Why The Middle East Still Matters To The United States

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Does the United States still need to be involved in the Middle East? For decades now, the United States has been constantly involved in the affairs of Middle Eastern Nations. Be it for oil security, human rights, fighting terror or keeping allies in power.

But as times are changing and the US has become a major player in energy production, questions are arising as to the merit of the United States foreign policy in regards to the Middle East.

Middle Eastern Oil: Perception And Reality 

The recent shale revolution in the United States has prompted some experts to claim that the U.S. no longer needs to be involved in the Middle East, because it’s no longer reliant on foreign oil. Although this is partially true, there are myriad reasons why the U.S. must continue to be involved in the region to protect vital interests that could have an enormous effect on U.S. policy both foreign and domestic.

It is true that the United States is less dependent on oil from the Middle East, but a recent Pew Study poll found (Graph and source below) that most Americans are completely oblivious to that fact. Politicians constantly claim that the U.S. needs to either find renewable energy sources or drill for oil at home to prevent being economically beholden to the Middle East.

These tactics are a great way for politicians on both sides to score political points, but the claims are not based in fact. They are effective, however, and The University of Texas recently published a poll showing that 58 percent of Americans believe that most U.S. oil comes from Saudi Arabia, and another 15 percent believe it comes from Iraq. Only 15 percent think that the largest share of U.S. oil comes from Canada and Mexico.

Where does the US Get Their Oil? Perceptions Vs Reality 

Image Source:  Realclear

In actuality, 39 percent of U.S. oil is imported from Canada and Mexico, and only 22 percent comes from Iraq and Saudi Arabia. This false perception is important on a number of levels, but most importantly, it paves the way for misguided energy and foreign policy regarding the Middle East.

A more knowledgeable electorate would be able to take a sober look at policy, make better decisions, and elect leaders that can actually craft viable policies regarding the Middle East. So you may be asking, if the U.S. doesn’t get that much oil from the Middle East, then why is it important? Well, there are a number of reasons, and some of them still revolve around the oil industry.

Middle Eastern Oil And China Could Destroy US Interest Rates 

It is true that the U.S. economy is not as reliant on Middle Eastern oil as it was twenty years ago, but the Chinese economy is totally dependent on oil from the region. And as oil is traded for the most part as a spot market, a decrease in supply from the Middle East would result in higher prices for US consumers to import energy from Canada, Mexico and Venezuela.

However on the other end of the spectrum US energy producers would benefit from increased prices, but the US is still a net importer of energy even if it is coming from Canada as opposed to the ME.

China is also a major holder of U.S. treasury bills, so if their economy takes a big hit due to instability in the region, then the U.S. economy will feel the effects in terms of bond prices, rates would rise and the US would face massive liabilities in terms of increased interest rates on the massive debt load accumulated by successive governments from both sides of the political aisle.

China is the world’s largest energy consumer and accounts for over 20 percent of the world’s consumption. Its rapid growth has forced it to import over half of the oil it needs, and it is estimated that China’s energy demand will expand 75 percent in the next 25 years.

Image Source: Financialsense

Petroleum Is Bought And Sold In US Dollars, No Matter Who Is Purchasing It

Even though China has emerged as a major player in the energy industry and is the number one purchaser of Middle Eastern oil. Almost every barrel of oil sold in the world is sold in US dollars.  The dollar has been the reserve currency since the 1944 Bretton Woods agreement. The U.S. was able to enact this policy because it had the world’s largest gold reserves at the time and the dollar was freely exchangeable with gold.

This is no longer the case. The dollar has been significantly weakened since the agreement was signed. This is due in some part to the financial crisis of 2008, the subsequent policy of zero interest rates, and the depletion of the nation’s gold reserves. Alongside the Federal Reserves stated aim to devalue the dollar by 2% yearly.

Many experts believe that the dollar is no longer viable as the sole major reserve currency. The only thing currently keeping it secure in its role is the U.S. government’s relationship with Saudi Arabia. How? Saudi Arabia ensures that petroleum is bought and sold only in US dollars, no matter who is purchasing it. Saudi Arabia has the ability to ensure that oil is sold in dollars though its massive market share of world oil sales, but also through its influence over the oil cartel OPEC who control over 81% of the worlds proven oil reserves.

How did this agreement take place? The US government has a strong relationship with Saudi Arabia, in the late 80’s it was about securing a steady flow of oil to the US, and in return the US would defend Saudi sovereignty, and help to keep the royal family in power.

But after gold was removed as a backer against the dollar, the US needed to cement the position of the dollar as the major reserve currency of the world. After all, it was the backing of gold of the dollar in post the World War II era that gave countries confidence to hold excess income in dollars.

Therefore, Reserve status is now propped up by ensuring that all oil is sold in US dollars, creating a demand for the dollar and this is where the phrase Petro-Dollar comes from.

If the Saudi government ever falls, then the dollar falls with it and the United States will be pushed into a financial crisis the likes of which has not been seen since the Great Depression.

The U.S. must stay involved in the region and insure the safety of the Saudis and their allies if they hope to prevent a catastrophic dollar and then market collapse.

Benefits And Drawbacks Of Being The Reserve Currency

  • Savings in Transaction Costs – The US purchases most of its goods in dollars, substantial savings are made from not having to convert currency. There are also Forex risks that are avoided.

  • High demand for US dollars and bonds overseas results in lower interest rates, meaning the US government and private business in the US can borrow money at a cheaper rate then other similar countries without the reserve currency.

