National Security

America's Real Strategic Petroleum Reserve

Is relying on Saudi Arabia in times of war a smart tradition or future folly?

As oil prices ticked above $115 per barrel last week, a White House leak revealed that President Barack Obama may dip into the Strategic Petroleum Reserve (SPR), the United States' 695 million barrel stockpile of emergency fuel supplies. The leak might have been a signal that Washington wants Gulf countries to take action to lower oil prices. It might also have been an attempt to wring the risk premium out of current prices by reassuring the market that America won't let a potential war with Iran shut off the spigot. The one thing we can say for sure is that the announcement highlights two interrelated problems with U.S. energy policy: that every president since Ronald Reagan has used Saudi Arabia as his de facto SPR and that there exist no clear standards for when to dip onto the actual SPR. Both problems have the potential to bite us -- badly.

Over the years, the United States has been surprisingly reluctant to release SPR during times of crisis, preferring instead to let Saudi Arabia handle the problem by simply increasing its production. For decades, in fact, U.S. presidents have been able to count on the Middle Eastern petro giant to pre-release oil in anticipation of times of war. For example, Riyadh flooded the market ahead of the first Gulf War and, though many do not remember, it also put extra oil on the market ahead of the U.S. invasion of Iraq in 2003. Saudi Arabia even increased its oil production after the 9/11 attacks, which badly strained U.S.-Saudi relations. Likewise, this spring, when the Obama administration was debating whether or not to release the SPR ahead of the tightening of sanctions against Iran, Saudi Arabia helpfully boosted its production above 10 million barrels per day, causing oil prices to fall more than $10 a barrel and eliminating the need for the White House to make a firm decision.

But relying on Saudi Arabia, while politically convenient, is not without risks. The most obvious is that the Saudis have come under increased pressure -- both internal and external -- as a result of their longstanding oil-for-security alliance with Washington. Iran has warned its fellow Gulf producer not to make up the slack resulting from American and European sanctions, threatening direct retaliation if it does. Saudi Arabia isn't taking any chances. In recent months, it has arrested prominent Shiite dissidents -- always suspected of possible ties to Iran -- and doubled the number of Saudi National Guard forces in the Eastern Province, home to the vast majority its 2 million-plus Shiite citizens as well as the close to 90 percent of its oil production.

Oil markets might have taken solace in Saudi preparedness until rumors surfaced of an assassination attempt aimed at the kingdom's intelligence chief, a move purported to be a revenge killing by Iran for similar assassinations of senior military leaders in Syria. The rumors proved to be false, but like much of the region's murky political intrigue, it moved markets and served as a reminder that a tit-for-tat game of high level assassinations is not out of the realm of possibility. The oil implications of this unpredictability are clear: It will be hard to keep global oil markets calm in the coming weeks and months. Deaths of rulers can change dynamics overnight virtually anywhere in the region, and Israel's defense policy remains an ever-present black swan. Saudi Arabia's own rumored pursuit of new nuclear-style ballistic missiles from China adds an additional layer of uncertainty about a nuclear arms race in the region.

America's ability to fall back on the Saudis is further imperiled by the inherent instability of the kingdom's political and economic system. Saudi Arabia is going to need more and more oil revenue just to keep its population from growing restive. Riyadh-based Jadwa Investment predicts that Saudi Arabia will be forced to run budget deficits from 2014 onwards, even at a break-even price forecast of $90.70 per barrel in 2015. Other forecasts are even bleaker in the medium term, estimating the breakeven price at $110 a barrel in 2015. Either way, the kingdom's thirst for cash is likely to mean that U.S. and Saudi interests diverge. The oil-for-security deal between the two countries has destabilized the kingdom in the past by igniting support for al Qaeda in the Arabian Peninsula and it could be used again by agents of internal opposition groups. Moreover, the recent pro-democracy upheavals in Egypt, Syria, and above all Bahrain are bound to influence U.S.-Saudi relations over time in ways that are hard to predict.

