Report

Keeping His Powder Dry

From Syria to Iran, Obama's State of the Union leaves many questions unanswered.

Syrian dictator Bashar al-Assad is regaining lost territory and solidifying his control of a country that once seemed to be slipping from his grasp. Iraq is spiraling back into civil war, with an al Qaeda affiliate there flexing its muscles on turf American soldiers and Marines once held. Egypt's military government is arresting thousands of political opponents, raising serious questions about its commitment to democracy. NSA whistleblower Edward Snowden continues to release new details about America's spying efforts, rattling trust in the U.S. government at home and abroad.

President Barack Obama did not touch on any of that in his State of the Union address, however. Instead, he focused heavily on domestic policy, pledging to take a variety of actions to strengthen the middle class, grow jobs, and make life easier for American families. Obama's annual addresses have always been heavily tilted toward his proposals for changing the situation here at home. Still, his State of the Union address this year was notable for how little time he devoted to foreign policy -- and how little he said that amounted to anything new.

Take Afghanistan, the signature "good war" Obama pledged to fight and win during his initial campaign for the White House. Five years into his presidency and nearly 13 years into the war, the president offered few details about what the United States would do to prevent Afghanistan from falling into chaos if Afghan President Hamid Karzai refused to sign a security agreement allowing small numbers of U.S. troops to remain in the country. Obama has repeatedly promised to withdraw all American forces from Afghanistan unless a deal was signed. That would be a popular move at home, where support for the Afghan war has fallen to historic lows, but it would be enormously risky for the United States: Obama pulled all American troops out of Iraq in early 2011 after a similar security deal fell apart there, only to watch Iraq slide back into chaos.

"If the Afghan government signs a security agreement that we have negotiated, a small force of Americans could remain in Afghanistan with NATO allies to carry out two narrow missions: training and assisting Afghan forces, and counterterrorism operations to pursue any remnants of al Qaeda," Obama said, without acknowledging other possible outcomes.

On Syria, the president said the United States would "support the opposition that rejects the agenda of terrorist networks," but he declined to say whether his administration was willing to provide weapons and arms to the moderate elements of the loose-knit rebel alliance battling Assad. Obama's mention of "terrorist networks" within the Syrian opposition, meanwhile, will likely be seen throughout the Middle East as a sign that Washington was now effectively agreeing, in part, with Assad's contention that he is battling vicious Islamists, not pro-democracy rebels.

Similarly, Obama said that "American diplomacy, backed by the threat of force" had persuaded Assad to give up his chemical weapons after using them against his own people late last year, but he declined to say what Washington would do if Assad failed to follow through on a promise to turn over his chemical weapons for destruction aboard a U.S. vessel at sea.

Obama had few words about Iraq, where violence has soared to pre-surge levels and al Qaeda-linked affiliates have conquered significant swaths of the country, including the infamous city of Fallujah. Congress just cleared the sale of Apache attack helicopters the Iraqi government has pleaded for, but Obama didn't reference Iraq's descent into chaos or talk about steps the U.S. might be willing to take to help stabilize the country. Instead, he lumped Iraq in with other countries with known terrorist networks inside their borders -- specifically, Somalia, Mali, and Yemen -- and pledged to merely "keep working with partners" to battle them.

Snowden, the whistleblower who has disclosed reams of details about U.S. spying programs at home and abroad, wasn't mentioned in Obama's prime time address. The president pledged on Tuesday to work with Congress to "reform our surveillance programs," but said he would do so not out of concern that the NSA has violated privacy rights but because "the vital work of our intelligence community depends on public confidence, here and abroad, that the privacy of ordinary people is not being violated." The problem, he implied, wasn't that Americans may have had their phone calls and email traffic improperly monitored by the NSA; it was that Washington needed to do a better job of convincing people both in the United States and abroad that the NSA does not represent Big Brother.

On Iran, the president said the United States remains "clear-eyed about Iran's support for terrorist organizations like Hezbollah." But he said the United States must give ongoing talks aimed at ending Iran's nuclear program a chance, and promised to veto current legislation, backed by bipartisan groups of lawmakers in both the House and the Senate, that would immediately slap new sanctions on Iran if the current talks end without a permanent nuclear deal.

"For the sake of our national security, we must give diplomacy a chance to succeed," Obama said. "If Iran's leaders do not seize this opportunity, then I will be the first to call for more sanctions, and stand ready to exercise all options to make sure Iran does not build a nuclear weapon."

Obama said that if Iran strikes a deal in nuclear talks, then "we will have resolved one of the leading security challenges of our time without the risks of war." Beyond broadly threatening sanctions, however, he did not say whether he was prepared to use force to prevent Tehran from obtaining a bomb.

Finally, on the United States' controversial use of drones, Obama pressed that he has "imposed prudent limits" on their use. But he did not mention that an effort to take control of the robotic aircraft away from the CIA and give it to the Pentagon in the name of transparency has been stalled since November and the move's prospects are, at best, uncertain.

