Iran, Oil, and War: The End of the Carter Doctrine?

The "Oil Corridor," where the largest oil resources in the world are located. It was generated by events that took place during the Jurassic period. Those events can't be affected by politics, but they can affect politics.

For a while, the situation with the USA-Iran standoff looked like a scene in an old Western movie:  two drunken gunmen facing each other in the saloon. Fortunately, things calmed down and, for this time, it seems that no war on Iran is in sight, at least in the short term. Perhaps we have been lucky, perhaps some benevolent deity took care of the situation, or, perhaps, there is a logic in these events.

History often moves along the whim of leaders but even mad leaders must take into account reality. And this seems to be what happened in this case. It is possible that we are seeing the end of the "Carter Doctrine" that was stated in 1980. The idea was, and it is still today, that the control of the Middle East is of "vital interest" for the US. That was based on reality as it was in 1980, now reality is different and so there is a reason for the change. But let's see the whole story from the beginning.

It all started long ago, during the Jurassic period, when the slow sedimentation of an ancient sea created a strip of oil fields that goes from the Caucasus and the Caspian Sea, in central Eurasia, all the way South to Yemen, crossing Iran, Iraq, Saudi Arabia, and other states of the region. It is there that most of the world's oil is. More than 20% of all the oil produced today goes through the narrow strait of Hormuz, a critical point of the world's geopolitical map.

So, back to the early 1980s, the US had been the dominant world power for nearly four decades after the victory in World War II. As usual, geography is the mother of empires, and it was because of its vast national oil resources that the US could come to play that role. But oil production in the US had peaked in 1970 and was declining. No oil, no Empire. It was necessary to find new resources and the Middle East region was the richest in the world. A natural target.

The struggle for the Oil of the Middle East had already started in the 1950s, when the prime minister of Iran, Mohamed Mossadeq, was overthrown in 1953 by a coup orchestrated by the United States. Then, there was the period in which the US more or less controlled the Iran government using the Shah as a proxy. Then there came the Iranian revolution in 1978-79 and the result was the toppling of the Shah. At that point, in 1980, President Carter stated his "doctrine" -- really nothing more than a description of what had been going on up to then.

You know the troubled story of the Middle East in the years that followed. The disastrous Iraq-Iran war (1980 - 1988). The US going "boots on the ground" first in Kuwait in 1991, then invading Iraq in 2003. At that time (and also later on) it was fashionable to say that "boys can go to Baghdad, but real men want to go to Tehran." Maybe it was a joke, but it could have been deadly serious. It is part of the logic of empires to expand.

Eventually, the invasion of Iran never took place and it looks like it never will. It is, again, the way Empires function. They are like a tide, they ebb and flow. The American Empire flowed into Iraq, now it is ebbing back. Most commenters of the recent events agree that we are seeing the first stages of the US bringing their troops at home. It will take time, but it is written on the walls of the Martyr Monument in Baghdad. 

Apart from the antics of the madmen in power, there is a logic in the US abandoning Iraq. Someone, somewhere in Washington D.C., must have asked the question: "why exactly do we keep troops in Iraq?" Yes, why? The typical answer up to not long ago would have been "to secure the oil." But things have changed. The once very abundant oil resources of the Middle East are unavoidably being depleted. Some producers, Syria and Yemen, are already in terminal decline. Of the others, none has the capability of significantly increasing production and all are expected to go into decline in the coming years (you may have heard of the recent discovery of "53 billion barrels" of oil in Iran. Yes, and they also found a pot of gold at the end of the rainbow).

At the same time, the US really found a pot of black gold in shale oil, to the point that during the past few years they managed to increase their oil production to levels higher than the earlier 1970 peak. That shale oil is a good deal in economic terms is questionable, to say the least. But the US elites have become convinced not only that they are truly self-sufficient in terms of energy, but that this self-sufficiency will continue for the foreseeable future, perhaps forever because shale oil is seen as practically infinite. And they see shale oil as a strategic dominance weapon.

At this point, many things start making sense: the oil from the Middle East is not anymore a "vital interest" for the US as it was at the times of Jimmy Carter. So, why pay good money to keep troops there? Those troops are useful only to those spineless Europeans who still depend on oil imports, but why should America pay? Besides, in the current situation, American troops are just sitting ducks waiting for the next rain of missiles coming from those bearded fanatics. So, let's bring the troops back home. Then, we'll be able to assassinate anyone at will in the region without fearing for retaliation. 