For the time being, these risks have been at least temporarily mitigated. Recent leadership successions in the senior ranks of the Saudi security apparatus (defense, interior, and intelligence) and the common interest in containing Iran has brought Saudi oil policy closer in line with White House goals -- at least for now. Saudi oil shipments to the United States have been on the upswing this year -- a reversal of previous policy that favored sales to China -- and the kingdom, together with Kuwait and the United Arab Emirates, has stockpiled oil in ships off the coast of Al-Fujairah, outside the critical shipping chokepoint of the Strait of Hormuz, and added emergency crude oil stocks in China, Japan, South Korea, and Rotterdam. This coordination helped keep oil prices from spiking when Western countries tightened the sanctions regime against Iran's oil industry. The extra Gulf crude was aimed not only to wean Asian and European buyers off Iranian oil but also to give the United States (or even Israel) more economic leeway for a military strike against Iran's nuclear facilities in the event that diplomatic negotiations stalled out. But as more and more Iranian oil comes off the market and the specter of military action intensifies, the impact of these significant moves is wearing off.

But if Obama's trial balloon reveals the dangers of treating Saudi Arabia as a de facto emergency stockpile, the absence of concrete standards for releasing the real SPR will also make the president's job harder. There exists no defined mechanism to trigger a release, and each time it seems to make sense, the United States winds up initiating a cumbersome, time-consuming diplomatic process of negotiations with foreign allies and the International Energy Agency (IEA) that often over-politicizes the result. Moreover, the actual process of getting the oil from the reserves to the pump isn't instantaneous. It takes weeks after the announcement of an SPR sale for the U.S. Department of Energy to collect bids and award sales volumes. Then, the buyers have to schedule oil with nearby pipeline companies, so by the time the oil actually reaches the refineries and is processed into gasoline another several weeks will have passed. Thus, releasing stocks after a major crisis is a losing strategy -- better to plan ahead to shape the marketplace.

There is no question that the United States should get more oil onto the market, not only because prices have been rising but also because the war drums are beating again over Iran. But within the constraints posed by poorly designed energy policies, the president has made it harder for himself by adopting a non-committal approach. The optimum utilization of strategic oil stocks requires broad diplomatic coordination, a transparent policy, and well-articulated procedures. In 1991, that coordination was well advertised months in advance and markets knew what to expect. As a result, the oil-price impact of the Gulf war was small (by today's standards) and short-lived, and its impact on the U.S. and global economy was muted compared with other similar crises.

Where the oil markets are concerned, the president's coy, "see what you can get first" negotiating strategy with Western and Middle East allies might be less than useful. Transparency and planning are what takes volatility out of prices. In days gone by, a photo-op of senior U.S. and Saudi officials shaking hands was enough to convince the markets that oil would be there in a crisis. In the volatile post-Arab Spring world, however, this style of oil diplomacy can no longer be implemented without unexpected political consequences -- suggesting that the United States needs to shift its thinking about how it manages the SPR and oil crises in general. The time to revise the trigger mechanism for the SPR is now, before we hit a major crisis. Dithering only helps our enemies and puts the global recovery at risk.

That said, there is no wrong answer for when to time an SPR release. Given how long the process takes, an early release now means that markets would be physically well supplied by the time a possible war breaks out, potentially muting the impact on prices then. If the president waits, however, and announces perhaps an even larger release at the time of a crisis, it could have greater psychological power to move prices sharply lower all at once. The only wrong policy is to be indecisive. Having no policy means that market participants cannot plan whether to build commercial inventory or not. It gives speculators free rein and increases the chance American consumers will pay unnecessary fuel-risk premiums.

The geopolitics of the Middle East has likely changed forever as a result of the Arab Spring, and the United States has neither the resources nor the power to put Humpty Dumpty back together again. We must acknowledge this fact and forge an emergency oil stocks policy that fits 21st-century realities. Not only does Washington need to break its habit of falling back on the Saudis, it needs clearer definitions for the goals and mechanisms of an SPR release. It should also consider requiring U.S. refiners to hold a mandated minimum level of gasoline inventories (as is done in Europe and Japan) to ensure that Americans have immediate supplies of fuel in the event of a major oil disruption from the Middle East. Such domestic fuel stocks proved invaluable to Japan in the aftermath of the Fukushima nuclear crisis last spring. A more transparent and effective strategic stocks policy would not only better protect the U.S. economy in times of oil-market uncertainty, it would also give America more freedom of maneuver in the new Middle East.

MANDEL NGAN/AFP/Getty Images

Argument

The Meles Inheritance

Ethiopia's late dictator antagonized his country's Muslims for years. His successors may pay for it.

