The Decline of Oil Power in Middle East Geopolitics

Shahriar Sheikhlar

Shahriar is a Mechanical Engineer and MBA graduate with more than 22 years of experience, largely in Oil and Gas in Iran and then in…

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By Shahriar Sheikhlar – Jun 28, 2025, 2:00 PM CDT

Middle East oil power is losing geopolitical influence.
Global energy diversification and reduced Western dependence—especially by the U.S. and EU—have made markets more resilient to Middle Eastern disruptions.
Future conflicts may be decoupled from oil shocks, giving Western powers more freedom to engage politically in the region without immediate energy security concerns.

Despite expectations, the recent geopolitical turbulence in the Middle East—especially the events of October 7, 2023, and the escalation between Israel and Iran—did not deliver a severe blow to global energy markets. Compared to past regional crises or major global shocks like the Russia–Ukraine war, the impact was surprisingly muted. This apparent inability of oil-rich Middle Eastern nations to wield their petroleum power as a political weapon may mark the start of a deeper shift in global dynamics—one that emboldens Western-aligned states to more confidently pursue political and economic transformation in the region.

For decades, oil served as the cornerstone of power for Middle Eastern rulers—a strategic lever to secure both domestic control and international backing. But as its political weight diminishes on the global stage, the fading support from major world powers may compel these leaders to reconsider their grip on authority. In response, they might shift focus inward, embracing reforms to strengthen their political and economic governance—not by oil wealth alone, but through more sustainable, accountable leadership.

Historical Importance of Oil for Exporting Countries

Since the 1970s, oil wealth has been the backbone of Middle Eastern states’ power, shaping both their economies and political influence. Leveraging their pivotal role in OPEC and their ability to sway the global energy balance, these nations gained undeniable leverage in international affairs. Strategic partnerships with major oil corporations—spanning upstream operations to global trade—opened direct channels to the world’s most powerful governments. Fueled by resource-driven wealth, many regional rulers modernized their states, entrenched authoritarian rule, and secured foreign backing—even as their regimes often stood in stark contrast to Western ideals like democracy and human rights.

In most Middle Eastern oil-exporting nations, petroleum revenues account for over 70% of government income and roughly a third of GDP—with countries like Iraq and Kuwait even surpassing these levels. Despite political shifts in some states, such as Iraq’s regime change, the region’s governments continue to rely heavily on the oil sector as a cornerstone of economic stability and a tool for maintaining authority and influence across their territories.

Historical Oil Price Shocks That Benefited M.E. Oil Exporters

The political use of oil can be traced back to 1960, when Middle Eastern oil-rich states joined forces with Venezuela to establish the Organization of the Petroleum Exporting Countries (OPEC). However, the first major deployment of oil as a political weapon occurred during the 1973 Arab-Israeli War, when Arab countries imposed an oil embargo that triggered a historic energy crisis and skyrocketed oil prices from around USD 3 to nearly USD 12 per barrel, quadrupling in just five months.

The second major shock came in 1979 with the Iranian Revolution, which slashed Iranian oil exports and sent global prices soaring again, effectively doubling and shaking international markets. Just a year later, the Iraq–Iran War broke out in 1980, further escalating fears of regional supply disruptions and pushing prices up to approximately USD 40 per barrel by early that year.

A decade later, in 1990, Iraq’s invasion of Kuwait—another oil-rich Persian Gulf state—drove prices from USD 17 to USD 36 per barrel. The situation prompted Western nations to release strategic petroleum reserves to mitigate further spikes.

The 2003 U.S.-led invasion of Iraq caused immediate market volatility and long-term uncertainty. This geopolitical instability pushed oil prices from the USD 26–30 range in the early 2000s to over USD 31 in 2003, continuing a sharp upward trend that reached USD 66 by 2006.

