The Changing Energy Landscape: The Persian Gulf and South Asia

Abstract

Journal of South Asian and Middle Eastern Studies Vol. 41, No.4, Summer 2018 The Changing Energy Landscape: The Persian Gulf and South Asia Gawdat Bahgat* Since the dawn of the twenty-first century the broad Middle East has witnessed fundamental overlapping changes that are likely to have significant implications on the entire region and the rest of the world for a long time. Oil prices were mostly high up to 2014. High prices meant massive accumulation of revenues in the coffers of producing countries. This massive wealth has been transformed into political muscles, and leverage. Saudi Arabia was able to use its then, growing economy and oil revenues to establish itself as a major regional power. Two other developments contributed to Riyadh’s ascendency. First, traditional Arab powerhouses like Egypt, Syria, and Iraq have grown poorer and weaker. Their relative weakness has left a ‘power vacuum’ in the Arab world. With its large economy and strong Arab/Islamic credentials, Riyadh is well positioned to claim leadership of the Arab world. Second, for decades most Saudi monarchs were old and adopted very conservative policy both at home and abroad. Since 2015, the young Crown Prince Muhamad Bin Salman (MBS), has consolidated his power and established himself as the de-facto leader. Under his leadership the Saudi domestic and foreign policy has become much more assertive than in previous decades. Domestically, MBS has challenged the religious establishment and other members in the royal family. Regionally, he started a war in neighboring Yemen and imposed embargo on Gulf Cooperation Council (GCC) fellow Qatar. In 25 *Gawdat Babgat served as a professor of political science at Indiana University of Pennsylvania from 1995 to 2009 where he also was the Director of the Center for Middle Eastern Studies. In 2006–07 he earned the Distinguished Faculty Award for research. Bahgat has published numerous books, chapters, and articles on various subjects including oil politics, nuclear proliferation and the Persian Gulf and Caspian Sea regions. His works have been translated in several languages. In 2010, Bahgat began teaching at the National Defense University in Washington, D.C. 26 short, since 2015 MBS has established himself as one of the most influential (and controversial) leaders in the entire Middle East. On the other hand, Iran, another major energy powerhouse, has witnessed key geo-economic and geo-strategic changes. Since the mid1980s , Tehran has been accused of seeking to acquire nuclear weapons. Iran has always categorically denied these accusations. Several rounds of negotiations failed to bring a successful diplomatic conclusion. This failure made Iran subject to severe and comprehensive US, EU, and UN economic sanctions. These sanctions dealt a heavy blow to the country’s hydrocarbon sector, but failed to slow the nuclear program. With the election of President Hasan Rouhani in 2013 the political dynamics in Tehran have changed. Iran successfully negotiated a nuclear deal (known as the Joint Comprehensive Plan of Action JCPOA) with global powers. Accordingly, the nuclear-related sanctions have been lifted. Though Iran has never been completely isolated, since the implementation of the JCOPA (January 2016) relations with foreign powers (minus US) have grown tremendously. Tehran has enjoyed growing economic and strategic interactions with most Asian and European powers. As a result Oil and gas production has risen and the Islamic Republic economic outlook is promising. Despite significant challenges, Iran has grown more confident and more assertive both economically and politically in the last few years. This paper is divided into three sections. The first one examines the key changes in the global energy outlook, followed by a discussion of how Riyadh, Tehran, and other Middle East producers have responded to these changes. The concluding section addresses the implications on South Asia region, particularly China, India, and Pakistan. The Emerging Global Energy Landscape For several decades, oil has been the dominant source of energy around the world and Middle Eastern producers have been the main force shaping production and prices. The birth of the oil industry is generally attributed to the famous well drilled for oil in 1859 by Colonel Edwin L. Drake at Titusville, Pennsylvania.1 In addition, it is claimed that F.N. Semyenov was the first to drill a well...