  • High demand for the dollar, increases the price of the dollar, meaning it is cheaper for the US to import goods from overseas. However this also makes it more expensive to export goods.

  • As large amounts of dollars are held by foreign governments, the US can print significant amounts of dollars, and part of the subsequent inflation is passed onto foreign governments

  • Triffin dilemma– To maintain enough supply of US dollars to meet international demand the US must retain a trade deficit.

Terrorism Isn’t Going Away

Houthi Rebels-Image Source: Mashable

Yemen is currently a nation in shambles. A civil war between the elected government and Houthi rebels has torn the country apart and destabilized the region. If the Houthis ever take full control, then a small group of Shiites will be governing a majority Sunni population and the violence will undoubtedly get worse before it gets better.

Al Qaeda in the Arabian Peninsula (AQAP) is based in Yemen. It is also considered perhaps the al Qaeda affiliated group that poses the greatest threat to the West. AQAP and former leader Anwar al-Awlaki were responsible for some of the most heinous terrorist attacks and attempted attacks on the West since 11 September 2001. A few of the most notable incidents include:

Terrorist Attacks Attributed To Al Qaeda in the Arabian Peninsula (AQAP) Based in Yemen

  • Umar Farouk AbdulMutallab, also known as the “underwear bomber” who attempted to blow up a commercial airliner in Detroit trained with AQAP in Yemen.

  • The Boston Marathon bombers claimed to have been inspired by al-Awlaki and AQAP

  • Nidal Hassan who carried out the Fort Hood shooting also claimed to be inspired by al-Awlaki and AQAP’s message.

  • Cherif Kouachi studied at AQAP training camps in Yemen before participating in the Charlie Hebdo massacre.

The Yemeni Civil War has given AQAP space to grow as they are recruiting new members at a rapid pace. Yemen is not the only hotbed for terrorism in the region. However, it provides a perfect example of the risks associated with the U.S. not playing a diplomatic role in the region. The U.S. needs stable regimes in the Middle East that are willing to help fight against terrorist threats to insure its own security.

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 The Suez Canal

The Suez Canal changed the world when it was opened in 1868. It is a 100-mile man-made link between Europe and Asia that is absolutely vital to the world economy. About 2.5 million barrels of oil travel through the canal every day and it is involved in about 8% of global trade.

Image Source: Inkleinedtoteach

If anything were to ever happen to the Suez Canal, large portions of the world economy would completely shut down. Governments around the world understand its importance, and one of the world’s oldest active treaties guarantees that the canal will always be open to ships from every nation.

Growing unrest in the Sinai Peninsula and the Suez Region has put the security of the canal at risk, however, and the global community must come together to make sure it can remain open.

The Furqan Brigades, a militant group in Egypt’s Sinai Peninsula, have the threatened the canal in recent years. They have launched multiple attacks with rocket-propelled grenades that have damaged cargo and ships, and contributed to a feeling of unease in the country. This is troubling; because of the massive damage a shutdown of the canal would do to the U.S. and world economies.

Progress in Biomedical Research

Too often, we focus solely on terrorism and oil when discussing the Middle East. This is most likely a product of what we read in the papers and see on television newscasts. There is a lot more to the region, however, and it’s important to focus on some of the positive aspects of the Middle East. Scientists in the region have made great strides in the field of biomedicine in the last few years and continue to be leaders in treating and curing disease. Just a few of the recent developments include:

  • On 9 September 2015, Turkey will open its first international biomedical and genome center which will work to develop cures for diseases like bird flu and Crimean-Congo Hemorrhagic Fever.

  • A Palestinian doctor in Gaza recently developed a stethoscope that can be manufactured via a 3D printer for $0.30 and works as well as the most expensive models in the world.

  • The Qatari Bio-medical Institute has been set up to fund research into Diabetes, Cancer, Neurological diseases, Genomics and Computational Biology, These are some of the most important medical issues to help solve, all of which cost the US healthcare system fortunes to treat, resulting in a heavy burden on US citizens.

These advancements may prove vital to the future of medicine not only in the Middle East but in the world. Everyone must realize that there are other aspects of the region that are positive for the world, and stop focusing solely on terrorism and oil.

The Muslim Diaspora Is Huge

The Middle East is not one and the same with the Muslim world. In fact, if you look at the map below, you will see that there are far more Muslims in Indonesia, Pakistan, India, and Bangladesh than there are in the Middle East.  The map shows a weighted distribution that makes countries appear larger based on the Muslim percentage of their population. 

Muslims from all over the world face towards Mecca when they prey, and have a a profound link to the holy cities around the Middle East, it is important to remember that a significant proportion of the 1.5 billion Muslims from all around the world care deeply about what happens to the holy cities of the Middle East, in particular Mecca and Medina in Saudi Arabia.

Weighted Distribution Of Muslim Population Across The World. (2009)

Image Source: Pewresearch

This is important to keep in mind when thinking about U.S. policy towards the Middle East. Policies have ramifications that affect Muslims that may even be living in your city. Feckless policies in the Middle East can have a devastating impact on your neighbors, so it is important to support an intelligent and sober approach to the region.

So, why does the Middle East matter to the United States? It matters because we live in an increasingly global society and the Middle East is one of the major players on the world stage – not only because of their oil reserves and the threat of terrorism, but because these countries are made up of people trying to prosper, be secure, and improve global society.  

A Middle East collapse will be a grave threat to the safety, security and way of life of every U.S. citizen. It is important for Americans to understand the region and promote policies that are beneficial to both the Middle East and the United States.

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