And that seems to be how things stand, for now -- unless someone makes some mistake and the fireworks restart. But it is a confirmation that it is geography that creates empires and, also that the geography of oil keeps changing. We'll see more changes in the future, the only sure thing is that, unlike what some people believe, oil is not infinite.

Crimea: from world war 0 to world war III

Today, we remember little about what we call the Crimean war (1853-1856), even though it was the largest war ever fought in history up to that moment. It prefigured many of the elements that would later reappear in the two world wars of the 20th century, so much that we might call it "World War 0." It included fossil fuels as the ultimate cause of conflicts, an enhanced role of propaganda, the tendency of leaders of losing control of the wars they have started, and the origin of the "Russophobia" still common in the West in our times. These elements may tell us a lot about what could be a "World War III" in our future. Above, you can see a painting by Vasilii Nesterenko (2005) that celebrates the Russian defense of Sevastopol in 1855. It makes clear that defending Crimea is not a trifling matter for the Russians, who lost some 400.000 men in the Crimean war.

There is much material scattered on the Web about the Crimean war, but nothing that I found really satisfactory in digging out the real reasons for the disaster that it was. So, this is an attempt of mine to create some order out of the chaos. It is not meant to be anything definitive: if you find the time to read it, it is up to you to judge.

One of the curious things of the Crimean war of 1853-1856 is that we remember so little about it. Ask anyone what the war was about, who won, who lost, and even who fought it and the answers are likely to be vague, at best. It seems that the only thing remembered today about that war is the disastrous charge of the British Light Brigade at Balaclava. It is as if we remembered the 2nd world war only for the episode of saving private Ryan.

Yet, the Crimean war was a global engagement that involved practically all the major military powers of the time, nearly two million combatants, and a number of casualties that can be estimated as between half a million and a million. In many ways, the Crimean war prefigured the world wars that would take place during the 20th century, especially for the increasingly important role of propaganda. For this reason, we could rightly call it "world war 0".

But why this war? And why was it so thoroughly forgotten, at least in the West? For anything that happens there has to be a reason and, also in this case, there are reasons. But we have to start from the beginning.

Many of the struggles of the 19th century can be understood in view of the role of coal in history. Starting with the late 18th century, coal created the industrial revolution in those countries that had coal resources. That, in turn, generated an economic surplus that was used in large part to build up military power and - with it - empires. The two largest empires of the 19th century were the British and the Russian one; the first dominating the seas, the second the Eurasian landmass. England had the largest coal resources in the world and it was also the most industrialized country in those times. Russia was not so thoroughly industrialized as Britain, but it had enormous human and mineral resources that made it a major player in the world domination game. At that time, it became common to speak of "the Great Game," also well known as "Bolshaya Igra" in Russian. And from the languages used to define the game, you can understand who were the players. It is still being played today, even though the capital of the Sea Empire has moved from London to Washington.

While the coal-powered empires were expanding, the regions that didn't have coal resources were in deep trouble. Of course, coal could be imported, but that implied having a system of canals that could distribute coal everywhere. No canals, no industry. No industry, no military power. That was the situation of the Ottoman Empire, called at the time "the sick man of Europe." But the old Empire was not sick: it was starved of coal. It didn't produce any and it controlled lands too dry to be suitable for waterways. It was a problem created by geology and, as such, it was not affected by politics. So, the Ottoman Empire was destined to be carved up among the coal-powered states, a process that would be completed with the first world war.

It was clear to both Russia and Britain that the Great Game was about competing for the spoils of the Ottoman State. The Russians were coming down from the North, in Central Asia, and in the Balkans. The British were working their way up from the South, in the Middle East and in the Mediterranean Region. In a series of wars fought during the 18th century, the Russians had reached the shores of the Black Sea. During the reign of Catherine II, the Russians defeated once more the Ottoman Empire and, in 1783, they annexed the Crimean Khanate, once a protectorate of the Ottomans.