When Meles Zenawi, Ethiopia's leader for more than two decades, died this week, he was mourned by many as a "stable" force in a chaotic region. South African President Jacob Zuma praised him for "lifting millions of Ethiopians out of poverty" while British Prime Minister David Cameron remembered him "as an inspirational spokesman for Africa on global issues", who had "provided leadership and vision on Somalia and Sudan." Microsoft founder Bill Gates even praised him as "a visionary leader who brought real benefits to Ethiopia's poor."

Ethiopians themselves have more complicated feelings about the late prime minister. Yes, the country emerged as a regional power and one of Africa's most dynamic economies under his rule, but Ethiopians also saw Meles crush political opponents, surround himself with yes-men, muzzle the free press, and purge dissenters even from his own party.

His death has been as controversial as his tenure. Meles, 57, had been missing since June 26, the last time he was seen in public before his demise. Officials dismissed earlier reports that he had died, insisting instead he was vacationing or on doctor-prescribed sick leave. The state of his health and an ensuing power struggle within the ruling party has been a subject of online speculation for the last two months.

Meles's death also comes at a moment when Ethiopia is witnessing an unexpected and hitherto unknown phenomenon: popular protests. For the last eight months, hundreds of thousands of Muslims have been nonviolently protesting a series of religious decisions by the government and a quasi-independent religious council. How the government handles the protests could affect the fragile transition.

Ethiopian Muslims, who make up a third of the country's 94 million people, began demonstrating in the capital in January, after students at the country's only Islamic university, the Awolia Institute, walked out of classes to protest a proposed curriculum change mandated by the government and the removal of some teachers. The students accused Ethiopia's government of imposing the teachings of Al-Ahbash, a foreign sect with Ethiopian roots but better known in Lebanon.

Al-Ahbash is a supposedly moderate Sunni sect founded in Lebanon in 1930 as a philanthropic project and reorganized into a religious movement in 1980s by followers of exiled Ethiopian Muslim scholar Abdullah ibn al-Habashi, who was forced out by Emperor Haile Selassie's regime. Ahbash has followers throughout the Middle East, who have often clashed with Salfi Islamist groups, but until recently has remained fairly obscure in Habashi's home country. The protesters claim the government is forcing them to accept Ahbash's teachings as a way of containing what it sees as a growing radicalization of Ethiopian Muslims.

The government denies any effort to promote Ahbash and claims the university reorganization was the work of the nation's main Islamic authority, known as the Majlis. Though officially independent, the Majlis, formally the Ethiopian Islamic Affairs Council, is widely seen as a quasi-governmental agency.

Contrary to Ethiopia's firm denial, a U.S State Department terrorism report released last month acknowledged that Ethiopia's Ministry of Federal Affairs had indeed launched a controversial nationwide training program to counter violent extremism by promoting Ahbash. The Ethiopian government quietly launched the training in July 2011 at Haramaya University, in the eastern Oromia region. The catechism, billed as "Training Religious Tolerance" and attended by some 600 religious leaders from around the country, was given by clerics invited from Beirut, Ubah Abdusalam Seid, a researcher on Islam in Ethiopia, wrote earlier this year. Unpublicized training courses, aimed at reorienting all mosque leaders and Majlis representatives around the country to the Ahbash teachings, took place in major cities like Addis Ababa, Harar, and Bahir Dar later that year, according to Seid. The protesters liken requiring religious leaders across the country to go through Ahbash courses to forced indoctrination.

State media encouraged the campaign with repeated claims that Wahhabists are seeking "to establish an Islamic state in an illegal and unconstitutional way." The Islamic press in the country countered these claims by offering anti-Ahbash commentaries. Three Islamic newspapers have since been gagged because of their coverage of the protests and opposition to Ahbash, and at least one journalist have been detained, according to Committee to Protect Journalists.

Ever since 2005, when security forces in the capital gunned down more than 200 protesters demonstrating against a botched election, protests have been uncommon in Ethiopia. But there are increasing signs that the government is losing control of the backlash to the Ahbash promotion.

In January, shortly after the protests broke out at Awolia, Muslims in Dessie, a town 150 miles northeast of Addis Ababa, held a huge impromptu demonstration after Majlis leaders tried to take over the regional mosque and an Islamic school there. Fearing a backlash, the Majlis pulled back.

