Friday, August 31, 2012

Breaking Down the "Oil War" Hypothesis

A friend recently used the term "War for Oil" when referring to the War in Iraq, and it got me to thinking: regardless of the intent (I will stay well away from that one as I have little to add and nobody wants their minds changed on the matter), did the US secure a significant, reliable source of oil by invading Iraq? Let's find out.

I first went to understand how Iraq's economy has changed since the fall of the Hussein regime. I knew that oil mining contracts went out in 2009, so this helped.

Browsing through Wikipedia brought me upon this great chart (don't worry, I checked the sources), which gives us an idea of whose companies are mining how much:

So the US and UK mine a fairly large amount of oil. Good, but there are a few things to note that change the equation:

1) The US and UK are being paid $2/bbl to mine the oil. While profitable, the oil mining companies bear most of the the costs of mining (including all operations costs) and are likely making somewhere between 1/10 and 1/20 the profit made at other offshore, well, and oilsands sites (this is speculation on my part based on some oil industry experience). So payback in petrodollars is fairly low.

2) The Iraqi government retains the right to sell much of the oil to whomever it wishes--the fact that the US is mining 16% of the oil does not mean that the US will import 1.5 MBpD.

On the other hand, the US is far and away Iraq's largest export partner, accounting for $11B of Iraqi exports in 2006 (according to US State Dept). 70% of the Iraqi economy is oil, so if we assume that oil dominates Iraqi exports, it means that the US is importing $11B in 2006, or 157MBbl at $70/BBL. Let's say that export rate has grown with Iraq, whose economy has about doubled since then. That's about 310MBbl per year or 0.85MBpD. How does this compare to the rest of the US oil economy?

As of 2009, the US imported 10 MBpD and produced 5 MBpD of crude. Assuming we're comparing apples to apples, Iraqi oil imports account for 5.6% of total US oil consumption.

So this looks like a decent amount, but not game-changing. And it's significant, but a few points about the oil market raise some ambiguity as to whether it has a significant impact on the US oil market.

Besides a few embargoes, the oil market is driven by bidding on open market (given different transport capabilities--some stuff is pipeline only, or rail only, some stuff goes out on barges and can go anywhere, which is the case with most Iraqi oil). Different importers (in our case, free-market refineries) will bid for crude oil and import it, turning it around on the gasoline or diesel market to suppliers that you pump your gas from. Iraq does not have any contractual, legal, etc agreement to guarantee the US any amount of oil or at any price (in particular, being part of OPEC means it has the bargaining power to do just about whatever it wants). At the end of the day, the post-war world increased Iraqi oil production significantly, which reduces oil costs for all importers, but the US has not secured a cheap or even necessarily reliable source of oil. The Iraqi government won't enter into any agreements that guarantee US refineries some portion of Iraqi exports--Iraq gains nothing by it. If the Iraqi embargo (from the Hussein era) had remained, the US would simply get its oil from elsewhere at a higher price. Compared to the $800B cost of the war, the cost-benefit doesn't make sense.

If the war in Iraq was designed to secure oil, it ultimately failed... or at least won't pay off monetarily. There's no doubt that world oil production has increased due to the fall of the Hussein regime and the end of the embargo, and this has lowered oil prices for the moment, but the costs of the war will likely far exceed the benefit from lower oil prices. At 15MBpD of consumption, if oil is worth $5/BBL less (which is more than generous given the size of the oil market), the US economy would save about $27B per year. Not including inflation, it would require about 30 years to pay back the cost of the war.

Hopefully, then, the war wasn't considered an oil investment. If it was, it was probably the worst investment the US ever made.

Monday, August 20, 2012

Some Potential Errata on Turkey & Iran

Two quick potential errata I want to point out from the past few posts I've had that relate to Turkey & Iran (I say "potential" because they are not factually wrong, but run somewhat counter to my recent predictions:)

Turkey: The Kurds of northern Syria have won a great deal of autonomy since the Syrian government has pulled back to Aleppo and Damascus. The Kurds seem less interested in being a key part of the opposition (they make up 9% of the population and likely feel that they would be marginalized in the new government), and more likely are looking to set up an autonomous zone like is found in Iraq. Lots of interesting implications if this happens, including the possibility of those two autonomous zones becoming the beginnings of a de facto Kurdish state.

There is a spike of rebel activity in southern Turkey, likely designed to take advantage of Turkish distractions in Syria and to build momentum for the development of a Greater Kurdistan. Initial thoughts suggest that this rebel activity might cause Turkey to reconsider their involvement in Syria, but they are likely "in too deep" to pull back, and may be hoping to turn a win in Syria into a means of containing the Syrian Kurds further.

Iran: I mentioned that the Arab Middle East is, in general, opposed to Iran's influence, but some recent behavior shows this isn't entirely likely:

All worth thinking about. Clearly a fairly complicated region. Looking forward to any thoughts you guys have.

