Articles and Commentaries |
July 2, 2022

The Politics of Oil: Changing Geopolitical Alliances in West Asia

Written By: CA Krishnan

West Asia has been a cradle of civilisation as well as birthplace of the Abrahamic religions and oldest known empires. Its strategic location at the junction of Asia, Africa and Europe combined with the world’s largest oil deposits gives it a dominant position in global geopolitics. Over 92% of the population in the region follow Islam. Maritime choke points of Suez Canal, Strait of Hormuz, Bab el-Mandeb Strait and the Turkish Strait lie within the region. A third of the global oil and about 16% of worlds natural gas today comes from West Asia. Notwithstanding its huge oil assets, West Asia has remained a cauldron of turmoil arising out of the deep Shia-Sunni rift, terrorism, incessant sectarian conflicts, tussle for Islamic world’s leadership and global power-play.

During first half of the twentieth century, a cartel of seven integrated Western oil companies, the ‘seven sisters’, controlled the oil fields and oil markets across the world. They, in turn, also exercised control over the oil producing countries and their politics[1]. Very little of the wealth generated was shared with the host countries. These oil companies exercising immense power, often acted as instruments of their parent countries. After decades of being exploited, in 1960, governments of Saudi Arabia, Kuwait, Iran, Iraq and Venezuela came together and formed the OPEC (Organisation of the Petroleum Exporting Countries) seeking a say in issues related to the oil being extracted from their countries. OPEC, today, influences global oil prices by controlling its volume in the market. Although OPEC member countries hold 81% of the world’s proven oil reserves, as of now, they account for only about 40% of world’s oil production[2]. US, Russia, Canada, Mexico, Brazil and Norway are major non-OPEC oil producers. In 1974, the advanced oil consuming economies formed IEA (International Energy Agency) to represent their interests. IEA member nations are required to store the equivalent of at least 90 days’ worth of oil, based on their previous year’s net oil imports so as to retain a collective capacity to respond to major unforeseen supply disruptions[3].

Politics of oil encapsulates many dimensions such as control of production and cost, supply chains, security of the oil fields, regional security and the global geopolitical scenario. ‘Oil for Security’ is a common arrangement in the region. It is an arrangement where oil producing countries are provided protection in exchange for oil related benefits. Security cover provided to Saudi Arabia, Kuwait, UAE and Qatar are examples.

US is the biggest oil producer in the world today. 65% of its oil production in 2021 came from shale oil extraction. The average break-even cost of oil extracted from new US shale oil wells is believed to be between USD 46 to USD 58 per barrel, with the lowest being about USD 30 and the highest going up to USD 90 in some cases[4]. In comparison, the cheapest oil from Saudi Arabia’s ‘conventional’ deposits cost under USD 10 and the average production cost of oil from onshore fields in West Asia is about USD 31 per barrel. As a consequence, shale oil firms operate under very little price margins and often slip into unprofitable zone. This factor plays a lesser known, but important role in the politics of oil.

Another important dimension of the global oil market is the petrodollar system. Petrodollar system requires countries which need to buy oil to trade in USD only. This keeps the dollar in high demand. It also ensures demand for US treasury bills, provides a steady stream of credit for US government and gives certain degree of protection to the USD from inflation[5]. Although baby steps to move away or at least diversify from using dollar as the sole currency for foreign trade are visible, creating an alternative would be no easy task. As of now, USD accounts for about 80% of all global foreign exchange transactions, which is a whopping USD 6.6 trillion a day[6]. In comparison, Saudi Arabia’s oil sales to China and India in 2021 amounted to USD 8.2 billion and 3.1 billion respectively.[7] At an average price of USD 100 per barrel, the pre-Covid level global oil exports of about 70 million barrels per day would generate an annual global petrodollar supply of about USD 2.5 trillion[8]. To pose any significant challenge to USD, there has to be a major shift away from using dollars by a much larger number of countries. EU’s aspiration for non-dollar trade was evident from its attempt to establish INSTEX (Instrument in Support of Trade Exchanges) for trade with Iran[9]. Limited non-dollar oil trade is being carried out between Saudi-China, Russia-China, India-Iran, India-Russia etc. Considering the US dollar’s extensive use, well established credentials and deep roots, the petrodollar system is unlikely to face any major threat in the near future[10].