Obama often describes himself as a wartime president, and his speech Tuesday night was designed to show that he remained willing to use force against America's enemies if there were no other alternatives. The only problem is that he didn't want to say what those alternatives were.

Elias Groll contributed to this report.

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Report

Running on Empty

Why unbridled oil consumption in the Middle East could pose a threat to the region and beyond.

From the American point of view, the biggest energy revolution in recent years has been the explosion in domestic supplies of oil and gas that has catapulted the United States into the top ranks of global energy producers.

But globally, one of the most important, if less visible, energy revolutions has been the ongoing explosion in demand for oil in the Middle East, still the epicenter of oil production and exports. The region's surge in demand over the past decade, and the likelihood of further increases in its consumption over the next 20 years, raise serious concerns about Middle Eastern countries' ability to keep exporting large volumes of oil. That could upend global oil-market balances, seriously erode the finances and domestic stability of important countries in the region, and spark even more regional instability.

That's one reason that U.S. and international policymakers have been increasingly reaching out to counterparts across the Middle East, urging leaders there to shift gears before it's too late, by, for example, reducing the generous energy subsidies that encourage the rampant use of oil and oil-generated electricity.

"The more they consume, the less they're going to be able to export, and that's the main source of revenue for most of the governments," Dennis Ross, a diplomat who's worked in several presidential administrations, told Foreign Policy. "Something's got to give."

The choice is stark and risky: If Middle Eastern countries don't rein in their popular energy subsidies, their future economic lifelines will be threatened. If they do, they risk roiling domestic populations already energized by the Arab Spring.

Over the past decade, oil consumption in the Middle East has skyrocketed because of the region's growing populations, relatively strong economic growth and increasing need to generate more power for its own use. While China's seemingly insatiable appetite for oil grabbed all the headlines in recent years, Middle Eastern oil consumption was just behind the Middle Kingdom's.

China, with the world's second-largest economy, consumed an extra 5 million barrels of oil a day between 2002 and 2012; the entire Middle East, whose non-petroleum economy is on par with Spain, increased oil consumption by 3 million barrels a day. Europe, in contrast, shrank its oil consumption by 1 million barrels a day over the same period.

That is eating away at the barrels that are available for export. According to statistics from BP, the Middle East exported more than 80 percent of the oil it produced in 2002. A decade later, it was exporting only 70 percent. That trend is also present in North Africa. Across both regions, most of the production gains over the past decade have gone to meet rising domestic consumption, according to a recent report by Securing America's Energy Future.

Publicly, regional leaders say they're aware of the problem and getting a handle on it. But the ugly truth is that most of the factors driving that consumption boom haven't gone anywhere and probably won't for years to come. Foreign Affairs recently noted that Saudi Arabia could by the late 2020s consume more oil than it exports. BP expects the region to add almost 5 million barrels of oil in demand over the next twenty years, even as it expects Middle Eastern exports to remain essentially "static."

Why, with relatively small populations and economies, are Middle Eastern countries guzzling so much oil? While there are plenty of examples of energy consumption run amok -- from Dubai's indoor ski slopes to Saudi Arabians' tendency to leave air conditioners running while on vacation -- the chief culprit is simple inefficiency. That shows up most clearly in power generation and use, and the profligate use of subsidized fuel for transportation.

Electricity generation is the most egregious demonstration of Middle Eastern oil consumption -- but also among the easiest to fix, on paper. Saudi Arabia, despite efforts to tap more natural gas for power generation and an increasing interest in renewable energy such as solar power, still gets about half its electricity by burning $100 barrels of oil.

"It's probably the most inefficient and expensive way to generate electricity right now," said Gary Clark, a commodities analyst with Roubini Global Economics in London. Regionally, he said, power generation accounts for about 25 percent of oil consumption.

That's why countries like Saudi Arabia and the United Arab Emirates are starting to consider across-the-board economic reforms to address the problem. The payoff could be huge: One study estimates that improvements in Saudi power generation, efficiency, and transport could save almost 2 million barrels a day of oil by 2025 -- allowing Riyadh to reap enormous amounts of new money.

They're also looking at alternative sources of energy, including nuclear power. When you're paying $200 to produce a megawatt-hour of electricity with oil, nuclear starts to look like a bargain. The UAE's landmark nuclear deal with the United States, the first nuclear cooperation agreement between the United States and an Arab nation, came about solely because of the small Gulf nation's rising domestic oil consumption. And it explains why even more ambitious nuclear plans, such as Saudi Arabia's hopes to spend $80 billion on 16 nuclear reactors, are getting Washington's blessings even as Iran's nuclear program has triggered a Western effort to use punishing sanctions to destroy the Iranian economy.

A few countries, led by the UAE, are also diving into renewable energy, especially solar. Abu Dhabi even houses the International Renewable Energy Agency.

