How oil geopolitics have changed from the times of Kissinger to now

While legacy of the late US secretary of state continues to shape oil markets, there is also a need to blend tactical diplomacy with strategic vision

Former US secretary of state Henry Kissinger's main contribution to a new energy security architecture was the formation of the International Energy Agency in 1974. AFP

“Don’t talk to me about barrels of oil. They might as well be bottles of Coca-Cola. I don’t understand.” One of the most eminent figures to pass away last year, Henry Kissinger, played down his own expertise in petroleum. Yet his actions shaped modern energy geopolitics.

Mr Kissinger, who died in November aged 100, carried out the “shuttle diplomacy” that ended the active hostilities between Egypt and Syria on one hand, and Israel on the other, during the war of October 1973 that began with President Anwar Sadat’s orders for a surprise attack across the Suez Canal.

He also negotiated the 1973 peace accords that ended US involvement in the Vietnam War – allowing Washington to abandon its ally in Saigon to defeat in 1975 without further pangs of conscience.

That ran concurrently with the famous moment of Nixon in China, when in February 1972, his boss, President Richard Nixon, met China’s leader Mao Zedong.

Less laudable were his roles in the secret bombing of Cambodia, leading to the Khmer Rouge’s genocide there, in the coup against Chile’s elected President Salvador Allende, and his indifference to the hundreds of thousands or more civilians killed in Bangladesh’s war of independence from West Pakistan.

The October War most obviously highlights Mr Kissinger’s centrality to modern oil. That was the occasion for his outburst to his aides about barrels of oil.

King Faisal of Saudi Arabia tried to warn Mr Nixon throughout 1973 that he would have to impose an oil boycott if Washington did not resolve the contradictions of its Middle East policy. Mr Kissinger and Mr Nixon did not heed him.

A group of Arab states responded to Washington’s airlift of arms to Israel with an embargo on oil sales and a sharp cut in production. Coming at a favourable time, when the market was tight, spare capacity almost non-existent, and US output in decline, the effect was seismic.

The US administration would have backed Israel even if they had understood their vulnerability to an oil shock. The Soviet Union’s Middle East clients were converted or neutered.

Yet the 1970s saw the West in “stagflation”: inflation, unemployment, malaise, the end of the postwar consensus on the mixed economy and heavily-regulated capitalism.

Mr Kissinger’s main contribution to a new energy security architecture was the formation of the International Energy Agency in November 1974, with its policies of shared strategic stocks.

Intended to counter Opec, the IEA has been through episodes of co-operation and dispute with its old sparring partner. It remains important today, though its mission has grown and metamorphosed, now focusing on a new adversary, climate change.

The crisis created the modern oil market. International oil companies such as Shell, Exxon and BP lost most of their Middle East assets, and went searching for new supplies from the North Sea to Alaska.

They reshaped their business models to buy and sell oil flexibly, in freely-traded markets. The absurd web of price controls and rationing that magnified the impacts of the boycott was gradually unwoven.

Meanwhile, the flood of wealth transformed the economies of the Gulf states in particular, helping to build modern infrastructure, society and the bases of the region’s huge sovereign wealth funds.

Mr Kissinger unwisely rested regional stability on the shoulders of the Shah of Iran, and ensured he spent his new petrodollars on advanced US weaponry so that money flowed back into the American economy.

The oil boom fed the Shah’s grandiosity, and brought dislocation, inflation and breakneck social change to ordinary Iranians, leading to the 1979 revolution. The region still lives with its consequences.

High oil prices and development of the huge West Siberian fields during the decade gave the Soviet Union’s decaying economic model a new lease of life. But this only deepened its dependence, and left its leaders in the 1980s with an insoluble problem, that rather quickly brought its dissolution.

The unresolved legacies of the Soviet collapse – the position of Ukraine, the Azerbaijan-Armenia conflict, Europe’s dependence on Russian gas – loom over modern energy security.

But Mr Kissinger’s most profound bequest to modern energy geopolitics is less obvious, and lies in that visit to Beijing.

Mao needed a deal to shore up his domestic position after the chaos of the Cultural Revolution. He was also worried about growing hostility with his erstwhile Communist ally in Moscow.

Both in office and after leaving office following Gerald Ford’s defeat in the 1976 presidential election by Jimmy Carter, Mr Kissinger advocated ceaselessly for engagement with China.

Improved relations with the US allowed Deng Xiaoping, China’s leader from 1978, and his successors, to pursue economic transformation.

China was, remarkably, a net exporter of oil as late as 1992. It is now the world’s biggest oil importer, and also the biggest importer of gas, by far the largest user of coal, with the highest greenhouse gas emissions of any country.

And it has become the first near-peer geopolitical and economic competitor to the US in eight decades.

In a career lasting a century, there is plenty of time for policymakers to see the results of their actions. Mr Kissinger was too sanguine on China’s peaceful co-operation with the US.

He and those who came after brought state-to-state peace between Arab countries and Israel, but would not bring justice for the Palestinians.

He cautioned that no one can foresee all consequences, that no international system endures forever, that statecraft needs constant adjustment to circumstances.

Some able successors as secretary of state or national security adviser left their own energy geopolitical legacies. Zbigniew Brzezinski, under Mr Carter, committed the US to prevent a rival from controlling the Gulf.

James Baker, during George HW Bush’s presidency, first marshalled the US-led expulsion of Saddam Hussein’s forces from Kuwait.

Then he oversaw the western response to the Soviet collapse, which avoided catastrophic conflict and opened up its vast energy resources to outside investment. Vladimir Putin’s rule, though, ensured that co-operation would not endure.

Yet some of Mr Kissinger’s other followers rival him in ruthlessness but not in intellect. Especially in the Middle East, US policy under the past five presidents has been a curious collage of complacency and callousness.

Shale self-sufficiency cobbles together an approach to international affairs over-reliant on hydrocarbons, sanctions and bombing.

Unresolved conflicts, open or latent, in the Red Sea and Levant, eastern Europe and East Asia, pose disturbing threats to global energy and economic security.

As the US’ unipolar moment passes, the architects of a new system will not all be Americans. But there is a desperate need for new statespeople who blend tactical diplomacy with strategic vision.

Robin M Mills is chief executive of Qamar Energy and author of 'Capturing Carbon'