The one true U.S. strategic interest in the Middle East: energy.

Cordesman, Anthony H.

The one major exception to the failure of the Middle East and North Africa (MENA) to compete on a global level has been its energy exports, almost solely because its vast energy reserves have given it a huge natural advantage. This is also an area where the global economy is projected to become massively more dependent on the Middle East in the future.

THE IMPORTANCE OF OIL RESERVES

The MENA region has roughly 715 billion barrels of proven oil reserves, a little over 68 percent of all world oil reserves. (1) According to estimates by the U.S. Department of Energy (DOE), MENA exported an average of 18.5 million barrels of oil a day (mb/d) in 1997. This was 35 percent of the world total of 53.2 mb/d. DOE projects that total MENA oil exports will reach 39.1 mb/d by 2020. This will be 75.85 percent of the estimated world total of 51.6 mb/d. (2) It will also be an increase of more than 110 percent over the average current level of exports and a near doubling of the Gulf's share of total world exports.

The Gulf dominates the Middle East's role in world energy exports. It has about 675 billion barrels of oil and two-thirds of the world's proven oil reserves. (3) According to DOE estimates, it exported an average of 16.3 mb/d in 1997, 31 percent of the world total of 53.2 mb/d. DOE projects that Gulf oil exports will reach 36.4 mb/d by 2020, 70.5 percent of the estimated world total of 51.6 mb/d. (4) It will also be an increase of more than 120 percent over the average current level of exports and a near doubling of the Gulf's share of total world exports.

The key to MENA's sharply expanding strategic value lies in two factors:

* First, oil will retain its importance as a critical energy supply well beyond the period where energy analysts feel it is possible to make meaningful predictions. While the Energy Information Administration (EIA) of the DOE projects that natural gas will be the fastest-growing source of energy 2000-20, rising at an annual rate of 3.2 percent, oil consumption will rise by 1.9 percent a year during this period. Oil will dominate transportation use of energy and will provide 38 percent of all energy use in quadrillions of British thermal units (quads) in 2020. This compares with 39 percent in 1998. The reason that oil's share remains so high as a percentage of total world energy consumption is a lower growth in coal, a decline in nuclear energy, and limited increases in renewables and other new sources of energy. (5)

* Second, the region's oil reserves are vast, particularly those in the Gulf. In spite of nearly three decades of intensive exploration outside MENA since the oil embargo of 1974, the region now has a larger share of proven world reserves than it did in 1973. Its share of potential world reserves is even higher. (6) It is these oil reserves that give MENA the capability to make major increases in its oil production capacity and exports over the coming two decades.

PROJECTED INCREASES IN OIL PRODUCTION

In fact, the reference case estimates of the EIA call for total MENA oil-production capacity to increase from 27.1 mb/d in 1998 to 48.1 mb/d. This is a rise from 34 percent of total world capacity in 1998 to 42 percent in 2020. (7) The key to this rise will be a rise in Gulf production capacity from 18.7 mb/d in 1990 and 24.0 mb/d in 1998, to 28.0 mb/d in 2005, 31.4 mb/d in 2010, 36.9 mb/d in 2015, and 44.8 mb/d in 2020. This is a rise of 87 percent between 1998 and 2020. It also means that Gulf oil production capacity rises from 30 percent of total world capacity in 1998 to 39 percent in 2020, and that the Gulf is projected to be virtually the only region in the world that will be able to keep oil production capacity substantially above actual production. (8)

The shift in production capacity in other MENA states will be very different. There is a projected rise from 2.8 mb/d in 1990 and 2.9 mb/d in 1998, to 3.6 mb/d in 2005, and 3.9 mb/d in 2010. Production capacity will then drop to 3.7 mb/d in 2015, and 3.5 mb/d in 2020. (9) As part of this increase, the EIA projects striking increases in the oil production capacity of key MENA states.

* Saudi Arabia is the linchpin of world oil production. Its capacity is estimated to increase from 11.4 mb/d in 1998 to 22.1 mb/d in 2020, a 94-percent increase. Kuwait's capacity is estimated to increase from 2.6 mb/d in 1998 to 5.2 mb/d in 2020, a 100-percent increase. The UAE's capacity is estimated to increase from 2.7 mb/d in 1998 to 5.1 mb/d in 2020, an 89-percent increase.