Unlike most global economic crises, such as the 2008–2009 financial meltdown—which depressed oil demand and caused prices to fall—Middle Eastern conflicts have historically triggered price surges. The next major spike occurred in 2011 during the Arab Spring. The unrest pushed prices from around USD 90 at the end of 2010 to USD 120 in early 2011. Libya’s civil war disrupted oil flows to Europe, and fears over the security of the Suez Canal further heightened global supply anxieties.

Another shockwave hit in 2019 when a drone strike targeted Saudi Aramco’s Abqaiq and Khurais facilities, knocking out 5.7 million barrels per day—about 5% of global supply. This event caused oil prices to surge by 19.5% in a single day, jumping from USD 60 to USD 72—the largest single-day percentage increase since the 1991 Gulf War.

A rare non-Middle Eastern event followed in 2022 when Russia invaded Ukraine. Oil prices surged to over USD 120 per barrel in March, marking a 15% increase from pre-war levels and underlining the global market’s sensitivity to major geopolitical disruptions.

However, the reaction to more recent Middle Eastern conflicts after 2023—mostly involving the so-called “resistance axis”—has been substantially muted. On October 7, 2023, Hamas launched a surprise attack on Israel. Initially, prices rose from around USD 80 to USD 90 per barrel within a week, but the upward trend quickly reversed. By the third week, prices had dropped to USD 74 per barrel. Although the conflict zone wasn’t central to global oil production or transport, concerns about potential escalations involving Iran, Lebanon, or Iraqi factions did raise alarms—but these were short-lived, and the market stabilized quickly.

A similar trend was observed following Israel’s strike on Iran: oil prices rose modestly—just 7% in the first week—before declining in the second. This subdued reaction came despite Iran’s status as the world’s fourth-largest holder of oil reserves, a leading oil producer, the second-largest holder of natural gas reserves, and one of the top five gas producers globally. Moreover, Iran’s critical geopolitical position—adjacent to the Strait of Hormuz, the world’s most vital oil transit chokepoint—adds weight to the surprising resilience of the global energy market. Even after the U.S. attacked Iranian nuclear sites and Iran retaliated, the market absorbed the shock swiftly, with prices returning to pre-conflict levels within hours.

These recent responses suggest a shift in the global energy market’s sensitivity to Middle Eastern tensions—possibly reflecting changes in global supply diversity, strategic reserves, and the political recalibration of major energy consumers and producers.

Analysis of Oil Market Responses to M.E. Conflicts

While Middle Eastern conflicts have traditionally triggered sharp and prolonged oil price shocks, the market’s response to recent regional crises reflects a notable shift—both in the scale of price increases and the duration of their impact. Even when a major historical oil exporter like Iran is directly involved, the market has shown a remarkable degree of resilience and short-term volatility rather than sustained disruption.

Since 2001, the United States has significantly reduced its dependence on Middle Eastern oil, while Europe has actively diversified its energy sources—particularly in response to Russia’s gas leverage and the fallout of the Russia–Ukraine war. As a result, geopolitical tensions in the Middle East today tend to provoke far milder reactions in the global oil market, especially when Western-aligned oil exporters remain unaffected.

This shift was evident when comparing the market’s sharp reaction to the 2019 attack on Saudi Aramco to its much more restrained response to the 2023 Hamas–Israel conflict and the Israeli strike on Iran. These patterns suggest that the global energy market is now more tightly managed and stabilized by major Western-aligned producers, chiefly Saudi Arabia. When Saudi Arabia—the de facto leader of OPEC and OPEC+—is not directly involved or its infrastructure is not at risk, the market remains confident in the continuity of supply. However, any threat to the Kingdom’s facilities still triggers immediate and emotionally charged market responses.

This not only highlights the success of Western strategies to diversify their energy dependencies but also signals the emergence of a new era in oil market governance—one dominated by OPEC+ leadership and strategic stability mechanisms. Consequently, future regional conflicts in the Middle East may increasingly be analyzed apart from oil price shocks. This decoupling could give the U.S. and EU greater flexibility in shaping their political responses and re-evaluating their relationships with Middle Eastern governments, without being constrained by energy security concerns.

By Shahriar Sheikhlar for Oilprice.com

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