Oil accounts for 33% of global energy demand followed by coal at about 27%. Oil’s dominant position combined with limited sources, problems of storage and the petrodollar dynamics gives oil a dictating status in geopolitics. Energy security and energy independence are also issues which cast shadows on the politics of oil. Energy security implies secure supplies at stable prices regardless of the source. Energy independence, on the other hand implies either self-sufficiency or restricting energy dependency only on certain preferred suppliers by carefully excluding ‘unfavourable’ regions, avoiding certain vulnerable modes of transportation, routes etc. For example, China would prefer a source like Russia whose supply cannot be interdicted at sea. Energy independence may imply paying a higher price[11].

Natural gas with its close linkages to oil, accounts for about 23% of global energy mix[12]. While oil markets are global in nature, markets for natural gas are generally regional. This is because transportation by pipelines is the preferred option for natural gas to avoid the need to first liquify it and reconvert into gas later. EU’s heavy dependency on Russia for natural gas is a consequence of this. This phenomenon also restricts the supplier’s flexibility to switch customers because gas contracts typically lock-in longterm price, factoring in amortisation of the cost of pipeline and its maintenance.

Ukraine crisis has further increased the global dependency on West Asia for oil. Coming so close on the heels of the pandemic, it has wrecked the global economy. The crisis has cast its complex shadow on West Asia also. Oil exporting countries like Saudi Arabia, UAE, Kuwait and Oman are reaping windfall of the energy price hike and are well placed to meet the impact of Ukraine war. But Supply chain disruptions in oil, gas, food grains, edible oil and fertilisers are causing havoc in terms of price hike, inflation and food security on the “fragile and conflict-affected” countries like Syria, Yemen, Iraq, Libya and Lebanon. They confront very negative consequences and are staring at run-away inflation, severe food insecurity and worsening humanitarian crisis[13].

The Saudi-Iran struggle for dominance, exacerbated by the Shia-Sunni divide, lies at the centre of West Asia’s problems. Saudi and its supporters apprehend Iran trying to establish a land corridor extending from Iran to the Mediterranean[14]. Foot prints of the two rivals are clearly visible in conflicts raging across the region. External forces led by US are also in the fray in the Saudi-Iran rivalry. The latest US State Department briefings indicate that while there is a general belief that Iran has enough enriched material for making nuclear weapons, US and its partners are working hard to get Iran to agree to a “mutual return to compliance with the JCPOA”[15]. Iran seems closer than ever to becoming a nuclear power. Ukraine’s plight in the ongoing crisis would only have strengthened Iran’s resolve to go nuclear. If it indeed happens that way, Saudi, Israel and UAE may feel compelled to follow suit, making it difficult to visualise how events will pan out in such a scenario. Saudi Arabia is subjected to constant threat by Iran backed Houthi rebels. Saudi blames Iran for cyber-attacks and subversion of its Shia population. They also feel threatened by pro-Iranian militias in Iraq and radical Sunni elements of ISIS. Iran’s missile and unmanned aerial vehicle capability covers the whole of Saudi Arabia. Saudi is also frequently subjected to strikes from Iraq and Yemen-based rebel groups. The Aramco strike clearly demonstrated Saudi Arabia’s vulnerability. Situation in Yemen is another major security concern for Saudi Arabia. According to a SIPRI report, during 2017-2021, Saudi Arabia and India were the largest arms importers in the world[16]. 80% of Saudi military hardware is sourced from US. Despite its significantly higher defence budget, except for a slight edge in airpower, Saudi Arabia lacks a seasoned, battle tested armed force and appropriate combat infrastructure to challenge a military threat from Iran[17]. In terms of maritime security, Saudi Arabia is ill equipped to guard its oil producing coastal areas, it’s ports and the vulnerable choke points of Bab el-Mandep and Hormuz. Even in hybrid and proxy capability, Iran enjoys a clear advantage over Saudi. This leaves Saudi Arabia totally dependent on US for its security. Realisation of the larger implications of this vulnerability and the subtle shift seen in the US West Asia policy may have caused the recent Saudi overtures for rapprochement with Iran and even Israel. Amidst all this, Saudi Arabia also seems to be weighing its options in case Iran goes nuclear[18].

Yemen has been in severe turmoil since 2011[19]. Iran backed Houthi rebels challenge attempts by Saudi-US for dominance in Yemen. Factions backed by US, Saudi, Russia, UAE and Iran as well as elements of ISIS and al Qaeda are active in the country. With over 75% of its population living in poverty, Yemen is passing through one of the worst humanitarian crisis ever. Close to 400,000 people are estimated to have died and over 4 million people displaced. The UN brokered ceasefire has just been extended by another two months till 2 August 2022. But no lasting solution is in sight.