* Two potentially hostile and sanctioned Gulf states are also projected to make major increases. Iran's capacity is estimated to increase from 3.9 mb/d in 1998 to 5.5 mb/d in 2020, a 40-percent increase. Iraq's capacity is estimated to increase from 2.8 mb/d in 1998 to 6.2 mb/d in 2020, a 120-percent increase. (10)

* Developments outside the Gulf are far less important. Algeria's capacity is estimated to increase from 1.3 mb/d in 1998 to 2.2 mb/d in 2010 and to drop to 2.0 mb/d in 2020. Libya's capacity is estimated to increase from 1.5 mb/d in 1998 to 1.7 mb/d in 2010 but to drop back to 1.5 mb/d in 2020. (11)

"GLOBALISM" AND THE FLOW OF OIL EXPORTS

Gulf oil exports are measured in different ways, and estimates differ according to source. According to BP Amoco, they increased from a recent annual average low of 13.4 mb/d in 1989 to $18.3 mb/d in 1999. These totals included 15.9 mb/d of crude and 2.4 mb/d of product. (12) The DOE uses somewhat lower figures and estimates total Gulf oil product at around 17.4 million barrels in 1999. (13)

U.S. imports from the Gulf totaled less than 1.1 mb/d of crude and product in 1974, when the oil embargo began. They reached a high of 2 mb/d in 1977, then dropped to an average low of only 311,000 barrels per day in 1985. Since that time, they have risen from around 1.6 mb/d in 1997 t, 2.1 mb/d in 1998 and 2.4 mb/d in 1999. (14) To put these totals in perspective, total U.S. imports were 6.3 mb/d in 1973, 6.9 mb/d in 1980, 8.0 mb/d in 1990, 8.8 mb/d in 1995, and 10.6 mb/d in 1999. As a result, the Gulf provides roughly one-quarter of the steadily increasing level of U.S. oil imports, which have a total annual cost well in excess of $700 million. (15) In contrast, domestic U.S. crude-oil production has recently ranged between 5.8 and 6.2 mb/d, down from averages of well over 9 mb/d in 1973, with an additional 1.6-1.9 mb/d of natural-gas-plant liquids. (16)

The percentage of oil that flows directly to the United States from MENA at any given time, however, has little or no strategic and economic importance. Oil is a global commodity, and the United States must pay the same globally determined price as any other nation. In a crisis, the United States is required to share all available imports under the monitoring of the International Energy Agency. Furthermore, the U.S. economy is dependent on the overall health of the global economy and on energy-intensive imports from Asia and other regions. One of the many problems in U.S. energy policy is that the United States does not officially recognize the importance of its indirect imports, although Gulf oil is already critical to the main U.S. sources of manufactured goods in Europe and Asia. All U.S. data on energy imports is obsolete and misleading for this reason, but no recent administration has cared enough to correct this critical omission in the basic data it uses for planning. The EIA does, however, project the trends in oil exports, and total MENA exports to North America are projected to rise from 2.3 mb/d in 1997 to 4.4 mb/d in 2020. Equally important, exports to Western Europe are projected to rise from 5.4 mb/d to 5.8 mb/d, while exports to Asia are projected to rise from 9.5 mb/d to 19.9 mb/d. MENA oil exports will maintain Europe's trading economy and be the key to Asian growth. (17)

MENA will be even more important if problems occur in the exports of other troubled regions. The exports of the former Soviet Union (FSU) are projected to rise from 2.8 mb/d in 1997 to 8.3 mb/d in 2020; North Africa's are projected to rise from 2.3 mb/d to 2.7 mb/d; and West Africa's from 1.8 mb/d to 2.0 mb/d. (18) The risk of some event in one country in these three regions resulting in a significant interruption in oil production is almost certainly as high as in the Middle East and North Africa. In this case, what comes around literally means that oil must go around.

