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Middle East Tensions - 50 Years Apart in Time, Light Years Apart in Economic Impact
Middle East Tensions - 50 Years Apart in Time, Light Years Apart in Economic Impact

This article originally ran on Forbes.com on February 7, 2024. All rights reserved.

Daniel B. Markind is a Forbes.com energy column contributor. The views expressed in this article are not to be associated with the views of Flaster Greenberg PC.

Over 50 years ago, on October 6, 1973, the Arab armies of Egypt and Syria launched a surprise attack on Israel during Yom Kippur, the holiest day of the Jewish calendar.

Almost exactly 50 years later, on October 7, 2023, the Arab terrorist organization Hamas launched another surprise attack on Israel during Simchat Torah, another holiday of the Jewish calendar.

Each time it was attacked, the Israeli military establishment was initially caught unaware, having been lulled into a false sense of security by a “concept” that it would not be attacked that later proved to be faulty.  In 1973, the rationale was that the Egyptian and Syrian armies, having been utterly humiliated during the Six Day War of 1967, would not be so audacious as to attempt a surprise attack on Israel again – especially only 16 years after their resounding defeat in 1967.  In 2023, the excuse had become that Hamas was too weak to constitute an existential threat to the Jewish State, and that Israel, by allowing Qatar to flood the Gaza Strip with cash and improve the living conditions in that region, would induce Hamas, who essentially ruled all facets of Gaza, to moderate its position that it exists as an organization for the fundamental purpose of destroying the State of Israel.

The reasons why Israel’s attackers ignored prevailing wisdom and ultimately did attack in each case aside, each time it was attacked, after being initially thrown back on its heels, Israel managed to regroup militarily and ultimately did take the fight to the Arabs in convincing fashion.

While the military situations fifty years apart are similar, the economic fallout from the Mideast Wars has been completely different.  Unlike in 1973 however, the world economy today has not been convulsed by economic headwinds, and the energy crises which resulted from the Arab Oil Embargo in 1973 have not reoccurred in 2023.  Part of the reason for that has been the expanding relations between many Arab states and Israel, beginning with the 1979 Egypt-Israel Peace Agreements and continuing most recently through the Abraham Accords of 2020.  To date, despite four months of massive Mideast tensions, since the Hamas attack last October, not one Arab nation has broken diplomatic relations with Israel.

However, another reason for the failure of Arab states to take aggressive action to pressure the West probably is that, thanks to unconventional oil and gas production, OPEC has lost the control over worldwide oil and gas pricing that it once held in the past.  Unlike before, when the OPEC cartel could boost the costs for fossil fuel energy worldwide by artificially creating huge shortages of oil and gas, in 2023, it is now the United States who most recently set a record for oil production by any country in history, selling approximately 13.5 billion barrels per day in the calendar year that just ended (Source). At the same time, the United States is also exporting more oil than any nation except Saudi Arabia, thereby flooding the worldwide economy with readily available oil and gas product.

Beyond that, there is also the fact that, given the right conditions and policies, the United States has the capacity and the ability to produce much more oil and gas even than what it produces at present. This record production has even occurred at a time when the Democratic Biden Administration remained unsure about its policies regarding fossil fuel production and export.  That culminated in an Executive Order signed the last week of January placing a freeze on new export permits for natural gas (Source).   While oil isn’t specifically mentioned, the freeze raises the possibility that oil exports will be targeted next, and soon.

The Mideast War also is occurring at the same time as the Ukraine War, which has caused much of the Russian market to go offline.  Again, and notwithstanding the reduced Russian production and sales, prices of gas and oil generally remain steady worldwide.

Against this backdrop, the failure of the Gaza War to impact world energy prices shows the importance in international affairs of the fracking revolution.  Whatever the conflicting pressures on energy production facing the Biden Administration may be, he is not impacted as President Nixon was in 1973 (or as President Carter was in 1979, following the Iranian revolution) by long lines at gas stations, gas rationing, and national fears of industrial shutdowns due to worldwide energy limitations.

At the same time, the January natural gas export permit freeze shows the power of the environmental movement on Mr. Biden’s Democratic base, and the potential dangers for the President and the world.  We are still two months from the end of winter in Ukraine, and any limitation on our ability to export natural gas can only play into Vladimir Putin’s hands and undercut our national interest in supporting Ukraine in countering Russia’s aggression.  Still, United States natural gas futures fell below $2.1/MMBtu, nearing their lowest point in nine months after the United States Energy Information Agency's recent storage report. Government data showed that United States utilities pulled 197 billion cubic feet of natural gas from storage last week, compared with market expectations of a 194 bcf draw. The report also showed gas in storage remains 5.1% above the seasonal norm (Source).

To those who remember the Arab Oil Embargo of 1973, it is startling how little the current Mideast turmoil – even with the threat to shipping in the Straits of Hormuz,has impacted the world economy.  It results in an American President having a freedom of action that his predecessors could only have dreamed of.  Let’s hope Mr. Biden uses that freedom wisely.

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