Across the world, demand for oil is growing. By 2015, China alone may have to import over 5 million barrels per day. Much of that oil will come from the Persian Gulf, a region graced with unrivaled oil reserves — but beset with unresolved interstate conflicts, weapons proliferation, and worsening domestic political conditions.

Clearly, the stability of the Persian Gulf will remain an important focus of Western strategy for many years to come. As Operation Desert Storm demonstrated, any threat to the long-term supply of oil from the Gulf is likely to trigger a major intervention by the U.S. and other outside powers.

But political, economic, and strategic conditions within the region and beyond it have changed significantly since the Gulf War, and the increasing unpopularity of U.S. policy in the region raises serious questions about the ability — and willingness — of the United States to carry the burden of Gulf security indefinitely. It is time to reassess the threats and how the United States and its allies can respond.

There are three general categories of threats that could disrupt Persian Gulf oil supplies: the overt use of force by regional hegemons armed with weapons of mass destruction; domestic instability and terrorism within the Gulf states themselves; and conflict over the Caspian Basin’s promising energy reserves.

A Dangerous Neighborhood: Military Threats and Weapons Proliferation

A number of direct threats to Gulf oil supplies could lead to a serious short-term disruption to the international market. This could come about through the removal from the market of one key producer (such as Saudi Arabia), a major military conflict in the Persian Gulf, or the control of oil production and prices by a regional hegemon.

Any hostile power that controlled the Arabian peninsula would not only be able to drive oil prices upward, but could use increased oil revenues to expand military arsenals and acquire weapons of mass destruction. Thus, fears about the reemergence of Iraqi or Iranian hegemony over the Gulf are well founded. Concern about the behavior of Iran’s leaders continues to be one reason why the United States has made great efforts to limit Iran’s energy production and its capacity to control oil access routes. Preventing and countering worst-case scenarios, such as an Iraqi or Iranian invasion of Saudi Arabia, civil war, or domestic unrest, are in fact the primary motives for the continued U.S. military presence in the Gulf.

Yet some argue that the very presence of U.S. forces in Arabia helps nurture instability and could disrupt oil supplies. While small-scale disruptions in any of the main oil-producing states would likely have little impact on world oil prices, large-scale disruptions caused by terrorism, regional conflict, or civil war would have an immediate impact upon the price of oil and, in turn, upon the world economy.

Possible sources of large-scale disruptions abound, ranging from unresolved regional conflicts to economic uncertainty to demographic pressures. This unruly context is made far more ominous by the troubling threats of terrorism and the spread of weapons of mass destruction, especially nuclear devices.

The attacks on American embassies in Nairobi and Dar es Salaam in August 1998 have been attributed to Islamic radicals led by renegade Saudi businessman Osama Bin Laden, operating out of territory in Afghanistan controlled by the fundamentalist Taleban movement. The U.S. responded to the terrorist attacks by launching cruise missile attacks against Bin Laden’s training camps in Afghanistan and a pharmaceutical facility in Khartoum believed to be capable of producing chemical weapons. In the late summer of 1998, Taleban forces killed at least eight Iranian diplomats who, it was claimed, were helping Afghan forces engaged in the civil war against the Taleban. Amid the ensuing furor in Iran and talks of military confrontation between Iran and the Taleban, a Taleban spokesman threatened to use Scud missiles against Tehran if Iranian forces attacked across the border.

Heightening the tension were the tests, only a few months earlier, of nuclear weapons by India and Pakistan. Some analysts predicted that Tehran would be convinced that it, too, had to continue its missile programs and eventually consider a full-fledged nuclear weapons program. The coup d’etat by the Pakistan military in October 1999 has added to insecurity in the region and the danger of nuclear proliferation.

Domestic Instability: Saudi Arabia and Iran

With Saudi Arabia’s population growing by 3.5 percent per year and its gross domestic product stagnant, per capita GDP is falling ($8,000 in 1998), and many of its young people are unskilled and unemployed. Despite the recent increase in oil prices, Saudi Arabia has had to reevaluate defense spending, cradle-to-grave welfare programs, and investments in energy modernization.

If the government is unable to maintain the standard of living to which much of the Saudi population has become accustomed, discontent with lower social spending could combine with resentment toward the presence of American military forces in the land of Islam’s two holiest shrines and result in widespread anti-government sentiment. Unrest could take the form of strikes, uprisings in the Shi’a eastern region, or the sabotage of oil facilities. A weak economy could thus have deleterious effects far beyond Saudi Arabia.

However, one should not underestimate the survival power of the House of Saud. For instance, low oil prices in 1998 were precisely the sort of wake-up call the kingdom needed to reform its institutions and its economy in order to attract foreign investment. But what is clear is that in times of internal stress the Saudi leadership is likely to be extremely cautious in endorsing foreign policy initiatives that are unpopular with the public and throughout the Arab world. Such reticence could restrict the policy options available to the United States, which cannot ignore the wishes of a long-time ally that hosts key military installations.

Because Saudi Arabia is a status quo power, pressures for change are generally regarded with concern in the West. However, exactly the opposite situation applies to Iran, which, far more than Saudi Arabia, is suffering the consequences of 20 years of mismanagement and fluctuating oil prices. Pressures on the Iranian regime to modernize and reform its economy are growing and are much welcomed in the West. The population has risen from 36 million in 1978 to 72.5 million in 1998, an increase of 100 percent. Based on current trends it will reach over 100 million early in the next century.

Iran’s GDP growth rate dropped from 3.4 percent in 1997 to an expected 2.3 percent in 1998, and its oil export income accounts for about 40 percent of government revenue. Iran claims that it loses $1 billion for each $1 per barrel drop in the price of oil. In its efforts to attract foreign investment, particularly in the critical oil and gas sectors, Iran is offering foreign corporations increased protection from nationalization and easier repatriation of profits, but it is not yet clear whether foreign companies will find the terms satisfactory.