GAS RESERVES AND EXPORTS

The story concerning gas is less dramatic but still important. Total global consumption of natural gas is projected to rise from 83.9 quads in 1998 to 173.3 quads in 2020, an increase of 106 percent. (19) The Gulf has some 49.5 trillion cubic meters (tcm) of reserves, roughly 34 percent of the world total. If other Middle Eastern states like Egypt, Algeria and Libya are added to this total, they provide another 241.3 tcm of gas, 4.7 percent of the world's proven gas reserves, raising the total to 38.7 percent. (20)

At present, the Gulf and the Middle East are relatively small gas exporters. Oman is the only Gulf nation with significant pipeline and ships out only 1.5 billion cubic meters (bcm) of the world's pipeline capacity of 360.51 bcm. Algeria is a much bigger pipeline shipper, but still ships only 33.7 bcm, about 9 percent of world supply. (21)

The world LNG trade totals around 124 bcm. Qatar and the UAE are the only major Gulf shippers. Qatar now ships 8.13 bcm, roughly 7 percent of the world total; the UAE ships 7.1 bcm, roughly 6 percent of the world total. Algeria and Libya are more significant. Algeria now ships 25.76 bcm, roughly 21 percent of the world total; Libya ships 0.96 bcm, less than 1 percent of the world total. Taken as a whole, the Gulf accounts for 16.73, or 3.5 percent of the total world gas exports of 484.71 tcm. The Middle East accounts for 76.1 tcm, 15.7 percent of world exports. (22)

The future, however, is likely to be a very different story. Gulf gas reserves are so large that nations like Iran, with the world's second largest reserves of 812.3 tcm, are major potential exporters. Qatar has at least 300 tcm and already plans to be a major exporter. The UAE has 212 tcm, Saudi Arabia has 204.5 tcm, and both plan to steadily increase their exports in the form of petrochemicals and feedstocks. Oman plans to expand its exports although it has only 26.4 tcm of proven reserves. Algeria has 159.7 tcm; Egypt has 35.2 tcm; and Libya has 46.4 tcm. All plan to increase their gas exports. (23)

ENERGY EXPORTS AND OIL WEALTH

Direct and indirect energy exports account for about 40 percent of the total export earnings of the Middle East, and vast amounts of money are involved. However, oil wealth is as relative as any other form. In the case of the Middle East, oil wealth must be measured in terms of both total national needs and per capita income. A combination of fluctuations in oil prices, high population growth rates, and a failure to modernize and diversify the overall economy threatens to turn oil wealth into oil poverty.

Even with today's high oil prices, the wealthy southern Gulf states have only about 40 percent of the real per capita income they had at the peak of the oil boom in the early 1980s. There is little prospect for anything other than a slow decline in per capita oil wealth even if oil remains at $30 per barrel in constant dollars. There are important exceptions. Kuwait ($22,300), Qatar ($10,300), and the UAE ($17,870) maintain high per capita incomes. But Saudi Arabia's "wealth" ($6,900) is becoming increasingly marginal; Iran has a per capita income of $1,650; Algeria, $1,520; Libya, $6,700. Iraq's per capita income is unlikely to be higher. (24)

Many states, including virtually all southern Gulf states, are also heavily dependent on foreign labor at a time when many of their own younger citizens lack not only jobs but also the training and work ethic to get them. In many cases, these problems are reinforced by weak immigration policies that are routinely violated by the toleration of illegal immigrants, the issuing of visas for money, and the existence of laws that require major benefit packages for citizens, making them difficult to hire or fire. Some countries are trying to solve the problem with erratic purges of foreign labor, but most still lack consistent policies.

Massive swings in oil revenues have contributed to the problems the Middle East has faced. In 1972, total OPEC oil revenues were worth around $77 billion in constant 1990 dollars. After the October war and the 1974 oil embargo, they leapt to levels of around $340 billion and then dropped back to less than $300 billion 1975-78. The fall of the shah of Iran and the start of the Iran-Iraq War drove them to a new peak in 1980, when they were worth $438.8 billion. An oil-price collapse began in 1985, and revenues dropped to $83 billion in 1986. They gradually rose back to levels of around $150 billion a year in early 1997, but a new "oil crash" began late that year. In 1998, oil revenues dropped to $80 billion in 1990 dollars, and then rose to $162 billion in 2000 ($132.8 billion in current dollars in 1999 and $211.5 billion in 2000.)

From the Middle East's perspective, the price increase is a major blessing. Total OPEC revenues in 2000 are estimated to be 59 percent higher than in 1999, which was a 34-percent rise over 1998. They will be at the highest levels in real terms since 1984, and in current dollars since 1981. The problem is that such revenues will still be only 37 percent of their 1980 peak. (25) Since that time, the population of the Middle East has more than doubled, reducing oil wealth per capita to less than one-fifth of its 1980 level.

