The Shale Gas and Oil “Revolution”: Strategic Implications for United States Policy in the Middle East
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For decades, most analysts and policymakers have argued that the US policy in the Middle East has largely been driven by
Washington’s — and the world’s — need for oil and natural gas supplies from the region. In the last few years,
technological advances — the so-called shale revolution — have drastically changed the US’ energy outlook. Instead of
being a major oil and gas importer, the nation is becoming self-sufficient and even an exporter of these fuels. This essay
seeks to examine the strategic implications of these new dynamics on Washington’s policy in the Middle East and how oil and
gas producers in the region are reacting.
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Headnote
For decades, most analysts and policymakers have argued that the United States policy in the Middle East has largely been
driven by Washington’s – and the world’s – need for oil and natural gas supplies from the region. In the last few years,
however, technological advances – the so-called shale revolution – have drastically changed the United States’ energy
outlook. Instead of being a major oil and gas importer, the nation is becoming self- sufficient and even an exporter of
these fuels. This essay seeks to examine the strategic implications of these new dynamics on Washington’s policy in the
Middle East and how oil and gas producers in the region are reacting.
Key Words: Shale gas; Energy security; Arab-Israeli peace process; Nuclear proliferation; Gulf Cooperation Council.
Like that of other countries, the United States’ foreign policy is designed to pursue perceived national interests. The
nation has the world’s largest economy and since the end of the Second World War has played a major role in promoting
global free trade and investment. Global and American economic development and prosperity have been closely connected for
decades. Modern economies run on energy, particularly oil. Crude oil and the various petroleum products have been rightly
described as the lifeblood of modern civilization. For a long time the United States was the world’s largest oil consumer
and importer. China is the world’s second-largest consumer of oil and is projected to move from the second-largest net
importer of oil to the largest in 2014.1 Economic recovery in Europe and Japan in the aftermath of the Second World War was
fueled by cheap oil, mainly from the Middle East.
The International Energy Agency (IEA), in its latest World Energy Outlook (WEO), projects that the Middle East, the only
large source of low-cost oil, “remains at the center of the longer-term oil outlook.”2 Analysts at the IEA argue that
demand for mobility and for petrochemicals will keep oil consumption on an upward trend, though at a slower growth pace.
This projected rising global consumption will largely be met by Middle Eastern producers.
British Petroleum’s projections and analysis echo those of the IEA. According to the latest Energy Outlook, fossil fuels
(oil, natural gas and coal) lose share in global energy consumption by 2035, but remain the dominant form of energy “with a
share of 81%, compared to 86% in 2012.”3 Among exporting regions, the Middle East remains the largest net regional energy
exporter, but its share “falls from 46% in 2012 to 38% in 2035.”4
As the current and projected dominant oil and gas producer and exporter, the Middle East enjoys several advantages. First,
the region holds approximately 52.5% of the world’s proven oil reserves and 47.3% of the natural gas.5 Second, for
geological reasons, production costs are the lowest in the world. Third, the Middle East has well- established energy
infrastructure that includes pipelines, terminals and other production and shipping facilities. Finally, the region is
strategically located close to large consuming markets in Asia and Europe. This means easy and cheap access to these large
and growing consuming markets.
Despite these geo-political and geo-economic advantages, political and economic upheavals have raised concerns in the
United States (and other countries) about over-dependence on the Middle East. Some American policymakers and analysts argue
that the recent and unexpected rise in the nation’s oil and gas production will reduce energy vulnerability. Washington,
the argument goes, should reduce its involvement in and commitments to Middle Eastern oil and gas producers. The decades-
old dream of “energy independence” is finally within reach. Energy self-sufficiency remains a politically powerful
objective in the United States and a key priority for a large segment of the public and policymakers.
This hyper-excitement aside, this essay acknowledges that the United States is in a better position economically and
strategically vis- à-vis energy producers, including those in the Middle East. It’s access to oil and gas is less likely to
be disturbed by political tremors in other parts of the world. Still, a number of factors should be taken into
consideration. Global energy markets are well-integrated. It does not matter much who buys and who sells a barrel of oil.
Any interruption of supplies to Asia and Europe would tremendously and negatively impact the U.S. economy. The U.S. imports
a relatively small share of its oil needs from the Middle East, but its interest is less about how many barrels flow to the
US and more about the overall accessibility and stability of supplies on which the world economy depends.