For the Russians, Crimea was not just one more piece of land for their already vast empire. With the military harbor of Sevastopol, Crimea was a springboard for further expansion southward. Sevastopol also gave to the Russians the possibility of projecting their naval power into the Mediterranean sea. Of course, the British didn't like the idea of sharing the Mediterranean with the Russians, but it seems that they had to put up with that. After all, if the Russians were at work at weakening the Ottoman Empire from the North, that gave to the British better chances to advance from the South.

That was the situation until the French rocked the boat around 1850, starting a quarrel with Turkey over a trivial question about the rights of the Christians living in the Ottoman Empire. That was to lead, eventually, to a major, world-wide war.

In those times, France was another powerful empire. It had been one of the first states to engage in the large-scale use of coal and, during the early 19th century, it had become the dominating power in Central and Western Europe. That was the origin of the disastrous adventure of Napoleon in Russia, in 1812. Napoleon had correctly identified his enemy: Russia was a major rival of France in the domination of Europe. But Napoleon's colossal mistake was typical of leaders everywhere and of all times: overestimating the military might he commanded.

Mistakes tend to generate more mistakes and that's true for empires as well as for individuals. Some 40 years after Napoleon's defeat in Russia, France had rebuilt its military strength and Europe was set for a new military confrontation. As before, it was the result of economic factors and of the poor judgment of the people who controlled the most powerful states of that time. This time, the blunders were made mainly by Louis Napoleon, who had styled himself as "Emperor of the French" and taken the title of "Napoleon III."

To be a credible Emperor, Louis Napoleon needed the kind of prestige that can only come from military victories. Possibly, he would have liked to avenge the defeat of his uncle against the Russians in 1812 but, of course, he couldn't even dream to have the French army march on Moscow again. Still, he thought that the Russians were the enemies of France and he endeavored to build up a coalition that would fight Russia. He couldn't understand that the game in mid 19th century was not anymore the game that had been played at the time of the first Napoleon. Louis Napoleon was making the mistake that Lao Tzu described by saying that "tactics without strategy is the noise before defeat." That was exactly what was to happen with the Crimean war.

The escalation that led to an all-out war was probably something that none of the leaders involved in it could control, or perhaps even understand. It was an ominous presage of what would happen 60 years later, when Europe exploded in the first world war.

Perhaps it was an even more ominous presage of what propaganda can do when the Western press started describing the Russians as ugly savages, as you see in this image from 1855. In those times, propaganda wasn't as sophisticated as it is today, but the idea is always the same: they are bad and we are good.

Eventually, the trouble stirred by the French led the Ottomans to declare war on Russia in October 1853, knowing that they were supported by France and Britain. Then, the war exploded along a ring of fire that followed the Russian borders, from the White Sea in the North-West, to the Kamchatka peninsula in the East.

At the beginning, the idea of attacking Crimea doesn't seem to have been in the plans of the Western coalition. But, once they had built up a military force in the Black Sea, someone must have realized that Crimea could have been an excellent objective to demonstrate the coalition's superior power also because, since Crimea has a warm climate, "General Winter" couldn't come to help the Russians. The idea suited Louis Napoleon very nicely: by defeating the Russians in Crimea he could claim to have avenged the French defeat of 1812: In September of 1854, British, French and Ottoman troops landed in Crimea with an ambitious objective: taking Sevastopol. They succeeded, but at a very high price.

In August 1855, after nearly one year of struggle, the Russians effectively put an end to the war by abandoning Sevastopol after having destroyed most of what was left intact by the allied bombardment. There followed negotiations and the treaty of Paris (1856) that basically recognized that neither side wanted to continue fighting. By all means, the outcome of the Crimean war was a military defeat for the Russians but the only obligation that was imposed on them was to demilitarize Crimea.

At the same time, if the war had been a military success for the coalition, the costs had been staggering and the tangible results nearly zero. Maybe the allies were dreaming of turning Sevastopol into something like a Gibraltar of the Black Sea, but they soon realized that it was impossible. They had suffered tremendous losses and they couldn't possibly have kept the occupation of Crimea for a long time. Not many years later, in 1870, with France defeated by Prussia, there was no coalition that could stop the Russian from returning and re-militarizing Sevastopol - which they did. By 1877, Russia and Turkey were again at war on one another and, this time, the Western European powers didn't intervene to help Turkey, which was badly defeated. In the meantime, Britain profited from the occasion to snatch Cyprus away from the Ottoman Empire.