Oil wealth is also relative in other ways. A total of $211.5 billion in oil exports is scarcely small change, but this includes all OPEC states. Total world exports are worth well over $6.7 trillion, and over $5.2 trillion come from high-income developed states. Exports from East Asian developing countries average well over $614 billion, and Latin America exports $336 billion. It is also interesting to analyze the trend in total exports as estimated by the World Bank. Total exports by developing countries in East Asia increased by 484 percent 1980-98, by 309 percent in South Asia, and by 194 percent in Latin America and the Caribbean. They dropped by 26 percent in the case of the Middle East and North Africa. Oil wealth simply does not compete with balanced regional economic development by the standards of "globalism." (26)

LOW OIL AND GAS REVENUES AND ENERGY SUPPLY

The most serious issue affecting Middle Eastern energy exporters is the impact of relatively low to moderate oil revenues on nations with high population growth and economies with limited diversification. The oil crash that began in 1997 led to a series of unexpected cuts in oil prices that reached lows of $10 a barrel and cuts in annual oil revenues that approached 30-40 percent. The resulting cuts in oil revenues affected every major oil and gas producer in the Middle East and reduced the region's ability to maintain both welfare payments and entitlements, and short-term investment.

Ironically, low prices then turned to high prices with equal alacrity. In March 1999, however, OPEC's member countries, together with some important outside producers, settled on a program of stringent production cuts. Following the implementation of cutbacks, the price of crude oil soared back upward over the course of 1999 and eventually reached levels not seen since the 1991 Gulf crisis. The resurgence of oil revenues and oil-dependent state budgets eased the region's short-term economic problems, at least through the summer of 2000.

Nonetheless, the upswing in oil prices has not wiped away the economic difficulties facing Middle East oil producers. Average oil-export revenues still have not climbed back to 1997 levels in constant dollars, as the current high oil prices were achieved at the cost of lower production. Mean while, the fundamental dependence of these economies on oil revenues remains unchanged. The 1997-98 crash serves as an unpleasant re minder of what may happen if oil prices take another unexpected dive in the future.

The increasing limits on oil revenues relative to national budgets and population growth have had a dire impact on economies that have failed to modernize and diversify. These revenue problems interact with such issues as the impact of sanctions on several critical suppliers, the size of future demand for exports, national policies to increase production and export capacity, and the ability to obtain the investment necessary to implement those policies. Limited oil resources affect political stability and influence a wide range of social problems, most important the impact of high rates of population growth, the inability to sustain past welfare and entitlement programs, and the need to create new economic structures that offer suitable employment and incentives for investment.

As has been discussed earlier, most of these pressures posed problems for the region's oil exporters long before the oil crash of 1997-98. They are the result of years of over-reliance on oil wealth, economic mismanagement, and the failure of regional governments to realistically plan and budget for the future. Some key Middle Eastern governments are entering their tenth year of budget deficits, Saudi Arabia and Iraq being key cases in point. Other countries are at least at the beginning of a major structural crisis in which they cannot afford to implement their five-year plans or fund their current levels of entitlements and investment. Examples include Algeria, Syria, Bahrain, Oman, Yemen and Iran [see Amuzegar in this issue]. Most Middle Eastern governments now face a major short-term budget crisis. This seems to include even states with relatively high ratios of exports to population: Kuwait, Qatar and the emirates other than Abu Dhabi and possibly Dubai.

These growing budget problems have already led to under-investment in infrastructure, economic diversification, and state industries as well as in the petroleum sector. Governments no longer have all the money they need to maintain entitlements and welfare, and most energy-exporting economies cannot attract enough outside or internal investment to meet national needs. Most of the budgets in the Middle Eastern energy-exporting states undergo consistent turbulence as states scramble to cut expenditures, raise revenues and minimize budget deficits. Signs of the seriousness of this issue are Saudi Arabia's multi-billion-dollar deficit in 2000, and Crown Prince Abdullah's speech in November 1998 warning that the state would have to cut social services. If low or low-to-moderate oil revenues occur again, the resulting decrease in government revenues could force many Middle Eastern countries to cut their budgets and development plans in ways that would result in significant economic, social and political tradeoffs.