Friday, August 17, 2012

The Syrian Uprising Part IV: Options for Foreign Intervention

Alright: time to pick up right where we left off. Luckily, the timing is good for The Syrian Uprising Part IV: Options for Foreign Intervention.

The outcome of Syria's bloody civil war has powerful implications for the regional balance of the Middle East, and the influence of great powers in the area. Besides simple humanitarian impulses, states with the power to intervene certainly have the interest to do so. Over the past 6 months since last posting, we've seen little in the way of overt action compared to the Liby aconflict, but we have seen a fair amount of diplomatic and covert movement that reveals the motivations and intentions of different states. We'll take a look by state:

Turkey has bet far and away the most on the victory of the Free Syrian Army, openly providing weaponry, sanctuary, and intelligence to the movement. Turkey is waging a very explicit proxy war on Damascus, and is willing to invest the capital and risk to win.

Turkey's motivation is part of a larger strategy to establish dominance over the region. After rejection by the European Union, Turkey turned back to the Middle East, an area that it dominated for hundreds of years until its defeat in the First World War. Turkey's economy and military strength have grown as it has liberalised and accepted foreign investment--at the same time, many of its traditional rivals have been torn by internal conflict and strife (Egypt, Iraq, Syria). Iran remains as its primary rival (Saudi Arabia has great influence as well, though the Sauds are currently in an uneasy alliance with the Turks against Iran), and dismantling the Iranian-backed Assad regime would be a huge blow to Iran's regional power (as an added bonus for Turkey, Iran would lose key supply lines into Lebanon to support Hezbollah). Additionally, Turkey hopes to ally closely enough with the Syrian Opposition that it is able to bake its influence into the formation of a new government.

Really, Turkey has a lot to gain and little to lose--even if the Assad regime should win, it doesn't have the means to retaliate against Turkey (it does not have the influence in the PKK or the financial/military means left to make the Kurds a more serious problem for Turkey). 

The United States:
The US is currently very aligned with Turkey's goals (dismantling Hezbollah and dealing a blow to Iran), so it's allying with the Turks when it might otherwise be quietly trying to make sure that Islamism/Jihadism doesn't take over Syria. The other note about US behavior is that it is trying to set itself up as a long-term "good guy" in the Middle East, and it sees supporting the Arab Spring as a way into the hearts of the inhabitants of the region (in particular, it was "burned" for supporting the Mubarak regime too long in Egypt and doesn't want to repeat that mistake).

Secretary of State Clinton is currently working with Turkey to determine whether it's going to use fighters in a No-Fly Zone over Syria, making US intervention in Syria extremely similar to its work in Libya and neutralizing Assad's jets and attack helicopters. The move would also allow similar scope creep to the Libya mission, in which NATO air units attacked tanks and other ground installations in Syria (under the guise of protecting their own assets). 

Currently, the US is nearly certainly using the CIA to conduct covert operations to support the rebels with advice and intelligence. The CIA is unlikely involved directly in the fighting, but would be able to coordinate airstrikes if Turkey and the US decided to launch their air power in the area. This kind of support could be a turning point in the war, just as it was in Libya. Aleppo would become the temporary "capital" of the opposition, just as Benghazi was. 

Additionally, the United States and Turkey are actively and publicly discussing the Syria "post-game," should the regime fall (which Turkey and the US are at least calling inevitable). This open discussion publicly declares that the US will be helping Turkey extend its influence into Syria in order to stabilize it and make it relatively friendly... without the US needing to get caught up in the dirtier details of the operation.

The Arab States:
The OIC (Organization of Islamic States) has booted Syria from the group over its response to the uprising, and the Arab League has called on Assad to step down. Much of the reasoning here is likely to show their own people that they don't support oppressive regimes (as this would likely spark unrest in their own states), but many of the Arab League states (Iraq, Kuwait, Saudi Arabia, Oman, Qatar, and Bahrain primarily) have a similar desire to see Iran weakened. 

Saudi Arabia and Qatar have openly declared that they are arming and funding the opposition. They have the option to become further involved if there is external military intervention. These two states represent the Arabs' most concerted efforts to be able to exert influence in a post-war Syria, in part to keep Turkish influence limited.

Iran's motivations are made clear by the behavior of its enemies, above. Iran currently feels ganged-up-on. It is. Iran is short on "legitimate" allies and Syria is one of its last. Iran would lose almost all influence in the Mediterranean if Syria fell and was replaced by an unfriendly regime (which would be almost certain). 

Iran has stood by Syria throughout the civil war, and will continue to do so until the end. Because there is essentially no chance of an Iran-friendly regime arising in Syria, Iran does not need to hedge its bets--it is all-in with the Assad regime.

To that end, Iran is providing Syria with what weapons and funding it can to keep the regime together. Odds are good that Iran has also sent black flag militias to supplant Syria's more regular forces. Iran's best hope is a crushing victory in Aleppo that gives the government an opportunity to get its feet back under itself.

