January 9, 2020

How Would a Regional Conflict Between Iran and the US Affect the Geopolitics of Iranian and Iraqi Oil?

By Adlai Erwin

Since the 1979 Islamic political revolution, US-Iranian relations have been marred by ideological and geostrategic differences across the Middle East. These bilateral tensions have been especially pronounced during the tenure of President Trump after withdrawing from the 2015 Nuclear Deal and imposing crippling, comprehensive economic sanctions beginning in August 2019. Nevertheless, the deepening fissures between the two states have come to a potentially critical mass with the January 2nd assassination of Qassem Soleimani, a top-ranking official in the Iranian Revolutionary Guard and leader of the clandestine Quds Force.

Following the confirmation of the assassination by both Iranian and American media, oil prices jumped by an initial 3 percent (Earls, 2020). Given this initial spike in oil prices, the aim of this article is to articulate the energy geopolitics of a potential regional war. In particular, it is argued that a traditional war could take place in the major oil-producing regions of Khuzestan in Iran and near Basrah in Iraq, both of which could entangle external actors—particularly China—in any potential war due to energy security concerns.

The Energy-Related Geopolitical Implications of a Possible Regional War

While US-Iranian relations have been tense since the 1979 Islamic revolution, the recent developments in January 2020 have brought the two nations to their closest point of a hard power conflict yet. With both sides becoming increasingly belligerent after the assassination of Qassem Soleimani, a regional conflict could have dire implications for global oil and gas markets.

First and foremost, if war breaks out and is conducted on Iranian soil, it is likely the majority of fighting could take place in the country’s southwestern province of Khuzestan, home to the majority of Iranian petroleum reserves. This region is of crucial geostrategic importance, as its proximity to the Gulf—which is home to 16 US military installations—could function as the springboard for a US invasion (Wallin, 2018). Further, the economic importance of the province for Iran makes it an important target for the US, since crippling Iranian oil production would have significant implications for the country’s oil-dependent economy—with petroleum revenues expected to account for 30 percent of Iran’s 2019 fiscal budget despite US sanctions–and a potential trickle-down effect on its military finances (Tavakol, 2019). Indeed, this notion has a historical precedent from the Iran-Iraq war of the 1980s, where Khuzestan served as both a motivational bulwark for the Iraqi invasion and a protracted battleground for on-the-ground forces during the conflict (al-Marashi, 2013: 22).

Infographic: How Iran Is Bankrolling Regional Instability | StatistaDespite the potential for a conflict to take place in the province of Khuzestan, Iraq could also find itself as a fighting arena due to its geographic positioning between the Gulf and Iran. Iraq’s main oil-producing city Basrah sits close to the Khuzestan border, thereby creating a dual-dynamic of pressure on oil output potential for both Iranian and Iraqi producers should a conflict arise.

The majority of Iraqi oil, primarily from the Basrah fields, is exported to Asian nations such as India, China, and South Korea (OEC, 2017). With tensions between China and the US under President Trump due to the ongoing trade war being especially pronounced, Iraqi energy prospects have the potential to embroil China in the regional conflict if it views its energy security as being threatened. As of 2018, Iraq accounted for 10 percent of total Chinese imports and in 2017 12.5 billion dollars of Iraqi crude was imported by China (Chinapower, 2018; OEC, 2017). Just behind Iraq, Iranian oil was responsible for 7 percent of Chinese oil imports, bringing the Iraq-Iranian total to nearly 16 percent of Chinese crude supplies (Workman, 2019). While it can be argued that other producers could make up for this deficit if crude outputs to China were stymied by conflict, it is important to understand the concurrent underlying mechanisms at work for Chinese imports. In particular, oil-import relations have served as an important tool for expanding Chinese soft power in the region in their bid to try and ascertain further influence in the Middle East (Vatanka, 2019).

Thus, aside from strictly energy security considerations by the Chinese, the soft-power relations fostered amongst China, Iran, and Iraq might serve as a further motivational impetus to become involved in any potential conflict. These sorts of implications for multi-actor warfare in the region could serve as a prolonging of a prospective conflict and could have a drag on the global economy as a whole due to the two largest world economies potentially becoming involved in the region and exerting significant financial resources to undertake conflictual proceedings.

Concluding Remarks

Given the adverse implications of any potential regional conflict between the US and Iran for geopolitical energy considerations, it is important that both sides exert militaristic restraint and try to resolve the assassination of Qassem Soleimani through diplomatic channels. While seemingly paradoxical, these recent developments could serve as a mechanism to bring Iranian and US officials to the bargaining table due to a mutual interest in avoiding conflict. Avoiding war is imperative for not only global oil flows, but to mitigate the potential for outside actors to become involved due to self-interested motivations, particularly China.

References

  • al-Marashi, A. (2013). Lessons Learned: Civil-Military Relations During the Iran-Iraq War and their influence on the 1991 Gulf War and 2003 Iraq War. In: N. Ashton and B. Gibson, ed., The Iran-Iraq War: New International Perspectives. Abingdon: Routledge, pp.15-33.
  • Chinapower (2018). How is China’s Energy Footprint Changing? |ChinaPower Project. [online] ChinaPower Project. Available at: https://chinapower.csis.org/energy-footprint/#toc-4 [Accessed 9 Jan. 2020].
  • Earls, M. (2020). Could Gas Prices Jump After US Killed Iran General? Here’s What You Need to Know. [online] Impact2020. Available at: https://www.mcclatchydc.com/news/nation-world/world/article238949351.html [Accessed 9 Jan. 2020].
  • OEC (2017). OEC – Iraq (IRQ) Exports, Imports, and Trade Partners. [online] Oec.world. Available at: https://oec.world/en/profile/country/irq/ [Accessed 9 Jan. 2020].
  • Tavakol, M. (2019). Iran’s Crude Oil Exports: What Minimum is Enough to Stay Afloat? – Atlantic Council. [online] Atlantic Council. Available at: https://www.atlanticcouncil.org/blogs/iransource/iran-s-crude-oil-exports-what-minimum-is-enough-to-stay-afloat/ [Accessed 9 Jan. 2020].
  • Vatanka, A. (2019). China’s Great Game in Iran. [online] Foreign Policy. Available at: https://foreignpolicy.com/2019/09/05/chinas-great-game-in-iran/ [Accessed 9 Jan. 2020].
  • Wallin, M. (2018). U.S. Military Bases and Facilities in The Middle East. [online] Washington D.C.: American Security Project, pp.1-15. Available at: https://www.americansecurityproject.org/wp-content/uploads/2018/06/Ref-0213-US-Military-Bases-and-Facilities-Middle-East.pdf [Accessed 9 Jan. 2020].
  • Workman, D. (2019). Top 15 Crude Oil Suppliers to China. [online] World’s Top Exports. Available at: http://www.worldstopexports.com/top-15-crude-oil-suppliers-to-china/ [Accessed 9 Jan. 2020].

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