In the end, the whole Crimean war was fought for nothing, as it is normally the case for most wars. But perhaps, in this case, the futility of the whole enterprise was more evident than in others. It may be for this reason that in the following years most people in the West made an effort to forget everything about this ill-fated war. The only memory of it left was the colorful and dramatic charge of the 600 at Balaclava. We still remember that episode, today.

But mistakes, as we saw, keep begetting mistakes and a typical source of mistakes for leaders is their tendency to see the world in terms of "friends" and "enemies". After the Crimean war was over, it seems that the bad guys of the story were identified not so much with the Russians but with those European states which had refused to join the coalition against Russia: Austria and the Kingdom of Naples. These two states were singled out as worth punishing, in particular by Louis Napoleon. In 1859, the French engaged in a military campaign aimed at expelling the Austrians out of Italy, and they succeeded. One year later, Louis Napoleon did nothing to prevent Piedmont from defeating and annexing the Kingdom of Naples, creating the "Kingdom of Italy" in 1861.

With these actions, Luis Napoleon had shot himself (and France) in both feet. He hadn't understood the growing role of Prussia (another coal-powered empire) in central Europe and the fact that weakening Austria meant giving to Prussia a chance to expand even more. At the same time, the new Italian state was a competitor of France for domination in the Mediterranean region and would forever stop France from further expanding in North Africa. Maybe Louis Napoleon thought that Italy would have become a French protectorate, as Piedmont had been. It was another colossal mistake: ten years after the unification, Italy was allied with Prussia in a war against Austria and France. At Sedan, in 1870, Prussia dealt a deadly blow to the French imperial dreams. From then on, the German Empire was to be the top dog of Western Europe. It still plays this role, today.

You see how a chain of events affecting Europe originated from the Crimean war of 1853-1856. Starting from that event, we could play the "what if?" game. What if Louis Napoleon had not pushed for war against Russia? What if he had prevented the Italian unification from occurring? It is one of the fascinating games you can play with history, and I have done that here and here. Perhaps all that happens in history is a game that leaders play with the lives of their subjects. And, in this game, Crimea seems to be often playing an important role, even in modern times.

Over the years, Empires changed names but the strategic struggle for the domination of the world remained unchanged. During the first world war, taking advantage of the turmoil in Russia, German forces took control of Crimea in April 1918. That was a short-lived occupation and the Germans withdrew in November. Tzarist Russia disappeared and in 1920 the Red Army occupied Crimea after that it had been briefly in control first of the anti-Bolshevik White Army, and then also invaded by the French. During the second world war, history repeated itself once more. The Axis forces attacked Crimea in 1941 and managed to take Sevastopol after an extended siege. Then, the Red Army took back Sevastopol in 1944. Western armies seem to be always able to occupy Crimea, but never to hold it for a long time.

The British Empire waned in the following decades, replaced by the US empire, The Soviet Union disappeared in 1991, replaced in part by the Russian Federation. But the importance of Crimea and the military port of Sevastopol remained unchanged. In our times, the focus of the struggle has moved more and more from traditional warfare to the kind of "hybrid" warfare that includes propaganda, infiltration, and psyops. In 1954, the administration of Crimea had been transferred to another Soviet country, Ukraine. When the Ukraine coup of 2014 moved the country to the Western sphere of influence, it seemed that the West had found an easy way to gain control of Crimea. It didn't work as planned. Less than one year later, Russia took back Crimea in a bloodless counter-operation of hybrid warfare. Again, we see how the the West can take Crimea but can't hold it.

Unsurprisingly, the return of Crimea to Russia (obrazovanje in Russian) in 2014 was not taken kindly in the West and that led to another round of hybrid warfare, this time based on economic sanctions. The struggle is still ongoing and the small peninsula of Crimea remains one of the major friction points of the world's strategic balance. Apart from the importance of the military port of Sevastopol, Crimea has the characteristic of being part of Russia but, at the same time, to be disconnected from the Russian mainland and to be vulnerable to attack from the sea. These characteristics make it a possible target for an aggressive Western leader. At the same time, the importance of Crimea for Russia is so high that no Russian leader could even dream to abandon Crimea before trying to defend it with all the available means. This is a recipe for disaster, today as it was at the time of Louis Napoleon. Whether it will take us to another world war, WW3 is all to be seen, but it can't be excluded.