Russia has a naval base in Syria and thus a great deal to lose if an unfriendly regime should arise--Russia's support of the Assad regime so far would make this likely should Assad fall. While Russia does not depend entirely on Syria for Mediterranean access (it has Sevastopol in Ukraine), it is a key port by which Russia remains relevant in the Middle East. 

Russia has stopped providing weapons to Syria (it was previously), but it has deployed warships to the area. These ships are unlikely an attempt to stop a No-Fly Zone--US and allied fighters would launch from Syria (rather than the sea), and any attempt at an air war with US forces would end quickly and badly for the Russian military. More likely, these ships are in part symbolic, in part designed to defend the base should it come under attack, and in part a means of evacuation for Russian troops and Syrian VIPs, if necessary. Unlike the US, Russia almost certainly cannot field forces directly in the area--while the US would be halting the sorties of an unpopular regime, Russia's only options are to attack civilian populations.

Russia's best hope to keep the Syrian regime alive is to use diplomatic pressure to prevent direct US/Turkish intervention. There is a fair chance that the Syrian government's current siege in Aleppo could break the back of the opposition, given no direct military attacks on the forces that give Assad an advantage--namely, major hardware. 

Israel's best move in the short term is to hold onto the Golan Heights and otherwise stay out of the war. It obviously has a great interest in seeing Hezbollah lose its primary sources of support, and to see a major weakening of military strength in its north. 

The greatest risk of any Israeli movement (or comment) on the matter is diplomatic: new regimes with Islamist influence (Iraq, Egypt, Libya) are still figuring out how they'll interact with the Israeli regime, and Israel's primary strategy with these states is to give them every reason to be friendly.

In the post-game, the biggest risk for Israel will be the potential proliferation of chemical weapons into the hands of Jihadists that are part of the opposition forces. Israel is preparing to enter Syria if needed to secure them. Ideally, this would be left to Turkey or one of the Arab states, but Israel would be willing to take the diplomatic blow in order to make sure these are safe. 

China's primary motivator will continue to be (as it has been since the Civil War) the preservation of the right of the state to manage its internal affairs. China has little interest in the Assad regime directly, but we'll see it continue to oppose direct foreign intervention, because China sees the conflict as internal, and therefore not something which other states have a right to interfere with. Historically, this is important for China because of its "Century of Shame," where foreign domination had China on its knees until the Communists won the civil war in 1949. China's own need to potentially deal harshly with internal unrest, as well as a simple historical sense of insecurity, make its position on the Syria matter fairly straightforward. 

International Jihadists:
Foreign fighters have flooded quickly into Syria, hoping to take down the largely secularist Baath party and influence the installation of an Islamist or Jihadist government there. Currently, despite regional and Western fears of Jihadist influence, they only have serious power in Somalia (elsewhere, they are a frustration for individual states but are not in control of any real resources), and Syria would be a win that could set up a second base of operations. Frankly, Turkey and Israel are very unlikely to stand for it, and will likely intervene further if there is a Jihadist takeover.

It's worth keeping in mind that regime change would have long-term implications that not all actors may be considering as closely as they should. If we cite George Friedman's The Next 100 Years, he predicts that Turkey will successfully expand its influence throughout the Middle East (and eventually the Balkans) to become the United States' primary rival. To support Turkey's relative takeover of Syria would hasten that--or at least make it more likely. Additionally, the promotion of the legitimacy of outside intervention in regime change may come back to haunt the West, as actors like Russia or Iran cite Western-built precedent for their own regime-change operations. There is significant risk for the US and other Western states investing in changing the Syrian regime, but certainly short-term upside in pushing back Iran's expanding influence. 

Foggofwar's Status

Dear Readers,

I've been delinquent in giving you an explanation for both the lack of posts and the travesty that has adopted my former domain name. Here's the short version:

After changing credit cards, my auto-renew with Godaddy wasn't working...
Godaddy kindly emailed me, but it ended up in the spam folder...
I lost the domain name and it was picked up by whatever spam / blogmill service now owns it.

Sadly, they're taking advantage of all the links to the old domain to get traffic. What's particularly heinous is they're under the very transparent guise of trying to help PTSD sufferers. This is fairly disgusting. My request for any of you linking to the old site: please kill the links or change your them to link here, Losing the traffic is painful, but seeing these guys succeed is tragic.

Anyway, there's good news: after some melancholy about the whole issue (in which I more or less gave up and just stopped posting), I've been convinced to get back at it.

So we're going to rebuild Foggofwar. As long as you guys want to keep reading, I'll keep writing. My ops consultant alter ego keeps me fairly busy, so don't expect posting frequency like the glory days of 2008/2009 for some time...

But we're back. Tell your friends.

--Erik, for Foggofwar.