Why America’s ‘energy dominance’ waned in the Middle East

Dynamics changed with 2003 Iraq war, boosted US shale production and increased role of Opec and China

The Nihran Bin Omar oil field flare stacks burn north of Basra, Iraq. AP

Twenty years ago last week, US tanks rolled across the Iraqi border. And nearly to the day, Saudi Arabia and Iran signed a Chinese-mediated deal to restore diplomatic ties. During those two decades, America’s unipolar moment faded, it achieved its longed-for “energy dominance”, but that dominance is nowhere less apparent than in the Middle East.

The motivations for the 2003 American invasion have been deeply debated, and varied between proponents and depending on the audience. Unlike Saddam Hussein’s earlier seizure of Kuwait, it was not a “war for oil”.

Certainly, Iraq’s military and economic power depended on its petroleum, and it had earlier threatened to dominate the hydrocarbon-rich Arabian Gulf with its invasions of revolutionary Iran and then its smaller GCC neighbour. A stable, pro-American Baghdad might indeed help assure the US’s dominance over this critical area.

Various figures in the Bush administration had hopes that a post-invasion Iraq might be detached from Opec, that they could privatise its petroleum industry, or that a flood of new Iraqi oil might bring down oil prices, which then seemed uncomfortably high at around $30 per barrel.

Richard Perle, a leading neo-conservative advocate for the war and an influential defence official at the time, said in July 2002: “Iraq is a very wealthy country. Enormous oil reserves. They can finance, largely finance the reconstruction of their own country.”

The White House press secretary, secretary of defence Donald Rumsfeld, deputy secretary of defence Paul Wolfowitz and others made similar comments.

But the US did not seize Iraqi oil for its own use or determine who should have access to it and who should be denied.

Indeed, ex-president Donald Trump repeatedly complained that the US should have done so, saying in 2011, “In the old days, when you had a war, to the victors belong the spoils. You go in. You win the war and you take it”, and repeating that theme numerous times in 2016, 2018 and, regarding Syrian oil, 2019.

Instead, the occupation authorities were remarkably lackadaisical about rebuilding the Iraqi petroleum industry, in the middle of an insurgency, a civil war and the takeover of the oil hub Basra by the Mahdi Army militia.

Two decades of war, sanctions and brain drain had devastated the sector. Outside the semi-autonomous Kurdistan region, Iraqi nationalism won out over American free-market ideology and there was no significant foreign investment. As late as 2010, output was below 2001 levels.

That failure contributed to the remarkable global oil price surge up to the middle of 2008, which was supercharged by China’s runaway economic growth.

When the 2008-2009 financial crisis caused prices to crash, the Iraqi government finally offered its major fields to international oil companies in competitive bids. The winners were a fairly balanced mix of Americans, Japanese, Europeans, Malaysians, South Koreans, Russians, Chinese and others.

Far from plundering Iraq’s resources as the western left alleged, these companies ended up with extremely harsh contracts that left them with just one or two dollars per barrel profit and low or negative returns on capital after shouldering long bureaucratic delays, late payments and lack of required infrastructure.

The last American corporation, ExxonMobil, is in a protracted process of withdrawal; Equinor (then Statoil), Occidental and Shell left the oil sector years ago, though Shell hangs on in gas. Russia’s Lukoil has repeatedly threatened to go. Chinese companies secured most of the spare stakes.

Last month, Baghdad finally signed six exploration and field development contracts that had been in limbo since its 2018 bid round; three went to Sharjah-based Crescent Petroleum and the other three to Chinese firms.

The Iraqis have grown concerned that China is too dominant in their oil business — Chinese service and engineering companies also play a big role, including operating the giant Majnoon field on the border with Iran, after Shell withdrew.

Nevertheless, they have not improved their terms enough to entice new entrants and the painful experience of France’s TotalEnergies in exhaustive negotiations for an oil, gas, power and water package deal will deter others.

Iran, now a major gas and electricity provider to Iraq, also plays an important, usually negative, behind-the-scenes role in the energy sector.

The Kurdistan region’s claim to an independent oil sector appeared as a relative success, but it emerged out of the hasty, messy constitutional compromises of 2005.

On Saturday, Turkey ceased pumping oil from Kurdistan through its territory, in deference to a Paris arbitral tribunal’s finding in favour of Baghdad. This is a potentially devastating blow to the generally western-aligned government in Erbil.

The US ended up playing the role it had hoped Iraq might. Its surge of shale oil production brought down prices sharply from 2014 and gave the Obama administration the confidence to impose stringent sanctions on Iran’s oil exports.