Appendix: the viewpoint from Italy

A little known part of this story is the role of the Kingdom of Naples in the 19th century Crimean war. The Kingdom had a long story of friendship with Russia and, some 50 years before, Russia had sent troops to Naples to help (unsuccessfully) the Kingdom to repel an attack from France. It seems that the Russians saw the Southern Italian kingdom as their gateway to the Mediterranean region and maintained good relations with it. At the time of the Crimean war, there was no formal alliance between the Kingdom of Naples and Russia, but when the British asked the King of Naples to send troops to Crimea to join the Anti-Russia alliance, the King refused. He didn't know that, in doing so, he was signing the death sentence for the kingdom. Even when it was clear that Russia was losing, the King of Naples refused to make the about-face that the Austrian empire did at the last moment. That turned the Kingdom of Naples into a pariah in the eyes of both the French and the British. Instead, the Kingdom of Piedmont (more exactly, the Kingdom of Sardinia) had been smarter and had sent an expeditionary corps to support the anti-Russian coalition. We can perhaps understand how harsh the Crimean war was if we note that, of the 15,000 troops sent to Crimea from Piedmont, it is reported that only about 2500 returned to their homes alive and all in one piece.

So, much of what happened in Italy after the Crimean War can be explained by these simple facts. The French and the British felt that the Kingdom of Piedmont was to be rewarded for its help, while the Kingdom of Naples was to be punished for the opposite reasons. The Kingdom of Naples had no coal and no waterways to import it, and it was in a desperately weak position. The defeat of Russia in Crimea had made it impossible for the Russians to send help to Naples and the kingdom found itself completely isolated against the industrialized, coal-powered Kingdom of Piedmont, well supported by Britain. There came the expedition of Garibaldi to Sicily in 1860, whose ships were protected by the British fleet. The Neapolitan army was defeated, the kingdom was invaded by the Piedmontese from the North and that was the end of the Kingdom of Naples and the birth of the Kingdom of Italy.

Supporting everything that smells bad: Donald Trump's new energy policy promises to be a disaster

Michael Klare has published an extensive comment on "Tomgram" about what appear to be the current policy choices by Donald Trump on energy and he correctly notes how contradictory they are. Basically,

The main thrust of his approach couldn’t be clearer: abolish all regulations and presidential directives that stand in the way of unrestrained fossil fuel extraction, including commitments made by President Obama in December 2015 under the Paris Climate Agreement.

In other words, Trump seems to be locked in a market-only vision of the problem, thinking that physical realities have no role in the extraction of fossil resources. On this, he is surely not alone, but the problem is that deregulation is not so important as Trump seems to think. It was not because the market was over-regulated that oil prices spiked up to $150 dollars/barrel in 2008 and kept hovering at around $100/barrel from 2011 up to late 2014. And it was not because oil production was suddenly deregulated that prices collapsed to below $40 in 2015. The oil market, as all markets, suffers from instabilities that may be, sometimes, cured by regulations. Eliminating all the regulations may well cause further price swings and wild oscillations, rather than increase production.

If oil companies are in trouble, right now, is because the oil prices are too low, not because oil extraction is over-regulated and Trump's policies - if they were to work - may damage the fossil fuel industry even more. That, in itself, would not be a bad thing - especially in terms of the effects on climate. The problem is that Trump's ideas to revitalize the fossil fuel industry may not be limited to deregulation, but could involve actively discouraging renewable energy, a policy that, for instance, the Italian government has been successfully applying during the past few years.

So, why does Trump want to do such a thing? Here, we can only imagine what passes in the mind of a 70-year old man who is not known to be especially expert in anything. Klare puts forward a possible explanation as:

To some degree, no doubt, it comes, at least in part, from the president-elect’s deep and abiding nostalgia for the fast-growing (and largely regulation-free) America of the 1950s. When Trump was growing up, the United States was on an extraordinary expansionist drive and its output of basic goods, including oil, coal, and steel, was swelling by the day. The country’s major industries were heavily unionized; the suburbs were booming; apartment buildings were going up all over the borough of Queens in New York City where Trump got his start; cars were rolling off the assembly lines in what was then anything but the “Rust Belt”; and refineries and coal plants were pouring out the massive amounts of energy needed to make it all happen.