On the other hand, Middle East producers have articulated and are pursuing strategies to reduce their economic dependence
on oil and gas revenues and the U.S. market. They are diversifying their energy mix (oil, gas, renewable and nuclear) and
energy-export destinations (mainly increasing exports to China, India, Japan and South Korea). While it is true that
securing the non-interruption of oil supplies at low prices has been a major driver of American policy in the Middle East,
it is also true that Washington pursues other important objectives in the region. These include the security of Israel, the
non-proliferation of weapons of mass destruction (WMD), and counter-terrorism.
Accordingly, this essay argues that the United States will continue its involvement in the Middle East, though with more
bargaining power and leverage, and the regional producers will maintain their efforts to maximize their advantages and
reduce their dependance on income from energy. The two sides need each other. In the following section I discuss the
substantially promising U.S. energy outlook. This will be followed by an examination of Middle Eastern producers’
strategies to strengthen their energy and economic ties with Asian markets and to diversify their energy mix away from oil.
Finally the concluding section highlights some of the strategic areas of mutual interest between Washington and its allies
in the Middle East, particularly the Arab-Israeli peace process and nuclear non- proliferation.
The United States Energy Outlook
Over the last several years, the United States energy outlook has substantially improved, mainly due to two overlapping
trends – falling demand and rising production. Energy efficiency and slow economic growth are the main factors driving
stagnant or declining oil and gas consumption. Generally, Americans live in smaller homes, buy more efficient cars and
drive shorter distances than a few decades ago. The international financial crisis of the late 2000s has further slowed
economic growth and reinforced a decline and stagnation in energy consumption.
On the other hand, the recent expansion of US oil and gas production is principally a story of rapid and continuous
technological development over several years, rather than of a single technological breakthrough. The application of a
combination of horizontal drilling and hydraulic fracturing (fracking) has allowed wider access to oil and gas in shale and
tight formations where the density of the rock has blocked migration of hydrocarbons to oil and gas reservoirs. Simply
stated, water, sand and chemicals are injected into the horizontal borehole of the well at very high pressure to fracture
the shale rocks and release the gas. These technologies were first applied together commercially in 1991 in the Barnett
shales of northwest Texas. The practice has subsequently been developed and has proliferated rapidly over the last few
years. Since 2005 it has been applied to the large Bakken shale resources in North Dakota, the Eagle Ford in west Texas,
the Marcellus in Pennsylvania and elsewhere.6
It is important to point out that a number of specific conditions helped to drive the “shale gas revolution” in the United
States, most notably a favorable geology. Much of America’s shale yield high levels of very valuable liquids, like crude
oil, as well as gas. The ability to extract these liquids, produced as a byproduct of shale gas operations, has tended to
make the economics of American shale operations favorable despite low domestic gas prices. The geological know-how
underpinning the success of drilling was the product of government- funded research which was later shared with and further
developed by private oil companies. In other words, the shale revolution is the product of a successful partnership between
the government and private sector. Until recently shale operations were dominated by a network of small entrepreneurial
companies. In recent years giant companies became convinced that there is too much profit not to be involved and decided to
join the “revolution.” Finally, property rights make any extracted shale gas the property of the landowner, “incentivizing
private owners to tolerate the disruptions caused by shale operations.”7
As a result of these technological advances, oil and gas production has surged in the last few years. In 2012 there were
1,919 active drilling rigs in the U.S., more than the rest of the world combined.8 Little wonder, the IEA predicts that by
2020 the U.S. will surpass Saudi Arabia to become the largest oil producer in the world.9 The Energy Information
Administration (EIA) makes a similar projection, “The U.S. liquids production remains at or above 11.5 million barrels per
day (m b/d) from 2013 through 2040, peaking at 12.8 (m b/d) around 2020 and settling at 11.7 (m b/d) in 2040.10 The rise in
gas production is even more astonishing. A few years ago plans were made to build liquefied natural gas (LNG) importing
terminals. By 2012 the United States has emerged as the world’s largest gas producer (more than 20% of world’s total). This
large and rising production is a major driver of the low gas price in the United States and the rest of the world in recent
years.
The combination of the surge in US oil and gas production on one hand and the improved energy efficiency on the other hand
means the United States is less dependent on imported fossil fuels from the Middle East or any other producers. It means
Washington is less vulnerable to political and economic upheavals in the Arab world and enjoys more freedom in pursuing its
strategic objectives. This increase in US leverage puts pressure on oil and gas producers to respond and counter this
emerging energy landscape. The decades- long unwritten pact “oil for security”, it seems, has run its course.