As the protests in the capital continued and intensified over the last seven months, demonstrators' demands have grown beyond the issue of school curriculum to larger grievances over the Christian-dominated government's policies toward Muslims. In particular, demonstrators are now demanding that the Majlis leaders be elected in mosques rather than at government centers.

Weekly Friday protests have been held in Addis since the initial confrontation at the university and have attracted thousands, with the crowds growing every week. The worshippers have adopted various nonviolent strategies such as silent protests and sit-ins at mosques. After initially attempting to broker talks between the Majlis and protests, the government escalated the tension by breaking into the Awolia mosque on July 13, to stop plans for further protests during the African Union summit, taking place in town that week. That was followed by the arrest of members of the committee elected to represent the protesters a week later. The government accused the 17-member committee of extremism.

 

The decentralized movement has now grown into a nationwide resistance against the unelected Majlis leaders. On August 17, hundreds of thousands turned out in the capital Addis Ababa demanding the release of their jailed leaders. The government crackdown has backfired, prompting Muslims across the country to join in the protests. The largely youth-led movement is now emulating the weekly Friday prayer protests that started in Addis Ababa.

Similar protests were held throughout the country over the last two weeks. On Aug. 10, a small protest spiraled out of control in the northern city of Dessie, with police firing teargas and storming the local mosque. The scuffle began when worshipers tried to pray on the streets after the mosque reached capacity and were instructed to refrain from praying outside the building by the police. A clip of the skirmish posted on a video-sharing website, EthioTube, shows police chasing and beating protesters on the ground. Similarly, in Shashemene, a market town in southern Ethiopia, a small protest that started two weeks ago at the main mosque has now spread to all the town's three mosques. Large-scale protests have also broken out in the northern town of Kamise and the eastern historical city of Harar, often called the fourth holiest city in Islam.

Meles addressed the growing discontent on April 17, during his final appearance before Ethiopia's one-party parliament. The prime minister denied allegations of state interference in religious affairs but acknowledged that senior government officials had held meetings to discuss plans to educate the populace about the rule of law. Meles blamed the protests on radical Salafist and accused them of preaching intolerance and calling for an Islamic state. He also announced that al Qaeda cells had been uncovered in Ethiopia's Oromia region and warned that without an aggressive response, the country experience the kind of instability seen in Egypt, Libya, Tunisia and Syria. "This has to be stopped before it's too late," he said.

The warning was a typically canny move from the late prime minister. Throughout his rule, Western powers were reluctant to criticize domestic repression in Ethiopia as long as Meles continued to provide support in the fight against Islamist militants in East Africa, including sending troops into neighboring Somalia in several U.S.-supported operations.

The prime minister's statements angered the peaceful protesters, but seem to have convinced the international media that the government is battling against a growing tide of radical Islam, with headlines such as "Radical Islam Rises in U.S. Ally Ethiopia." But the Western media's focus on Islam misses the larger story: The disciplined nonviolence of Ethiopia's protests has united the country against a repressive government, for the first time in its two-decade rule.

There are also increasing signs that the discontent is spreading beyond the Muslim community. An exile group affiliated with Ethiopia's oldest Orthodox Church, which has led similar protests last April against the proposed demolition of a fifth century monastery in Northern Ethiopia, has called for all-Ethiopian solidarity with Muslim protesters. Earlier this month the chairman of the opposition All-Ethiopian Unity Party, Hailu Shawel, backed the protesters, saying their demands are not illegal. At a recent rally held in front of the U.S State Department, Ethiopian Christians held signs that read, "We support the peaceful struggle of Ethiopian Muslims."

The leadership vacuum created by Meles's death may well embolden the movement to speed up calls for greater religious freedom. The national week of mourning, now in effect, also coincides with government's attempt to push forward with the election of Majlis leaders. The protesters are calling on all Muslims to boycott the election and refuse the ballots being given out at regional administrative centers. It is not clear whether the protesters will call off their weekly demonstration to honor the mourning week this Friday.

The newly minted prime minister, Hailemariam Desalegne, is a relative newcomer to Ethiopia's political scene and there is widespread talk of a succession struggle behind the scenes and rival factions emerging within the ruling party. In what appears like early signs of power struggle, the government abruptly canceled, with no explanation, plans to swear in Hailemariam in an emergency parliament session called for Aug. 23. How long he lasts in the job may well depend on how the government handles the growing discontent both inside and outside the government in coming weeks.

JOSE CENDON/AFP/Getty Images