And don’t forget one other factor: Trump’s vindictiveness -- in this case, not just toward his Democratic opponent in the recent election campaign but toward those who voted against him. The Donald is well aware that most Americans who care about climate change and are in favor of a rapid transformation to a green energy America did not vote for him,

Given his well-known penchant for attacking anyone who frustrates his ambitions or speaks negatively of him, and his urge to punish greens by, among other things, obliterating every measure adopted by President Obama to speed the utilization of renewable energy, expect him to rip the EPA apart and do his best to shred any obstacles to fossil fuel exploitation. If that means hastening the incineration of the planet, so be it. He either doesn’t care (since at 70 he won’t live to see it happen), truly doesn’t believe in the science, or doesn’t think it will hurt his company’s business interests over the next few decades.

This interpretation by Michael Klare may or may not be correct but it underlies a basic problem: elections give power to people on the basis of their promises, but nobody really knows how they will behave once they have power in their hands. The world's history is full of leaders who had mental problems of all kinds or even just had a vision of the world that was completely out of touch with reality. The result was normally unmitigated disasters as leaders, in most cases, refuse to learn from their mistakes. And not just that, they tend to double down, worsening things.

About Donald Trump,as I discussed in a previous post, nobody can know what's going on inside his mind. All what I can say is that America may badly need God's blessing in the near future.

Brexit: a subversive in Brussels

The man from Gazprom: Ugo Bardi's speech at the hearing "EU Energy Security Strategy under the conditions of the Internal Energy Market" at the European Parliament, in Brussels, on Nov 5, 2014. 

I already described this experience of mine at the EU parliament in Brussels, in 2014 but, f you have 12 minutes, you may like watch this clip with my full speech. You can notice how I had noted the start of the collapse of the oil price. I couldn't imagine, at that time, that prices would tumble to less than $40 per barrel, but I had correctly identified the troubles that would befall on the shale oil and the shale gas industry. Nor I could exactly predict when shale oil production would peak in the US (it did in mid 2015). But I warned the parliament not to put too much trust in these overhyped new sources of energy.

Not shown in the clip is the reaction of the audience. After I had stopped speaking, someone from the public took up the microphone, saying, "I completely disagree with what you said." Then, he rose up and he left the hall. Later on, they told me that he was a member of the UKIP. During the debate, someone raised the old canard that the US had attained "energy independence" by means of shale oil and that they were becoming a net energy exporter, but I had no possibility to answer back. The whole hearing had been carefully engineered to give the impression that Europe would soon receive plentiful supplies of oil and gas from the booming shale industry in the USA. No need to bow down to the evil threats of Putin and his minions. Some days after that the meeting was over, I was told that in the halls of the European parliament people were saying that I was paid by Gazprom. 

So, you see? It is not just the Britons. There has to be reason for this:

 (image from the Guardian)

The Seneca Cliff of Energy Production

The graph above was created by Gail Tverberg on her blog "Our Finite World". It is, clearly, another case of what I called the "Seneca Cliff" (from the Roman philospher who said "the road to ruin is rapid). The Seneca Cliff takes this shape, when generated by a system dynamics model:

Gail's forecast of the future of energy production is not the result of a the same model I developed, but the reasons behind the steep decline are the same. Gail explains it in a post of hers as:



All parts of our economy are interconnected. If parts of the economy is becoming increasingly inefficient, more than the cost of production in these parts of the economy are affected; other parts of the economy are affected as well, including wages, debt levels, and interest rates.

Wages are especially being crowded out, because the total amount of goods and services available for purchase in the world economy is growing more slowly. This is not intuitively obvious, unless a person stops to realize that if the world economy is growing more slowly, or actually shrinking, it is producing less. Each worker gets a share of this shrinking output, so it is reasonable to expect inflation-adjusted wages to be stagnating or declining, since a stagnating or declining collection of goods and services is all a person can expect.

At some point, something has to “give”.


Which is a good description of the mathematical model at the basis of the Seneca cliff idea. The burden on the economy of increasing costs becomes more and more heavy in times of diminishing returns (or, as Gail says, increasing inefficiency, which is the same). At some point, something "gives" and the whole thing comes down. Seneca rules.

Unleashing the oil weapon against Russia: how to destroy a great empire

The Pythoness of the Oracle of Delphi told to King Croesus that if he were to attack Persia "a great empire will be destroyed." Croesus did just that, but the great empire which fell was not the Persian one, but his own. 

