Felling Pharaohs: Be Afraid, Be Very Afraid (Part II)

Shortly after the ignominious French 1954 defeat at Dien Bien Phu in Vietnam, President Eisenhower introduced the concept of Domino Theory to describe the significance of Vietnam falling under Communist influence. He warned that one Communist victory could initiate a cascade of events that could lead to “the loss of Indochina, of Burma, of Thailand” and perhaps even of Indonesia (see “The World: From Vietnam to Iraq; The Rise and Fall and Rise of the Domino Theory”).

Of Arabs, Islam, Oil, and Dominoes

Over sixty years later, the United States faces the prospect of a similar threat in the Arab world with Egypt slouching toward Babylon. Only this time, what happens could likely have an even greater impact on the average American than the Vietnam War did so many decades ago.

It boils down to one thing: oil.

When Oil and Dominoes Collide

The classic nightmare scenario is that this pan-Arab unrest spreads to Saudi Arabia, the guarantor of 12 million barrels per day of oil production capacity and the producer of an average of 10.2 million barrels per day in 2010 — nearly twelve percent of global production. With a 10.8% unemployment rate, a kleptocratic network of thousands of Saudi princelings, and 25.7 million people, Saudi Arabia is a ripe target for a populist revolt.

Popular unrest in Saudi Arabia would wreak havoc on public markets at best, and lurch the global economy into a depression at worst, as oil prices spike over sentiment of presumed future supply disruptions.

The last time a major American ally and oil superpower succumbed to a people’s revolution was in 1979. In 1978, the year before the Shah fled Iran, the country’s oil production averaged about six million barrels per day. After the Iranian Revolution began, Iranian production dropped by over half to only 2.5 million barrels per day and was completely shut down for several months (see Matthew R. Simmons, Twilight in the Desert: The Coming Saudi Oil Shock and the World Economy). The United States suddenly faced the previously inconceivable prospect that one of its primary oil suppliers went away almost overnight. Oil prices more than doubled in the aftermath.

The same is possible for Saudi Arabia.

Imagine if oil prices responded to future Saudi unrest as they had in 1980. Americans would literally be facing the prospect of $200 oil.

Perhaps the specter of Arab democracy is not a good one after all.

An even more important question is: who is to blame for these sudden uprisings?

Part III of this series will address this question and the prospects for a democratic Middle East.

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About Sean Patrick Hazlett

Conservative clean energy crusader, national security hawk, financial analyst, engineer, and former military officer.
This entry was posted in Business, China, Defense, Energy Security, Finance and Economics, International Security, Investing, Politics, Predictions and tagged , , , , , , , , , , , . Bookmark the permalink.

2 Responses to Felling Pharaohs: Be Afraid, Be Very Afraid (Part II)

  1. Pingback: Storms Scare Saudis | Reflections of a Rational Republican

  2. Pingback: Felling Pharaohs: The Beatings Continue Because Morale Has Not Improved | Reflections of a Rational Republican

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