Syria is another victim of domestic fissures and intense global power rivalry. Pro and anti-regime forces have been at war since 2011. While the Assad regime is dependent on Russia and Iran for its survival, Saudi, Qatar and Turkey are aligned with the US against the regime. Hezbollah, ISIS, Al Qaeda and the Kurds are also active in Syria. Suspected locations of Iran backed groups are frequently subjected to Israeli bombings. Of the 22 million pre-war Syrian population, an estimated 6 million have been internally displaced with another 6 million fleeing abroad. More than 80% of the population live in poverty[20]. Turkey has over 3 million Syrian refugees while Lebanon, a country of just 4.5 million population, is struggling with one million Syrian refugees. Turkey has threatened to launch military operation into Syria to establish a 30 km security zone in Northern Syria to counter Kurdish rebels and to relocate the Syrian refugees in Turkey.

Lebanon, with 27% Shias, 27% Sunnis and 21% Roman Catholics has always been captive to sectarian conflicts and witnessed a civil war from 1975 to 1990. The post-war respite ended with commencement of the Syrian crisis in 2011. Huge refugee influx, rampant corruption and an unprecedented financial crisis has made the situation worse. Israel perceives constant threat from Lebanon and regularly resorts to military strikes. Hezbollah and militias supported by Syria and Iran are active in Lebanon. The country has dived deeper into crisis after the massive Beirut Port explosion in August 2020 that killed more than 200 people and destroyed parts of the city[21]. As per World Bank, between 2019 and 2021 Lebanon’s GDP has contracted by over 58%[22]. Prolonged turmoil has inflicted long lasting scars on Lebanese society.

War ravaged Iraq’s political system remains deadlocked after the October 2021 parliamentary elections with no consensus between political parties owing allegiance to different Shia, Sunni and Kurd factions. ISIL and Daesh are also active. March 2022 witnessed Iranian missile strikes on suspected ‘Israeli strategic centres’ within Iraq. Turkey launches regular attacks against Kurdish groups in Northern Iraq.The simmering Kurdish movement spanning border areas of Turkey, Syria, Iraq and Iran defies a solution, adding yet another dimension to the West Asian turmoil. Iraq has been facing successive intense droughts combined with soil degradation and frequent sand storms. To make things worse, Turkey is planning to build 22 dams along Tigris and Euphrates rivers near their border with Syria and Iraq[23]. This would cause severe water crisis in the already water starved region and is a potential flash point. It is also a pointer to the unimaginable consequences of climate change and water crisis, looming large over the entire region.

Amidst all this, during second half of 2020, US facilitated signing of the Abraham Accord between Israel, Egypt, Jordan, UAE, Bahrain, Sudan and Morocco. The accord is expected to pave the way for Saudi Arabia and Oman also establishing diplomatic relations with Israel. While it holds out potential for ushering in peace and stability in the region, it further complicates the Iran issue.

Less than a year after the Abraham Accord, another new grouping emerged, referred to as the ‘Western Indian-Ocean QUAD’, comprising Israel, India, UAE and the US. It signals recognition of the Western Indian-Ocean as a strategic maritime theatre and also preempts any possible Chinese initiatives to forge maritime alliances in the region.

China presents a basket of irresistible economic benefits to West Asia through its Belt and Road Initiative (BRI). In January 2022, Syria became the 20th Arab country to join BRI[24]. 1/3 rd of China’s energy comes from GCC countries. China is already the largest investor and trading partner with the West Asian region. Islamic countries have displayed great prudence by putting aside their religious sensitivities to keep Uighur suppression a non-issue. Beijing has invested USD 10.5 billion in 2021 in BRI related projects in Iraq[25]. Syria’s BRI dream includes the ambitious ‘Five Seas Vision’ integrating Syria, Turkey, Iran and Iraq and linking the Mediterranean, Black Sea, Red Sea, Persian Gulf and the Caspian Sea. For Iran, the USD 400 billion 25-year Sino-Iranian Comprehensive Cooperation Plan was followed by grant of full membership of SCO. Egypt, Saudi, Qatar and Turkey are already SCO dialogue partners. West Asia is not just an energy provider for China but also an important export market[26]. China was Turkey’s second biggest trade partner in 2021. However, despite all this, involvement of Saudi, UAE and Oman in BRI has been minimal so far. A huge share of China’s ambitious plans for West Asia span countries in turmoil which makes a near normal and stable environment in these areas an imperative for its success. Who will provide this comfort to China? US and allies are unlikely to oblige. Despite its increasing economic and diplomatic footprints, China, on its part has not shown any inclination to be a security provider in the region or to play a bigger role in the regional politics. She has also not shown much interest even in assuming a leadership role in extending humanitarian assistance and financial aid in the region. It is as if China wants US to continue playing the security provider role while China pursues its economic agenda undisturbed.