Do you remember the old Soviet Union? Dubbed as "The Evil Empire" by Ronald Reagan in 1983, it disappeared in a puff of smoke in 1991, crushed under a mountain of debts. The origins of the financial collapse of the Soviet Union are rather well known: it was related to the fall of the oil prices which, in 1985, went down from the equivalent of more than 100 (today's) dollars per barrel in 1980 to about 30 (today's) dollars and stayed low for more than a decade. The Soviet Union was relying on oil exports for its economy and, in addition, it was burdened with huge military expenses. It just couldn't take a drop of more than a factor of three in its oil revenues. 

There exists a persistent legend that says that the downfall of the Soviet Union was engineered by a secret agreement of the Western Powers with the Saudi government who agreed to open the spigots of their oil fields in order to bring down oil prices. This is, indeed, nothing more than a legend. Not only we have no proof that such a secret agreement ever existed, but it is not even true that the Saudis played the role attributed to them. In the 1980s, Saudi Arabia, actually, tried hard to avoid the downfall in oil prices by reducing (rather than increasing) its oil output; without much success. (Image on the right from Wikipedia)

It is true, however, that after the first great oil crisis of the 1970s, the world's oil production restarted its growth around 1985.  The reasons for the recovery can't be attributed to the work of a group of conspirators sitting in a smoke filled room. Rather, it was the result of a number of new oil fields starting their production phase, mainly in Alaska and in the North Sea. This was the origin of the drop in oil prices and, indirectly, of the fall of the Soviet Union. (Image on the left from Wikipedia)

Today, Russia's oil production has recovered from the downfall of Soviet times and the Russian economy is highly dependent on oil exports, much like the old USSR was. So, a drop in oil prices could do a lot of damage to Russia. Given the political situation with the Ukraine crisis, there are speculations that the West is trying to bring down Russia by repeating the same trick that seemed to be so successful in bringing down the old "Evil Empire". Indeed, we are seeing oil prices dropping below $90 per barrel after years of stability around $100. Is it a fluctuation or a trend? Hard to say, but it is being interpreted as the unleashing of the "oil weapon" against Russia on the part of Saudi Arabia. 

However, the world of today is not the world of the 1980s. One problem is that Saudi Arabia has shown several times to be able to throttle production down, but never to raise it significantly higher than the present levels; one could even question whether they will be able to maintain them in the future. Then, there is nothing today which could play the role that Alaska and the North Sea fields played in the 1980s. It had been said many times that we would need a "new Saudi Arabia" (or more than one) to offset the decline of the world's oil fields, but we never found it.

Yet, there are good reasons to think that we could see a drop in oil prices in the near future. One factor is the downturn of several of the world's major economies (e.g. Italy). That could lead to a fall of the demand for oil and, consequently, to lower prices (something similar took place with the financial crisis of 2008). Another factor could be the rapidly growing production unconventional oil (largely in the form of "shale oil") is the U.S. This oil is not being exported in large amounts, but it has reduced the US demand of oil in the world's market. Coupling these two factors, we might well see a considerable drop in oil prices in the near future, although hardly a sustained one. So, would that be the "oil weapon" that will bring Russia to its knees? Maybe, but, as with all weapons, there are side effects to consider.

As we said, unconventional oil is playing a major role in maintaining the world's production. The problem is that unconventional oil is often an expensive resource. Then, in the case of shale oil, the decline rate of wells is very fast: the lifetime of a well is of just a few years. So, the shale oil industry needs a continuous influx of new investments to keep producing and it is very sensitive to oil prices. Its recent rise was the result of high prices; low prices might cause its demise. In contrast, conventional oil fields have a lifetime of decades and are relatively immune to short term variations of oil prices. If we see the situation in these terms, we might legitimately ask against whom the oil weapon is aimed. The US unconventional oil industry might well be its first victim.

History, as we all know, never repeats itself, but it does rhyme. King Croesus, at his times, believed the Delphic Oracle when he was told that he could bring down a great empire if he would attack Persia. He didn't realize that he was going to destroy his own empire. Something similar may be in store for us in the coming years: a drop in oil prices might well bring down a great empire. Which one, however, is all to be seen.