ENERGY EXPORTS AND SECURITY

The basic forces driving Middle Eastern energy exports will be the policies of the individual exporting nations and market forces. In this sense, globalism will shape most of the decisions taken by exporting states in terms of maintaining and expanding production capacity, the actual volume of exports and price. There will be a natural division of interest between those nations desperate to maximize their own revenues and those interested in creating a stable, high level of demand for oil. In general, states will invest only to maximize oil revenues, not out of any theoretical considerations about the global need for energy.

The practical problems for both regional and global security are the following:

* Not every exporting state will be willing to let the market decide. Iraq's invasions of Iran and Kuwait are the most blatant examples of sheer greed transformed into aggression, but states desperate to maximize revenue will also seek political ways to limit the production of other states. The need will be just as great in the future for outside and regional efforts to protect from political pressure and aggression those moderate states willing to rely on market forces.

* Violent swings in oil prices and revenues of the kind that took place 1997-2000 serve no one's interest. Very low prices mean the region's chronic economic problems encourage instability and prevent adequate investment in meeting future demand. Very high prices encourage importers to turn to other sources of energy and reduce demand, and have a backlash effect in slowing economic and budget reform in the exporting nations. The idea of seeking a stable spread of prices without gross interference in the market benefits producer and consumer alike. It also allows the region to move towards a more stable form of economic development.

* The sheer scale of increase in exports and production capacity projected by the EIA -- and projected in near identical form by OPEC and the International Energy Agency -- raises serious questions about the effectiveness of market forces without a clear consensus between exporting and importing nations, and new arrangements to provide the necessary investment. It is impossible to see how the region's exporting nations can finance both their energy and other investments over the period between now and 2020 without (a) major efforts to repatriate domestic capital and (b) massive transfers of foreign capital far larger than those that have taken place in the past. Major structural economic reform is a partial answer, but governments must consider a much broader form of dialogue of the kind Crown Prince Abdullah started in 1998. Developed nations must encourage investment and make it clear that they are willing to support regional exporters with the necessary capital to increase their production and export capacity.

* The massive increases in oil and gas production and exports just outlined present another case for economic reform. Subsidized domestic oil and gas prices are a strong incentive for high levels of inefficient demand that reduce the levels available for export.

* These same massive increases greatly increase the security problem. Not only does nearly twice the oil and gas have to move with constant on-time predictability; most of the increase will have to move by sea and out of the Persian Gulf towards Asia. Barfing the development of massive new oil ports in Iran, on the coast of Oman or in the Red Sea, the problem of vulnerability and chokepoints will increase radically as a result of globalization.

GLOBALISM, SECURITY AND STABILITY

The single most critical geopolitical issue affecting the region is whether the Middle East and North Africa will act as a stable supplier of oil and gas exports at market-driven prices. The secure flow of such energy exports is the key measure of security by the standards of globalism, and war and internal conflict present a continuing threat. The Middle East is so heavily dependent on the income from energy exports that few nations will voluntarily limit their export revenues. However, war has had a major impact on energy exports in the past, and sanctions affect key exporters like Iran, Iraq and Libya.

In several cases, Middle Eastern states are either already at war or there is a serious risk of future conflict, but the risks involved are unlikely to have any global impact. Mauritania is the scene of a low-level race war between Arab and black African ethnicities. Morocco is still in the process of a long war with the Polisario for control of the Western Sahara. Algeria is involved in a bitter civil war between its ruling military junta and Islamic extremists. Tensions have grown between Libya's leader, Muamar Qadhafi and Libya's Islamists, and there is low-level fighting in a number of areas. The Egyptian government is also still fighting a low-level campaign against Islamic terrorists.

The southern Gulf states are relatively stable, but low-level tensions remain between Bahrain and Qatar. There is also some civil violence in Bahrain, and it is not clear that Saudi Arabia and Yemen have reached a stable settlement over their common border.

The Red Sea area is the scene of several conflicts. The Sudanese civil war threatens to enter its second decade, and the death toll from fighting and starvation will probably exceed well over one million. Yemen still faces tensions between its government and key tribal groups in the South. Ethiopia and Eritrea have only recently settled their dispute over control of their border area.

