanders 78 days to induce the surrender of the Serbian leadership, the air campaign was a relatively protracted affair, characterized by high-altitude bombing that posed little risk to the airmen involved but scored only a relatively low success rate, one of around 40 percent (sometimes much less), against its targets.

But goals, and not just tactics, would distinguish oil-price warfare; any attacking party that tries to minimize the length of its military campaign will also be tempted not just to step up its pressure on the battlefield but also undertake more radical measures against the enemy leadership: A quick knock-out blow against a regime's leadership is of course the most obvious way to ensure surrender, if not the easiest strategy to execute. In the early stages of the campaign against Saddam more than 800 missiles were fired in the opening 48 hours alone in the hope that such a devastating opening barrage would immediately shatter Iraqi morale and infrastructure and bring the war to a quick end. Unlike the Kosovo or Falkland wars--where British and allied troops simply sought territorial concessions--oil-price warfare is more likely to resemble the March 2003 attempt to "decapitate" the Iraqi regime. Any future American attack on Iran, for example, would in all likelihood target not solely nuclear installations, which would still allow the Tehran leadership to order retaliation against U.S. targets in Iraq and elsewhere, but also the entire political order.

Military chiefs would also seek to wage short campaigns in order to finish their business before the times of year when the global oil market is habitually tighter than usual. In the United States, for example, demand for gasoline always reaches an annual high, and often sets new records, as Americans on summer vacation take to the roads. This means that waging any military campaign at this time of year would be significantly more difficult for those countries that are susceptible to any rise in the price of oil.

The annual hurricane season is also likely to have some bearing upon the calculations of American planners after the events of September 2005, when Hurricane Katrina gave dire warning of seasonal risks to the price of oil--Katrina knocked out 95 percent of the Gulf of Mexico's oil production and nearly half the refineries when it tore through the region. Its impact on prices was huge, with oil shooting up to a trading high of $70.85.

Viewed from another perspective, such seasonal fluctuations are also likely to affect the military calculations of oil exporting countries: the anti-American rhetoric and actions of the leaders of two main oil producers, Hugo Chavez of Venezuela and Mahmoud Ahmadinejad of Iran, for example, is likely to become more confrontational during the summer months when the United States would find it more difficult to retaliate. Tehran's heightened nuclear confrontationalism in the summer of 2004, for example, may have reflected the mullah's recognition that Washington was paralyzed not just by the presidential contest but also by sharply increasing oil prices.

Essay Types: Essay