• The importance of the Middle East in the global energy market is as strong as ever.
• A new surge in oil or gas prices during the coming winter would dampen economic growth across the world.  
• Once again we are reminded that energy and politics are inseparable

Exactly fifty years ago on the 6^th of October 1973, the Jewish holy day of YomKippur, Egyptian and Syrian forces launched an unexpected attack on Israel. The war ended in the usual stalemate, but Israel’s military predominance was tarnished, and the Arab states found a new form of weaponry – an oil embargo targeted against Western providers of arms and strategic support to the Jewish state. Oil prices soared, assets were nationalised and the Shah’s government inIran was overthrown. The North Sea and Alaska suddenly became viable as areas for investment in new energy supplies.

For Hamas the use of the fiftieth anniversary of that war to attack Israel again, was not accidental. Their target on Yom Kippur was not the innocent civilians attending a music festival or the residents of Kibbutz Kfar Aza. Their primary target was to break the momentum of any normalisation of relations between Israel and theGulf States. For Israel to be recognised as a legitimate part of the regional community of the Middle East represented a betrayal of any hopes of establishing a Palestinian state.

The conflict could spread  

At great cost they have achieved that goal. Israel’s response to the terrorist attacks will be harsh and brutal. Beyond the waves of bombing will come the isolation of Gaza, the denial of food and power supplies and at least a partial invasion to wipeout Hamas’s military infrastructure. For the Arab leaders in Saudi Arabia and the Gulf, the pragmatic engagement with Israel, based on security considerations and potential economic links, made great sense. But those leaders – whether in Cairo or Baghdad or even Riyadh, cannot ignore the overwhelming opinion of the Arab streets where support for the Palestinians is strong and will be strengthened still further by Israel’s military retaliation against Hamas. In the West Bank and across the region the war will radicalise a new generation.

Once begun thedirect conflict between Israel and Hamas, fuelled by atrocities and this time around by the added emotional nightmare of hostages will be very hard to end. Theconflict itself could spread. Lebanon remains under the effective control ofHezbollah, which in common with Hamas, is seen by the Israelis and many othersas a tool of the regime in Tehran. The risks of escalation are very high.

Energy as a tool

As in the 1970s energy will be a tool within any new conflict. The Gulf States learnt in the1970s that the use, or even the threat, of an embargo on energy supplies worked to their benefit. Higher prices brought them revenue and the power to dictate terms to once all-powerful Western oil companies. The detailed circumstances have changed, but the importance of the Middle East in the global energy market is as strong as ever.  More than a third of international traded oil comes from the Middle East. If Russia is added in, that figure rises to 45 per cent. For Natural Gas Qatar alone supplies a fifth of all LNG trade.

America is significantly more self-sufficient in energy than it was 50years ago but still vulnerable to surges in global prices which will fuel inflation. The USA no longer imports much crude from the Gulf states but its political commitment toIsrael which is unbreakable in an election year will ensure that for the Arab militants, American interests are still obvious targets.  

Balance of supply

Europe is much less self-sufficient in energy than it was. Production from the UK and Dutch sectors of the North Sea is declining. Imports now account for 90 per cent of theEuropean Union’s oil consumption, and over 60 per cent of its gas supplies. The balance of supply against demand would be significantly tighter if the additional gas provided last winter by Qatar were to be cut back, or if Russia decided to reduce trade even further, to put pressure on Germany and otherEuropean powers to reduce their support for Ukraine.  The supply/demand balance would be tighter still if producers in the US were discouraged or forbidden to increase exports to protect domestic consumers from rising bills. With most oil and gas trade from the Persian Gulf now turning eastwards to Asia any increase in prices would represent a tax on the globalSouth. A new surge in oil or gas prices during the coming winter would dampen economic growth across the world.  

Climate campaigners will hope that another set of energy supply risks will strengthen the case for investment in renewables.  That may be true, but in the very short term the world remains dependent on oil and gas for more than half our daily energy needs – a figure which has barely changed in 25 years.  There are no short-term substitutes for the oil and gas we use in our trucks, planes, or factories. The transition to a lower carbon economy requires new infrastructure and the replacement of much of the equipment we use to consume energy as well as new supplies of low carbon supplies. That transition is a very long-term process.  In the short term the level of dependence on the resources of the Gulf States is as strong as ever.

Local self-sufficiency and bilateral trade

Just as the Israeli Government and security forces believed that the threat from Hamas had been contained, so it has become easy to assume that open global markets would protect energy security.  That assumption was shaken by the war in Ukraine and could now be broken by events in the MiddleEast.

 Instead of an open global market we are likely to see a greater drive for national energy policies maximising local self-sufficiency and bilateral trade deals which secure import needs. China is already leading the way in that direction, leaving the rest of the world to struggle to secure a share of the remaining supplies.  

The history of the1970s will not be repeated in detail, but once again we are reminded that energy and politics are inseparable and that the unresolved conflicts of the Middle East are still capable of disrupting the global energy market.

‍