The Arab-Israeli Conflict -- A Different Case

The Arab-Israeli conflict not only affects the hearts and minds of the entire region, it creates a linkage between the so-called confrontation states, Israel's nuclear and missile forces, and proliferation in Iran and Iraq. It undermines the ties between the moderate southern Gulf states and the West, and it tends to fracture three of the world's great religions. In spite of the Arab-Israeli peace process, relations between Israelis and Palestinians still take the form of conflict. Israel is still formally at war with Syria and Lebanon and faces a serious threat from terrorists, Iran and Iraq. Following the Israeli withdrawal from South Lebanon, Israel still faces a security threat from Hizbollah, a Shiite Islamic movement with strong Iranian and Syrian sponsorship. Lebanon remains under Syrian occupation, and its factions still present the threat of another round of civil war. Finding a solution, and a peace that all parties can agree to, is more than a regional issue. It is a global one.

Iran and Iraq and the New Great Game

Iran and Iraq are two very different nations, although both are projected to play a critical role in energy supply. As has been described earlier, Iran's production capacity is estimated to increase from 3.9 mb/d in 1998 to 5.5 mb/d in 2020, a 40-percent increase. Iraq's capacity is estimated to increase from 2.8 mb/d in 1998 to 6.2 mb/d in 2020, a 120-percent increase. (27)

Both nations continue to pose a risk to the region's stability that could have a major impact on the global economy. While Iran may be becoming more moderate, there is still a serious possibility of internal clashes between "moderates" and "traditionalists," and it presents a major problem in terms of proliferation, continued hostility to any U.S. presence in the Gulf, and opposition to any compromise that could lead to an Arab-Israeli peace. Iraq remains an aggressive opportunist and serious potential threat to Kuwait and Saudi Arabia and is almost certain to resume its military buildup and efforts to proliferate the moment U.N. sanctions are lifted. Some way has to be found to deal with each nation regarding the problems of both regional and energy security. At one level, this means continuing every effort to halt or limit proliferation and reduce military buildup. At another level, it means focusing on those aspects of Iranian and Iraqi behavior that pose a threat, rather than maintaining broad economic sanctions.

In the case of Iran, the United States has good reason to question its present sanctions policy and to consider whether an economic opening to Iran could encourage both Iran's moderates and the development of adequate energy supplies. At the same time, it is far from clear that any such action by the United States can eliminate the threat posed by Iran's proliferation, hostility to Israel and support of violent extremist movements. The United States will have to find a way to establish correct, if not friendly relations, but both the United States and its regional allies will also have to maintain a high degree of military deterrence as well.

The world has far fewer incentives to change its policy towards Iraq, but it may well be forced to do so. Economic sanctions have already eroded badly because of the hardships they have imposed on the Iraqi people, and the massive increases in Iraqi oil revenues under the U.N. oil-for-food program. There is little point in preventing the development and expansion of Iraq's oil and gas industry and oil exports. At the same time, Iraq remains a major conventional military threat, and the U.N. effort to eliminate Iraq's weapons of mass destruction has been effectively paralyzed since the spring of 1998, when UNSCOM was first expelled from the country. At the margins of the region, the United States has become over-engaged in the Caspian and Central Asia. The Clinton administration involved the United States in this "new Great Game" to obtain access to what were perceived as massive oil reserves, to limit Russian influence, and to prevent Iran from profiting from Caspian oil. In practice, Caspian and Central Asian energy reserves seem to be the size of a new North Sea at most and will develop slowly. There is no reason to challenge Russia in its own backyard, particularly since Chechnya has shown Russia that it has little reason to reabsorb Islamic and non-Russian minorities.

"Pipeline politics" seem unlikely to hurt Iran's military efforts in any way, but they already interfere with the operations of U.S. companies in the Caspian and Central Asia, create pointless political antagonism in Iran and Russia, and attempt to legislate energy development in Turkey. U.S. interests in the Caspian and Central Asia at most require the United States to seek a level playing field for American companies in developing the region's energy resources. In terms of globalism the best way for the United States and the world to win this particular new great game is not to play it.

Globalism and Regional Militarism

It may seem strange to come to the military dimension of Middle East security last and largely in passing. The fact is, however, that globalism -- to the extent that it exists -- should look beyond the immediate and very real security concerns of the region and focus on its global importance. By that standard, only the Arab-Israeli confrontation and Iran and Iraq represent conventional military threats that could affect enough of the world economy to really matter. Even here, it is the new threats of proliferation and the kind of asymmetric warfare that is taking place between Israel and the Palestinians that must be given priority.