Meanwhile, Saudi Arabia has established a royal center for atomic and renewable energy, and even the Saudi oil minister talks up the prospects of solar power when he visits the United States. Other countries, from Qatar to Kuwait, are also looking into the prospects of renewable energy providing cheaper (and, incidentally, cleaner) power than their current mix.

Still, the transformation of the power sector appears to be lagging behind the explosion in electricity demand, according to the International Energy Agency's World Energy Outlook. That's especially true with the huge seasonal swings in electricity demand caused by the need for summertime air conditioning; Saudi Arabia alone uses up close to a million extra barrels a day for cooling in the summer. Coming to grips with institutional weaknesses -- such as ministries with dueling mandates -- as well overcoming a dearth of reliable data on energy use could help governments across the Gulf region finally start to implement smarter energy policies, Chatham House concluded recently.

The bigger, and much tougher, problem to tackle is the artificially cheap fuel prices that encourage residents to drive gas-guzzling cars as often as they want, and as far as they want.

"They provide cradle-to-grave energy subsidies as a kind of obligation of the regimes to the public, as a social contract," said Ross. Gasoline in Saudi Arabia, for example, costs about 45 cents a gallon, hardly an inducement to fuel-efficient vehicles.

The IEA estimates that subsidies for oil and oil products in the Middle East cost about $112 billion in 2012 -- or 13 percent of everything those countries made by exporting oil in the first place. Counting subsidies on electricity and natural gas, governments across the Middle East and North Africa are shelling out more than $240 billion a year, the International Monetary Fund estimates.

While U.S. and international policymakers for years have railed about fossil-fuel subsidies, and made calls for their rollback a staple of G-8 gatherings, that's easier said than done.

Many in the region consider fuel subsidies practically a birthright. Furthermore, countries that have rolled back subsidies have found it tough going; Iran's halting efforts to partially liberalize energy prices have been anything but smooth. Morocco just ended its own fuel subsidies -- but only under pressure from the IMF, while neighboring Tunisia had to scrap plans to raise energy prices due to popular protests. Saudi's economy minister publicly attacked energy subsidies' role in "distorting" the economy last spring -- but little has been done since. The UAE's efforts to rein in subsidies stalled after 2010, though the oil minister recently raised the need to cut energy subsidies, at least for expatriates.

The task for Saudi Arabia is even harder, because it has acquired a host of financial obligations outside its borders. Bruce Reidel of the Brookings Institution estimates that Riyadh's external commitments, including support for tottering allies such as Egypt, Pakistan, Bahrain and Yemen, now totals about $30 billion a year. "The cost of supporting the counter-revolution in the Arab and Islamic worlds adds greatly to the challenges facing the House of Saud in the years ahead," he wrote in a new Brookings study released Thursday.

But if the Middle East does not come to grips with its rising oil consumption, the implications could be dire. Saudi Arabia's crucial role in global oil markets comes both from the sheer volume of its exports, and the fact that it maintains "spare capacity" that it can essentially turn on and off as needed, making it a sort of central banker of oil markets. The greater the domestic consumption, the less potential spare capacity in OPEC's biggest producer. And that could lead to higher and more volatile oil prices, which would be bad news for the entire global economy.

Internal stability could also be threatened. Countries in the Middle East, as well as petro-states like Russia and Venezuela, have come to rely on exceedingly high oil prices in order to balance their budgets and meet domestic commitments. That has worked for the last few years because oil prices are, in real terms, about as high as they have been in a century.

But the rapid increase in oil production in the United States and Canada, coupled with the emergence of additional production in Brazil, Iraq, and possibly even Iran, has OPEC members worried about too much oil in the near future. That could send prices down to levels that would be great for the global economy -- but terrible for oil-dependent budgets. Only exporting greater volumes could make up for the lower price-per-barrel, but greater domestic consumption threatens those extra barrels.

"If the oil market becomes more flush, it's going to create problems for them, and they're going to have to make choices that, so far, high oil price have allowed them to avoid making," Ross said.

To date, U.S. policymakers have been trying to increase Washington's cooperation with Middle Eastern countries on issues such as energy conservation, energy efficiency, nuclear power, and renewable energy. The UAE inked a civilian nuclear cooperation deal with the U.S. in 2009. The State Department's roving energy ambassador, Carlos Pascual, spent last weekend in Abu Dhabi, talking up renewable energy. And Ernest Moniz, the U.S. energy secretary, just met with Saudi officials, including a tour of the King Abdullah atomic and renewable energy center, to chat up the prospects for greater U.S.-Saudi cooperation on clean energy and efficiency.

All of that underlines one simple truth: No matter how much oil flows out of Texas and North Dakota, the U.S. won't be disengaging from the Middle East anytime soon. The more things change, the more things stay the same.

Yasser al-Zayyat - AFP - Getty