Any attempt to free the Iranian economy from state control meets strong political opposition and risks intensifying social and political instability. Yet, without economic reform the economy is likely to deteriorate further, which may exacerbate domestic frustration, instability, and political violence. An economic slow-down could also polarize Iranian politics, already deeply split between conservatives and moderates. The return of low oil prices could pose a serious threat not only to the reform-minded President Khatami, but to Gulf security more generally.

Conflict Over Caspian Energy

Geopolitical competition in the Caspian Basin has important implications for the security of the Persian Gulf as well, not least because Iran plays a large role in both regions. The Caspian Basin could contain as much as 200 billion barrels of oil and 279 trillion cubic feet of natural gas, although estimates have yet to be confirmed by further drilling. Still, reserves of at least 30 billion barrels of oil have attracted $70 billion in investment commitments (of which only $4 billion has been spent). Even using the lowest estimates, the size of the reserves represents a potential treasure trove for the struggling economies of the five littoral states and their immediate neighbors.

What makes the emerging Caspian energy rush unique are the questions of ownership and geography. Until 1991, the Caspian Sea was controlled by the Soviet Union and Iran. Its legal status following the breakup of the Soviet Union has yet to be defined, but all five of the littoral states face major economic and political obstacles limiting their capacity to export energy. Three of them — Azerbaijan, Kazakhstan, and Turkmenistan — cannot get their energy to market without crossing another country’s territory. The various routes being considered to transport the energy betray numerous political, strategic, economic, and environmental calculations. Since the economic stakes for the winners are so high, the key participants are only reluctantly accepting the need to cooperate and compromise. Russia, for instance, tried initially to use strong-arm tactics to assure a monopoly of the key routes from Azerbaijan and Kazakhstan, but was stymied by its own financial problems and the conflict in the Caucasus.

Iran’s problems concern its poor relations with the West and its difficulties attracting sufficient investment to develop its huge but underutilized natural gas reserves and to exploit its geography as a transit route for its neighbors’ oil and gas.

U.S. support for pipelines through Russia is muted because Moscow’s precise role in the future of Caspian oil resources is uncertain. Competition between Russia and NATO-allied Turkey for influence in the region has been particularly stiff, and the Kremlin is wary of Western hegemony extending through its own backyard.

U.S. POLICY REVISITED The crisis with Iraq is the most serious threat to the region. As long as Saddam Hussein remains in power, there is a distinct danger that Iraq will eventually reemerge as a regional military power with a revanchist agenda and military forces equipped with weapons of mass destruction. Moreover, the November 1998 crisis over Iraq’s expulsion of UNSCOM inspectors was a threshold event, because extensive U.S. and British air strikes against Iraq signaled that the grand coalition assembled and orchestrated by George Bush in 1990-91 had broken up. It also demonstrated unambiguously the Arab world’s growing antipathy toward the U.S. over the imposition of sanctions against Iraq.

But there is another dilemma for American policy: the growth of anti-Americanism is paralleled by the reemergence of Iran as a serious player in regional politics. Despite the rhetoric labeling Iran a rogue state, America’s strategic interests suggest that Washington should seek normal relations with the Islamic Republic. That said, several considerations must be taken into account.

First, the Clinton Administration’s attempt to isolate Iran politically through containment has failed.

Second, Iran’s anti-Israeli policy is a major obstacle to normalization. So long as Iran pursues policies that directly threaten Israel, neither the Clinton Administration nor the Congress will initiate or accept dramatic changes in American policy.

Third, the election of Mohammed Khatami to the Iranian presidency has radically changed the dynamics of Iranian domestic politics. Yet, unless he and his moderate supporters gain control of the key instruments of power, his proposed reforms and even his tenure in office could be in jeopardy. The parliamentary election in February 2000 was a great victory for the reformists. It remains to be seen whether this victory translates into an effective shift of power from the conservatives to the reformers.

Fourth, unfavorable economic and demographic trends in Iran pose serious challenges for any Iranian leader, whether moderate, centrist or radical.

Fifth, the negative impact of American sanctions on Iran’s vital energy sector provides a strong incentive for the regime to improve relations with the United States.

Sixth, the United States casts a long shadow over Iran’s strategic, political, economic, and indeed psychological landscape, and the conservative leaders in Tehran realize that rapprochement will inevitably mean a diminution, if not an end, to their power.

Seventh, Iran faces serious security challenges in its immediate neighborhood. It will continue to develop surface-to-surface missiles and an infrastructure to produce nuclear weapons in the event that its security environment deteriorates.

Support for a powerful military presence in the Persian Gulf remains strong in both the Clinton Administration and U.S. Congress. However, this consensus could shift if the financial or human costs of a protracted Gulf presence increase significantly — which could happen for a number of reasons.

For one, the evident lack of support among the NATO and Arab Gulf allies (with the exception of Britain and Kuwait) for American policy toward Iraq could eventually spark a backlash within the Congress and among the American public. Further terrorist incidents that cost American lives would be sure to heighten that sentiment.

Furthermore, while economic and strategic analysts understand why the security of Gulf oil is vital to the U.S. economy (even if most of the oil is bound for Asia), the American public and some members of Congress do not necessarily share that view. Why, they will ask, should American blood and treasure assure the flow of reasonably priced oil to China and Japan?

U.S. leaders must present a more compelling and coherent strategic rationale for an open-ended Gulf commitment that is credible and accepted by the American public and key allies. Unilateral American actions will not suffice to deter serious threats such as the proliferation of weapons of mass destruction. If initiatives are not soon undertaken to strengthen the allied coalition, far more will be at stake than the price of oil.