In the West Asian milieu, a security provider will be required to become part of the regional security equation and will be called upon to take clear position on many complex regional issues and even intervene militarily, when required. So far, US has been willingly shouldering this role. It is paradoxical that even China’s energy flow from West Asia had been enjoying protection of the US 6th and 7th fleet[27]. US is now clearly signalling its intention to step back from being the primary security provider in the region and is nudging regional alliances to fill the void[28]. Abraham Accord, Western Indian Ocean QUAD, Turkey reaching out to Saudi, Iran reaching out to Saudi and UAE, ceasefire efforts in Yemen etc appear to be in consonance with the new US approach. With this subtle toning down of its role, US is forcing China to step in and assume a security providers role in West Asia. This has created a dilemma for China. After all, China has to weigh many issues. It is still only an upper middle-income country striving to become rich before it gets ‘old’. Today, she stands without a single strategic ally. Also, China still lacks adequate skills and experience to effectively project military power far away from its own coast through globally dispersed, multinational and battle tested combat and logistics elements and the requisite command and control structures. There is a clear danger of China over-stretching itself if it takes on the security providers role in West Asia now. It is also possible that there are other actions of higher precedence, closer to its own shores in China’s bucket list now.

It is evident that while the global power-play in West Asia is set to continue, the regional fault-lines only seem to be widening. Excerpts from a recent book by former diplomat, Talmiz Ahmad states, “After a hundred years, not a single Arab state provides for any modicum of popular participation in state decision-making. National financial accounts remain non-transparent and without accountability. Though oil wealth is depleting, its revenues are still used to back state efforts at co-option and coercion—the latter now becoming more open, more crude, more vicious… and more frequent”[29]. Similar views were voiced by a former International Affairs Editor of Financial Times, stating “Arab despotism, far from being an effective barrier to Islamism, is an assembly line for manufacturing jihadi extremists. That is unlikely to change”[30]. Conflicts rage unabated across the region in Iraq, Syria, Libya, Yemen, and Lebanon. Saudi Arabia, Iran, Turkey, UAE, and Israel are all active participants through proxy factions. Iran seems determined to go nuclear. West Bank, East Jerusalem and Gaza strip remain contentious with simmering tension, making the Palestine problem seem unresolvable. Russia has more or less steered clear of any intervention or military support in the region except for its support to the Assad Regime in Syria[31]. After its bitter experience in Iraq and Afghanistan, US seem to be stepping back from its role as the prime security provider in West Asia. However, it retains military bases and significant capability in the region and continues to play an active role through proxies in almost every conflict in West Asia. Saudi Arabia remains a major US ally, especially against Iran. Iran remains isolated. Afghanistan and Pakistan reflect mirror image of the West Asian turmoil on the region’s Eastern periphery. Across its Western periphery, the situation in Libya is no different. West Asia remains a fertile ground for islamist terrorist groups like ISIS, ISIL, al Qaeda, Hamas, Hezbollah etc. Hidden under the affluence of the oil exporting West Asian countries is the discomforting fact that about 2/3rd of West Asia’s 325 million people lives in conflict ridden, dangerous and poverty-stricken areas straddling Iran, Iraq, Syria, Yemen, Lebanon and Palestine. West Asia has very little to offer in terms of human resource, infrastructure, technology, manufacturing or agriculture. As the world moves away from fossil fuel to clean energy, this void could increase West Asia’s woes. A Reuters report of 2015 quotes Mahmoud Solh of the International Center for Agricultural Research in the Dry Areas (ICARDA) stating “The Middle East currently imports about USD 35 billion of food annually, and this looks set to rise to USD 70 billion in two decades as climate change impacts crop yields and the population rises”[32]. With large parts of the region reeling under severe humanitarian crisis and widespread poverty, millions have been internally displaced. Europe is struggling to cope with the prospects of huge refugee influx from West Asia. Much of Europe’s Eastern and Southern border has been turned into one “huge arc of crisis”[33]. As far as United States is concerned, its remoteness from the region keeps it insulated from the fallouts, much like the position it enjoys in the ongoing Ukraine crisis in Europe.

West Asia is a significant source of remittance for countries like India. India’s ties with the region are long-standing. However, India is only beginning to explore West Asia’s huge ‘beyond oil’ bilateral trade potential, spread across IT products and services, pharmaceuticals, engineering goods, automobiles, footwear, tea, leather, agriculture & horticulture products, medicare, tourism and participation in infra projects by Indian companies[34]. To exploit this potential, India will need to tide over constant turbulence caused by regional rivalries and global power-play in the region. The Comprehensive Economic Partnership Agreement (CEPA) signed in Feb 2022 with UAE is a good beginning in this regard. India is also beginning to attract significant investments from West Asia[35].