Reaction from the Gulf States
Since the first “oil shock” in 1973, when Arab oil producers imposed an embargo on the United States for its support for
Israel, Washington’s dependence on oil supplies from the Middle East has substantially ebbed. The reasons are obvious: a
relatively slow rate of economic growth, and rising concern about climate change and pollution, and improved efficiency. On
the other hand, most of these strategic, economic and environmental forces have been less powerful in shaping the emerging
Asian markets’ energy outlooks. China, India and South Korea (and other Asian powers) have had some of the fastest growing
economies in the world and the highest energy consuming rates.
The center of gravity has moved east. Asian powers need Middle Eastern oil and gas to fuel their fast-growing economies and
Middle East producers need markets for their main product and source of income. In recent years most of the oil shipments
from the Gulf Cooperation Council (GCC) states (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates)
have gone to Asia. Saudi Arabia exports more oil to China than to the United States. Asia has rapidly become the main
trading partner for the GCC States. These growing trade ties with a developing Asia have been accompanied by intensified
bilateral investment relations. China, in particular, is seeking to boost its energy security via strategic investments in
the region. Chinese national oil companies are playing a growing role in oil and gas operations all over the Middle East.
The GCC States, on the other hand, have also discovered the opportunities stemming not only from growing Asian markets for
energy but also from other industries such as finance and telecommunication. Another significant area of mutual cooperation
is the large labor force from Asia, especially from the Indian subcontinent. Migrant workers account for a large and
increasing share of the population and of foreign workers in the GCC, and send substantial remittances back to their home
countries every year.11
In addition to this re-orientation of energy and broader economic ties to the East, the GCC States have recently drafted
strategies to reduce their heavy dependence on oil and gas. The uncertainties in the fossil fuels markets, environmental
concerns and the desire to build diversified economies and generate jobs are the major forces driving these strategies. Oil
and gas are finite commodities. The more dependent the Gulf States are on oil and gas revenues, the more vulnerable they
are to the uncertainties in global markets, including those created by the “shale revolution.”
The Middle East’s huge reserves mean that the region is not likely to run out of oil or gas any time soon. This conclusion,
however, does not guarantee the region’s economic prosperity or political stability. In recent years, a combination of
population explosion, high rate of economic growth, and heavy government energy subsidies has led to a surge in energy
consumption all over the Middle East. Indeed, the region has one of the highest energy consumption rates per capita in the
world.
This surge in energy consumption has negatively impacted the region both environmentally and economically. Several Middle
Eastern cities are among the most polluted in the world (largely due to the burning of cheap oil). At the same time, rising
consumption means less oil and gas available for export. Despite efforts to diversify their economies away from oil and
create other sources of national income, most Middle Eastern countries are still heavily dependent on oil (and to a lesser
extent gas) revenues. This means that higher consumption leads to less export and shrinking revenues. These shrinking
revenues could open the door to socio-economic and political uncertainties and turmoil.
In addition to these environmental and economic consequences, Middle Eastern leaders understand that oil and gas are finite
resources. Like the rest of the world, most Middle Eastern countries have joined the global search for alternative sources
of energy. The two most promising sources are nuclear power and renewable resources. In recent years several Middle Eastern
governments have taken significant steps to utilize energy derived from alternative sources. In the short term, the Middle
East region, like the rest of the world, is likely to remain dependent on oil and gas. However, in the long term, the
development of alternative sources of energy is likely to enhance the region’s energy security, leave more oil and gas for
export, contribute to reducing pollution, and make the region less vulnerable to the uncertainties associated with the
“shale revolution.”12
Strategic issues
Oil and gas are not only economic commodities, they are also strategic ones. In the last few years the United States energy
outlook (current and projected production) looks very promising. The nation is becoming less dependent on foreign supplies.
This has given policymakers more freedom in pursuing relations with oil and gas producing nations. At the same time one
should not overestimate the impact of shale revolution. Washington still shares significant strategic interests with its
allies in the Middle East. Oil has always been a major driver of American policy in the Middle East, but it is not the only
one. The Arab-Israeli peace process and nuclear non- proliferation (among others) are major goals.
The Arab-Israeli peace process
The United States was the first country to recognize Israel as a state in 1948. Since then, Israel has become America’s
closest partner in the Middle East. The U.S.-Israeli bilateral relationship is strong and anchored by over $3 billion in
Foreign Military Financing annually. In addition to financial support, the U.S. participates in a high level of exchanges
with Israel, to include joint military exercises, military research and weapons development. In addition, the United States
is Israel’s largest single trading partner. The two countries have had a free trade agreement since 1985. Finally the U.S.
and Israel coordinate scientific and cultural exchanges through the Bi-national Science Foundation, the Bi-national
Agricultural Research and Development Foundation and the U.S.-Israel Education Foundation.13
According to the Department of State, the United States is committed to realizing the vision of a two-state solution to the
Israeli- Palestinian conflict: an independent, viable and contiguous Palestinian state as the homeland of the Palestinian
people, alongside the Jewish State of Israel.14 In July 2013 the Israelis and the Palestinians began negotiations on a
final status agreement between the parties. April 2014 was set as a deadline to reach an agreement. Secretary of State John
Kerry has made reaching a framework agreement between the Israelis and Palestinians one of his top priorities and has been
a frequent visitor to Israel, Jordan and the West Bank since he took office. Despite intense American pressure and
involvement, the parties have failed to meet this deadline.
A significant blow to the peace talks began when Israel refused to free the 26 Palestinian security prisoners scheduled for
release in late March 2014, citing the Palestinian Authority’s refusal to first commit to extending the talks beyond their
end of April deadline. In response, the Palestinian Authority declared that it considers itself relieved of its commitment
not to seek recognition from international institutions and officially asked that the State of Palestine become a signatory
to 15 international conventions. In response to these negative developments the Obama administration decided to re-evaluate
its role in the peace process. Secretary Kerry stated, “There are limits to the amount of time and effort that the U.S. can
spend if the parties themselves are unable to take constructive steps.”15
Arab states share with the United States the vision of a two-state solution to the Arab-Israeli conflict. After four wars
with the Jewish State (1948, 1956, 1967 and 1973), the Arab states presented a peace plan known as the Arab Peace
Initiative (API). This was first proposed by then Crown Prince Abdullah bin Abd Al-Aziz of Saudi Arabia in 2002. In the
following years Arab summits and the Arab League endorsed the API. Generally the United States accepted the API as a
framework for Arab-Israeli negotiations. The Initiative calls for Israeli withdrawal from the territories it occupied in
the 1967 war, the establishment of a Palestinian State with East Jerusalem as its capital and a satisfactory agreement on
the right of return to the Palestinian refugees. In return, Arab states offered full recognition and normalization. In
other words, Israel will be accepted and integrated in the regional Middle Eastern system. Israel has neither accepted not
rejected the API. Arab countries, the United States (and other global powers) have called on the Israeli government to
accept the parameters of peace as outlined in the API.The recent efforts to reach a peace agreement between the
Palestinians and Israelis suggest two conclusions. First, it is true that the United States considers Israel its closest
ally in the Middle East and the two nations share significant common interests and values, but it is also true that U.S.
interests and policies are not identical to those of Israel. Second, despite ups and downs in the negotiations, the United
States is strongly committed to helping the parties reach a diplomatic solution to the conflict. A peaceful solution would
serve the U.S. national interest. The shale gas revolution and a promising energy outlook will not diminish or weaken
American commitment and involvement in the Arab-Israeli peace process. Rather, they will reduce the U.S. vulnerability to
the fluctuation in oil prices and changes in oil policies. The recent discovery of large reserves of natural gas and oil in
the Eastern Mediterranean similarly strengthens Israel’s position in this respect.
Nuclear non-proliferation
The non-proliferation of weapons of mass destruction (WMD), particularly nuclear weapons, has been a major goal of U.S.
foreign policy for decades. American officials and most analysts believe that the more nuclear weapons states there are,
the more likely that these deadly weapons will be used. Global peace and security, the argument goes, will be enhanced by
eliminating these deadly weapons. In the Middle East, Israel is widely believed to be the only nuclear weapons state in
this area, though it has never confirmed or denied having these weapons.16 However, the controversy over Iran’s nuclear
program has occupied a central stage in international and regional policies for most of the last two decades.
Since the early 2000s the United States has accused Iran of seeking to build nuclear weapons. Iran categorically denies
these accusations. Like his predecessors, President Obama has repeatedly stated that “all options are on the table”,
meaning that a military strike should not be ruled out. However, more than all his predecessors, President Obama has been
able to enlist other countries’ support in imposing strict and comprehensive economic sanctions on Iran. In 2013 President
Ahmadinejad’s second term ended and President Hasan Rouhani succeeded him. The election of Rouhani has fundamentally
altered the dynamics of nuclear negotiations between Iran and the global powers, the so-called 5+1 (i.e. the United States,
Britain, France, Russia, China and Germany
In November 2013 the two sides reached an interim agreement to address major concerns over Iran’s nuclear program. The
agreement will expire in July 2014 and is likely to be extended. The goal is to give the negotiators enough time to reach a
permanent agreement. It is hard to speculate whether the negotiators will succeed or not. Still, the interim agreement,
meetings between top US diplomats and their Iranian counterparts, and the phone call between President Obama and President
Rouhani are significant developments in the relations between Washington and Tehran. Indeed, these were the first direct
contacts between top officials from the two nations since the 1979 revolution in Iran.
