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Energy Politics

The International Energy Agency (IAE) expects USA to be the world's top most producer of oil by 2015. This development, courtesy - shale oil (a non-conventional source of energy), will have huge ramifications for international politics. To start with, it shall mean a gradual withdrawal of US presence (or as some would say - interference) in the oil-rich Arab World. The signs are obvious - a rapproachment with Iran (i.e the deal the West and Iran reached upon recently), a steady disinterest in Syria and cooling relations with Saudi Arabia.

Diplomats announcing the Iran Nuclear Deal

The energy scenario across the globe, which has long shaped international politics for decades now, is decisively changing. US has seen it's oil imports from the Arab World steadily decreasing. As recently as 2005, US oil imports were more than 12.5 million barrels a day. Today, they stand at 6.5 million barrels a day. With rising self-sufficiency in oil production, the USA no longer needs to depend upon imports from other countries (especially those considered to be potentially hostile. There was once a time when the paramount concern of US leaders was their reliance on imports from hostile countries.) for the liquid gold which it needs in order to fuel it's economic growth.

The most obvious loser - Saudi Arabia. For a country which, by virtue of it's warm ties with the USA, has been dominating Middle East politics, shale oil is a threat to it's position. There are three facets to this threat. The first one is that of the danger of USA, the largest oil market, reducing Saudi oil imports and crushing their economic prospects. Second, that of diminishing US presence in the once-strategic region, which could have a counter-effect on it's influence. Third, as demonstrated by the Iran pact, is the fact that USA can now hobnob with Iran too. The third one is the most frightening - because Iran is a Shia state unlike the Sunni-dominated Saudi (countries of the Arab World have been caught up in a cold war between Sunni and Shia sects of Islam for decades now) and the fact that it could reopen the Iranian market (crippled by US and EU sanctions) to the world and reduce prices.

To move on to the Iran pact, I can just draw comparisons to the deal with the American outreach to the Chinese in the 1970's under President Richard Nixon. Considered a masterstroke, the outreach paved the way for the collapse of communism in the world and China's eventual accession to the post of the world's fastest growing nation. The Iran deal is more likely to help the US mission in Afghanistan. Afghanistan is bordered primarily by two countries - Iran and Pakistan. With Iran being hostile territory, Pakistan was the only way for the NATO to allow supplies and troops to reach Afghanistan. If there is further bonhomie with Iran, the possibilty of Iran being an alternative to Pakistan becomes more probable.

This of course, brings us to the fact that this is a great bonus for the Indian Diplomats. India shared fairly good relations with Iran, and the only barrier was the USA's antagonism for Iran. The US sanctions inflated our import bill by blocking access to cheaper Iranian crude. If these sanctions are lifted, our current account deficit can fall further and the Rupee too will gain in comparison to the dollar. Further, an Iranian alternative to Pakistan will be a victory for Indian foreign policy. Since the War Against Terrorism began and the NATO troops invaded Afghanistan, America has given Pakistan billions of dollars in aid which India claims has been used to bolster it's defence infrastructure on the Indian border.

All in all, the shale oil boom in the US has ensured that it no longer has an axe to grind in the Middle East. This coupled with the determination of the new Iranian regime to end it's isolation to the outside world has allowed the recent breakthrough in the talks in Paris. The broader effect of this entire development has been net-net positive for Iran, USA and it's allies (the EU and India) and a big negative for the Saudis, Israelis (who would have preferred a complete invasion of Iran) and Pakistanis. Dynamics in the world have changed all over again.


 

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