Geopolitically, world’s focus has shifted to Ukraine and Europe. Even the humanitarian crisis in Afghanistan, Libya and Sri Lanka have fallen off the radar. While the oil exporting countries of West Asia are reaping benefits, Ukraine war has pushed the other countries in the region deeper into crisis. Poverty, food shortages and humanitarian crisis will only get worse for them in the days ahead. Rest of the world seems to have reconciled with a West Asia mired in perpetual conflict, as long as it does not exceed the low-grade threshold. Geopolitics may undergo major changes if China decides to assume a security provider’s role in the region. But China does not appear ready for it as yet. Iran may soon get pushed deeper into the eye of the storm. Having herded the hesitant and drifting NATO back into the stable and whipped it into a strengthened, cohesive military alliance, US may be tempted to turn NATO’s attention on Iran after cessation of Ukraine hostilities or after it ‘successfully’ degenerates into a simmering self-sustaining conflict. Whichever way, for West Asia, it is going to be business as usual with ‘conflicts and turmoil’.

Author Brief Bio: Lt Gen CA Krishnan, PVSM, UYSM, AVSM (Retd), is a former Deputy Chief of the Army and a former Member of the Armed Forces Tribunal. He has been on the Board of Directors of Bharat Electronics Ltd and Bharat Dynamics Ltd, two of India’s leading public sector undertakings manufacturing defence equipment. He is a prolific writer with numerous published articles on a wide variety of subjects like strategic issues, Rare Earths, Space mining, Energy etc.


[1]Thomas Herold in Economics, Investments, Trading, Financial Terms Library (

[2] (

[3] Jason Fernando, International Energy Agency, 5 Feb 2021 (

[4] Andrew Beattie, Shale Oil vs Conventional Oil: What’s the Difference?

[5] Jerry Robinson,The Rise of the Petrodollar System: “Dollars for Oil”, 23 Feb 2012, (


[7] Prof Noah Zerbe, (


[9] The Hindu, 1 Dec 2019 (

[10] Biswajit Dhar, “Is increasing non-dollar trade a death knell for globalisation?, Money Control, 5 Apr 2022, (

[11] Anand Toprani, A Primer on the Geopolitics of Oil, 17 Jan 2019, (


[13] The Takeaway: Ukraine War Worsens Middle East Oil Gap, Al Monitor, 20 Apr 2022 (

[14] Jonathan Marcus, “Why Saudi Arabia and Iran are bitter rivals”, BBC News, 16 Sep 2019, (

[15] Department Press Briefing 31 May 2022, (


[17] Global Fire Power, (

[18]“Saudi Arabia will develop nuclear weapons if Iran does”,Reuters, 15 March 2018, (

[19] Yemen Crisis Explained, UNHCR, (

[20] Why has the Syrian War Lasted 11 Years?, BBC News, (


[22] World Bank Press Release, 30 May 2022, (

[23] Connor Dilleen, Turkey’s Dam-Building Could Create New Middle East conflict, Maritime Executive, 6 Nov 2019, (,supplies%20in%20Turkey’s%20southern%20neighbours.)

[24] Cynthia Chung, “West Asia Transforms: Twenty Arab States in China’s BRI sights”, 26 Jan 2022, (

[25] Zvi Mazel, “China’s Growing Economic Impact on the Middle East”, Economy, 21 April 2022, ( )

[26] Debbie Mohnblatt, “China seeks Silk Road Revival through heavy investment in Middle East”, The Jerusalem Post, 1 May 2022, (

[27] China’s Growing Role in the Middle East, Carnegie Endowment for International Peace, 11 May 2022, (

[28] Jeffrey Feltman et al. “The new geopolitics of the Middle East: America’s role in a changing region”, (

[29] (

[30] David Gardner, “Autocracy has filled the ideological vacuum in the Middle East”, Financial Times, 28 Sep 2021, (

[31] Mark N Katz, “The Russian Approach to Middle East Conflicts and the Arab World”, IED Mediterranean Year Book 2016, (


[33] The Economic Times,”Mideast in shambles, but the world has moved on for now”, 23 Sep 2021,(

[34] Anubhav Gupta, “India’s Evolving Ties with the Middle East, Asia Society, 8 Aug 2019, (

[35]  (

Latest News

Leave a comment

Your email address will not be published. Required fields are marked *

seventeen + 13 =