January 29, 2002: US President George Bush identifies Iraq, Iran and North Korea as part of an 'axis of evil' in his State of the Union address. 'States like these, and their terrorist allies, constitute an axis of evil, arming to threaten the peace of the world. By seeking weapons of mass destruction, these regimes pose a grave and growing danger,' he says. Getty

February 15, 2002: Thousands of people gather in Hyde Park in London after finishing a protest against war in Iraq. The march is believed to be the UK's biggest ever peace protest. Getty

March 18, 2003: US and British forces move into position before a possible military strike near the Kuwait-Iraq border. A day prior, Mr Bush gave Iraqi President Saddam Hussein and his sons 48 hours to leave the country or face war. Getty

March 21, 2003: Fires burn in and around Saddam's Council of Ministers during the first wave of US-led coalition airstrikes on Iraq in Baghdad. 'These are the opening stages of what will be a broad and concerted campaign,' he says in an address. The attack begins with a massive air strike campaign named 'shock and awe'. Getty

March 29, 2003: A man and child walk on a road near the entrance of the besieged city of Basra as oil fires burn in the distance. Baath Party loyalists take up positions in Basra, Iraq's second largest city, making it a target of the US-led war on Iraq. Getty

April 9, 2003: Iraq’s capital, Baghdad, falls to US forces. Saddam’s regime loses control as American troops enter the city centre. On May 1, US President George W Bush prematurely declares the end of major combat in Iraq. Reuters

August 30, 2003: A burnt-out car is removed from outside Najaf’s Imam Ali Mosque, the holiest Shiite shrine in Iraq, a day after 87 people were killed in a car bomb attack. The attack raises sectarian tension as thousands of Iraqi Shiites, some of them backed by Iran, demand the right to form militias. Reuters

December 13, 2003: Ousted president Saddam Hussein is found by US troops in a cellar south of Tikrit, near his hometown. 'Ladies and gentlemen, we got him,' says US ambassador Paul Bremer, who was appointed to lead the Coalition Provisional Authority. AFP

March 31, 2004: A car burns in the aftermath of an insurgent attack on Fallujah, in which four Blackwater private security contractors were killed and their mutilated, burnt bodies were left hanging from a bridge. Reuters

May 3, 2004: Coffins of US military personnel killed in Iraq are prepared to be offloaded at Dover Air Force Base in Delaware. Days later, Al Qaeda beheaded US businessman Nicholas Berg and recorded his killing. Reuters

June 28, 2004: US administrator in Iraq Paul Bremer (R), Iraqi Prime Minister Ayad Allawi (C) and the country's most senior judge Midhat Mahmoud (L) smile as the US transfers sovereignty to Iraq in Baghdad. Mr Allawi calls the event 'a historic day' and says that Iraq was 'capable of controlling the security situation'. Reuters

January 30, 2005: Iraqis vote in the first parliamentary elections of the post-Saddam era. Sunnis largely boycott the vote, while most Shiite parties coalesce into a sectarian bloc, cementing divisions within the country. Getty

April 7, 2005: Veteran Kurdish leader Jalal Talabani raises his hands after being sworn in as Iraq's first democratically elected president. Later that month, Shiite Islamist Ibrahim Al Jaafari takes office as prime minister, hailing from the exiled Dawa Party. Getty

July 24, 2005: Burnt-out vehicles at the scene of a lorry bombing outside a police station that killed 22 people in south-east Baghdad. The explosion also injured 25 people, destroyed 22 cars and 10 shops. AFP

October 19, 2005: Saddam’s trial begins. Prosecutors focus on a massacre in the village of Dujail, 100 kilometres north of Baghdad, where about 150 people, including children, were killed following an assassination attempt against the former dictator. Many other charges relate to a genocidal campaign against Kurds during the 1980s, during which Saddam ordered a chemical attack on the town of Halabja, killing up to 5,000 people. Getty

February 23, 2006: Iraqis clean up debris after an Al Qaeda bombing at Al Askariya holy Shiite shrine in Samarra, Iraq. Shiite police and militia members — in many cases indistinguishable — responded by rampaging through Sunni-majority areas, in an onslaught that coalition forces appeared powerless to halt. Getty

June 8, 2006: Maj Gen Bill Caldwell speaks during a press conference as satellite images are shown of a US air strike that killed the leader of Al Qaeda in Iraq, Abu Musab Al Zarqawi, in a joint US-Iraqi raid. Getty

December 30, 2006: Saddam is executed by hanging. The execution and taunting of Saddam before his death is secretly filmed by a witness, stirring further tension within Iraq. Getty

January 11, 2007: US officers watch Mr Bush's speech announcing that another 20,000 soldiers will be sent to Iraq, at Camp Ramadi in Iraq's violent Anbar province. The approach becomes known as the 'Surge,' and envisages a closer partnership between US and Iraqi forces and tribes, as well as American forces being stationed closer to Iraqi communities. Getty

July 12, 2007: Two Reuters photographers and five civilians are killed by a US Apache helicopter in Baghdad. US video footage of the incident would later be released by Wikileaks. EPA