Officially the GCC States have endorsed negotiating a peaceful solution to the nuclear crisis. However, many newspapers and
several members in the royal families expressed concern over what they see as a “rapprochement” between Washington and
Tehran. For a long time the GCC States have been fearful of a potential deal between the United States and Iran that would
weaken the special relations they have with Washington. In March 2014 President Obama visited Saudi Arabia to assure its
leaders that an American-Iranian understanding will not be at the expense of the GCC States and that the special
relationship will remain special. The President confirmed that the United States will not accept a “bad deal” with Iran.
Although the Saudis voice support for the international negotiations to limit Iran’s nuclear program, they worry that
Washington is not doing enough to limit Tehran’s growing influence in the region. It will take some time to assess if
President Obama has succeeded in maintaining the Saudi trust in U.S. policy in the Middle East in general and in his
administration in particular.
To sum up, nuclear non-proliferation and in particular preventing Iran from acquiring nuclear weapons have been key
American objectives in the Middle East for decades. The United States is certain to continue investing substantial efforts
and political capital in pursuing these goals. The positive energy outlook is not likely to impact the U.S. strategic
interest in preventing nuclear proliferation and stopping Iran from becoming a nuclear weapons state.
In closing, two points are worth highlighting. First, in recent years U.S. energy efficiency has improved, consumption has
declined and production has risen. The nation’s energy outlook looks much better than it has in the past half century. The
shale revolution, however, still is restrained by environmental and geological uncertainties. The United States is becoming
less vulnerable to interruption of oil and gas supplies but it would be an overstretch to talk about energy independence.
In the twenty-first century global economy, no country can be independent. Whatever happens in major consuming countries
like China, India and Japan and in major producing countries like the Middle East, Russia and Canada will have an impact on
the American economy. Second, it would be a mistake to explain American foreign policy in the Middle East only by the drive
to secure cheap oil and gas supplies. True this is an important driver, but it is not the only one. The United States has
always pursued multiple objectives. This is not likely to change. For good or bad, Washington is certain to remain involved
in Middle Eastern policy.
Footnote
1 Energy Information Administration, China: Country Analysis Brief, available at http://www.eia.gov. Accessed April 1,
2014.
2 International Energy Agency, World Energy Outlook, Paris, 2013, p.4.
3 British Petroleum, BP Energy Outlook 2035, London, 2014, p.17.
4 Ibid, p.21.
5 British Petroleum, BP Statistical Review of World Energy, 2013, pp.6 & 20.
6 John Mitchell, US Energy: The New Reality, available at http://www.chathamhouse.org. Accessed May 28, 2013.
7 Paul Stevens, “Why Shale Gas Won’t Conquer Britain,” New York Times, January 14, 2014.
8 Leonardo Maugeri, The Shale Oil Boom: A U.S. Phenomenon, Cambridge: Belfer Center for Science and International Affairs,
Harvard University, available at http://belfercenter.ksg.harvard.edu/publication/23191/shale_oil_boom.html. Accessed June
20, 2013.
9 International Energy Agency, World Energy Outlook, Paris, 2012, p.4.
10 Energy Information Administration, International Energy Outlook, Washington DC, 2013, p.35.
11 Kevin Korner, Oliver Massetti and Maria Laura Lanzeni, The GCC Going East, Deutsche Bank Research, available at
http://www.dbresearch.com. Accessed February 14, 2014.
12 Gawdat Bahgat, Alternative Energy in the Middle East, London, Palgrave Macmillan, 2013, p.2.
13 United States Department of State, U.S. Relations with Israel, available at http://www.State.gov/r/pa/ei/bgn/3581.htm.
Accessed March 10, 2014.
14 Ibid.
15 Matthew Lee, “Kerry: Mideast peace talks not open-ended,” Associated Press, available at http://news.yahoo.com/kerry-
mideast-peace-talks-not-open- ended-111930885-politics.html. Accessed April 4, 2014.
16 For more details see Gawdat Bahgat, Proliferation of Nuclear Weapons in the Middle East, Gainesville, FL: University
Press of Florida, 2007.
AuthorAffiliation
Gawdat Bahgat*
National Defense University, Washington, DC
* Address for communication: Dr. Gawdat Bahgat, Near East South Asia Center for Strategic Studies, National Defense
University, Washington, DC, gawdat.bahgat@ndu.edu
Word count: 4285
Copyright Council for Social and Economic Studies, Inc. Summer 2014