These are powerful reasons to push ahead with the Arab-Israeli peace process and to ensure the security of the Gulf and of the transit of oil. They are good reasons to ensure that any nation that is not part of the Arab-Israeli peace process is deterred from major military action, to build up the military capabilities of the Southern Gulf states, and to maintain strong U.S. and British power-projection forces. These military issues do have global importance.

Most other major regional military and security concerns pale when they are examined in global terms. Some classic problems have, in fact, declined. Middle Eastern military expenditures declined from 6.8 percent of all world expenditures in 1987 to 6.2 percent in 1997, largely because of the sanctioning of Iran, Iraq and Libya and because the FSU ceased to provide massive arms transfers at little or no cost. This latter development has largely crippled Syria's conventional military forces and helped to secure the Arab-Israeli balance. (28)

In fact, Middle Eastern military expenditures dropped by 6.7 percent in real terms during the decade from 1987-97, in spite of the Gulf War. Middle Eastern military expenditures also dropped from 17.6 percent of the region's total Gross National Product in 1987 to only 7.6 percent in 1997, and they dropped from 45.1 percent of all central government expenditures to only 22.7 percent during the same period. This was the first sustained drop in the regional military effort since 1948, although total military expenditures still totaled $52.4 billion in 1997, plus another $5.5 billion for North Africa. (29)

Arms sales showed similar trends. Measured in constant 1997 U.S. dollars, they dropped from $30 billion in 1987 to $19.9 billion in 1997. They also dropped from an extraordinarily high 27 percent of all regional imports to only 12.3 percent. (30) Military expenditures and arms transfers still add to the region's economic problems. A total of 11.1 men are under arms in the Middle East for every 1,000 people -- the highest percentage in the world. (31) At the same time, these figures are not the kind of "tragedy of arms" that burdened the region in the 1970s, '80s and first half of the '90s. Whatever harm sanctions may have done, they have had a major impact in limiting the efforts of some of the region's most aggressive states. In fact, this movement away from militarism is one of the few areas where the Middle East has kept pace with the positive trends in globalism.

(1) BP Amoco, BP Amoco Statistical Review of Worm Energy 2000, (London: BP Amoco, 2000), pp. 4-6.

(2) Energy Information Agency, International Energy Outlook, 2000 (Washington, DC: DOE/EIA-0484(00), March 2000), p. 38.

(3) BP Amoco Statistical Review pp. 4-6.

(4) International Energy Outlook, 2000 p. 38.

(5) Ibid.

(6) BP Amoco Statistical Review pp. 4-6 and www.bpamoco.com/worldenergy/oil.

(7) International Energy Outlook, 2000, p. 229.

(8) Ibid.

(9) Ibid.

(10) Ibid.

(11) Ibid.

(12) BP Amoco Statistical Review, pp. 18-19 and www.bpamoco.com/worldenergy/oil.

(13) DOE/EIA, Monthly Energy Review, February 2000, pp. 136-137.

(14) Ibid., pp. 48-49.

(15) Ibid., p. 11.

(16) Ibid., p. 42.

(17) International Energy Outlook, 2000, p. 38.

(18) Ibid.

(19) Ibid., 171

(20) BP Amaco Statistical Review, pp. 20-21.

(21) Ibid., p. 28.

(22) Ibid.

(23) Ibid., pp. 20-21.

(24) World Bank, World Development Indicators, 2000 (Washington, DC: World Bank, 2000), pp. 10-12, and CIA Worm Factbook, 1999. Directly comparable data are not available.

(25) EIA Fact Sheet, OPEC Revenues, September 4, 1998, and March 2000 editions, www.eia.doe.gov/emeu/ cabs/opecrev.html.

(26) Based on the data in the CIA World Factbook, 2000; World Military Expenditures and Arms Transfers, (Washington, DC: U.S. Department of State, Bureau of Arms Control, 1998), Table II; and World Development Indicators, 2000, pp. 243-246.

(27) International Energy Outlook, 2000, p. 229.

(28) World Military Expenditures and Arms Transfers, 1998, pp. 2, 64.

(29) Ibid.

(30) Ibid., pp. 2, 116.

(31) Ibid., pp. 23, 64.

Dr. Cordesman is the Arleigh A. Burke Chair in Strategy at the Center for Strategic and International Studies in Washington, DC.