December 14, 2008: Mr Bush makes his final visit to Iraq to sign a co-operation agreement between Iraq and the US known as the Strategic Framework Agreement. At a press conference with Nouri Al Maliki, Munthadar Al Zaidi, a journalist, throws his shoes at Mr Bush. Mr Al Zaidi is severely beaten and jailed for six months. Reuters

February 27, 2009: US President Barack Obama announces Washington’s decision to withdraw most American troops by August 31, 2010. Mr Obama says 50,000 troops will remain for smaller missions and to train Iraqi soldiers. EPA

April 23: At least 80 people are killed in three suicide bombings in Baghdad, making it the biggest daily death toll since early 2008. A woman standing in a group of other women and children receiving aid reportedly set off one of the bombs. EPA

December 21, 2010: Iraqi Prime Minister Mr Al Maliki (L) and members of his newly formed cabinet attend a voting session at the Iraqi Parliament in Baghdad, Iraq. The new government was unanimously approved, ending nine months of deadlock. Getty

JANUARY 8, 2011: Populist Shiite cleric Moqtada Sadr returns to Iraq after four years of self-imposed exile in Iran. In his first public statement, he urges his followers to resist the 'occupiers' of Iraq. EPA

February 25, 2011: A 'day of rage' is declared as tens of thousands of Iraqis protest against Mr Al Maliki’s government. At least 23 people are killed and hundreds injured in a sign of Mr Al Maliki’s growing authoritarianism. Getty

December 17, 2011: The last of the US Troop Brigade board a plane to depart Iraq at Camp Adder, now known as Imam Ali Base, near Nasiriyah, Iraq. Two days prior, the US military formally declared the end of the Iraq War in a ceremony in Baghdad. Getty

December 23, 2012: Protests against harsh security crackdowns break out in Fallujah, Ramadi and Tikrit. Sunni protesters say men are being arbitrarily jailed without evidence while the government holds back pensions for former army officers. The demonstrations last until December 2013 when the Iraqi army tries to break up protest camps. EPA

July 22, 2013: Mourners pray at the coffin of a victim killed during an attack on a prison in Taji, during a funeral at the Imam Ali shrine in Najaf. Reuters

December 22, 2013: Funeral proceedings for a major general of the Iraqi army’s 7th division in Anbar. The division's leadership were killed when a house they are raiding explodes after being rigged with bombs. The mixed Sunni-Shiite group is seen as one of the last non-sectarian units in the Iraqi army. Reuters

June 11, 2014: ISIS fighters stand guard at a checkpoint in the northern Iraqi city of Mosul. Days prior, the militants seized Iraq's second biggest city of Mosul as well as Tikrit, hometown of former dictator Saddam Hussein, and other towns and cities north of Baghdad. Reuters

July 9, 2014: Al Nuri Mosque in Mosul before it was destroyed by ISIS militants during their retreat three years later. On June 29, Abu Bakr Al Baghdadi, leader of ISIS, appeared for the first time in public at the mosque to declare the caliphate. EPA

October 18, 2014: Smoke rises over Syrian town of Kobani after an air strike. Three days prior, Washington launched a campaign called Operation Inherent Resolve. Over the next year, the US military conducts more than 8,000 air strikes in Iraq and Syria. Reuters

November 13, 2015: Kurdish forces seized Sinjar from ISIS after a prolonged siege, in the largest urban battle undertaken by the Kurdish Peshmerga. Getty

October 16, 2006: Iraq launches US-backed campaign to liberate Mosul from ISIS. EPA

October 21, 2016: Fire at an oil field that was set on fire by retreating ISIS fighters before the Mosul offensive in Qayyarah, Iraq. Getty

July 2, 2017: While retreating from Mosul, ISIS destroys Al Nuri mosque. Iraqi forces encounter stiff resistance from ISIS with improvised explosive devices, car bombs, suicide bombers, heavy mortar fire and snipers hampering their advance. Getty

July 9, 2017: Iraqi Prime Minister Haider Al Abadi declares victory over ISIS in Mosul. In December, he declares full victory over ISIS. AFP

Opec realised it could not tackle both shale and Russia together. It brought Moscow into the Opec+ alliance in 2016.

The US has stepped up as a critical provider of oil and gas to Europe following Vladimir Putin’s invasion of Ukraine.

But Washington’s moment of “energy dominance” may have been fleeting, as its shale oil expansion runs out of steam.

President Biden visited Saudi Arabia in July hoping for more Opec output to compensate for losses from Russia.

Instead, the organisation consulted its own interests and cut output in November, apparently wisely given the recent sharp price drops.

American commentators from right to left welcomed the idea that shale would free the US from dependence on the Middle East.

But that goes both ways.

Now the largest importer from, and exporter to Iraq, Iran and Saudi Arabia, is Beijing, not Washington. Then China was able to mediate the restoration of Riyadh-Tehran relations.

If and when it wants, China will be able to call the shots in Baghdad too.

Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis