Osman Şenkul
One of the most important cornerstones of the organised development of international trade is undoubtedly the ‘Silk Road’. The Silk Road, which linked the Far East with Anatolia and Europe and for years played a pivotal role in the economic development of both sides, owed its establishment primarily to soldiers. Indeed, it was through military organisations of a nature that could be described as history’s first “professional military units” that the Silk Road fulfilled its historical mission.
Until the 200s and 300s BC, just as was the case everywhere else in the world, undertaking a safe commercial journey in Asia and Anatolia was extremely difficult. Commercial journeys, which could only be undertaken during periods of peace, were fraught with risk. Bandit gangs, which had sprung up everywhere, hindered the development of trade and, consequently, regional economies; as a result, looting and plundering largely operated independently of central authorities (states) and appropriated a significant portion of the value produced. These developments, in turn, weakened the economies under central authority control, forcing those authorities to take measures.
It was the Parthians, an Iranian tribal state, who first took steps regarding these measures in the 200s BC. They began forming “professional military units” to protect their own trade caravans. However, in the early days, these units—which required heavy armour and weaponry—began to prove extremely costly. Consequently, the structure of the organisation was altered. The units began to be organised in individual villages. They placed one or a few “expensive” professional soldiers at the head of each village unit. In this way, the problem was resolved with a smaller number of “expensive” soldiers.
Now, Parthian trade caravans could travel and transport goods quite safely, at least within the country’s borders. Each village unit protected the caravan within its own region and handed it over to the next village unit. Now, bandits within the borders of the Parthian Empire were left ‘out of work’, whilst some had chosen to become professional soldiers. However, this success of the Parthians was initially merely regional in nature. Yet, this sense of security, which spread from mouth to mouth among the Parthians, had begun to serve as an example to the surrounding regions. The small states and kingdoms in the surrounding areas also began to establish similar organisations within their own territories.
In the 100s BC, numerous military organisations tasked with ‘protecting trade’ were established in almost all Asian states. The formation of the route that would later be known as the ‘Silk Road’ was also the result of the creation of a ‘military cordon’.
Now, the silk fabrics, spices, and jewels of the Far East could be transported safely to Asia Minor, and from there to Mesopotamia, Egypt, the Aegean, and Europe. The riches of all these regions could also be distributed throughout Asia via this route. In other words, by paving the way for the Silk Road, the soldiers had, in effect, ‘stepped on the accelerator’ of the economy.
Although the impact of the Silk Road’s early years lasted for centuries, over time, the establishment of maritime trade fleets, followed by extensive railway networks connecting dozens of countries, and eventually the signing of international trade agreements, institutionalised this trade route. These developments also paved the way for countries to come together and enter into special trade agreements, thereby leading to the formation of alliances of nations. Examples of such alliances include the Soviet Union, which formed a significant part of this route; the People’s Republic of China, which also constituted a major portion of the route; the Association of Southeast Asian Nations (ASEAN); the Balkan Pact, and the European Economic Community (EEC) – which later evolved into the European Union – which formed the ‘Western Wing’ of the route, all of which were economy-based, trade-oriented international organisations.
However, a crucial development affecting this entire route was the discovery of oil in the 19th century and, consequently, its rapid emergence as the backbone of the global economy. Although it has been established that during the Han Dynasty in China (1st century BC), oil and natural gas were transported using bamboo pipelines, it was during the period when the dominant industry developed that these resources came to the fore. The Chinese discovered natural gas and oil whilst carrying out deep drilling (some over 100 metres deep) at salt wells in Sichuan province. To transport these resources, they created long pipelines by joining hollowed-out bamboo stalks together. They then used the natural gas transported via these ‘bamboo pipelines’ to boil brine and produce salt. Oil, meanwhile, was used primarily for lighting, lubrication and, in some cases, as a sealing material.
The modern oil industry, however, began with the drilling carried out by Edwin Drake in the US state of Pennsylvania on 27 August 1859. Following this discovery, the industry’s rapid development, which began in the US, soon spread across the entire world; industrial mechanisation, underpinned by engines powered by oil, developed at breakneck speed, spreading across the globe; at the same time, millions of wells were drilled almost everywhere in the world to access oil, which is estimated to have formed between 252 and 66 million years ago during the Mesozoic Era. Over time, the ‘oil-rich nations’—which sold this ‘black gold’ extracted from underground deposits to every corner of the globe—rapidly joined the ranks of the world’s ‘wealthiest’ nations, becoming key stakeholders in the global economy, claiming its most significant and, of course, largest share.
Petroleum had become almost the most crucial pillar of the global economic development that accelerated particularly towards the end of the 19th century and left its mark on the 20th century; indeed, it became apparent that, behind the ostensibly sovereignty-based causes of war, the influence of petroleum was at play. Oil also stood out among the root causes of the two world wars, which reshaped the world map and went down in history as wars of economic division; subsequently, it is clear that the Mesozoic-era product formed the basis for the Middle East—a region largely situated atop oil fields—being unable to achieve stability amidst a succession of conflicts.
As with any commodity, the ‘supply-demand’ balance causes significant fluctuations in oil prices; one of the most significant indicators of this was the events that unfolded during the 2008 global financial crisis, which shook the entire world. The crisis, triggered by the failure to repay high-risk mortgages (subprime mortgages) granted to low-income individuals and those with poor credit ratings in the US—the world’s largest economy—and the subsequent loss of value in financial products derived from these loans, led to the collapse of major banks such as Lehman Brothers, thereby transforming into a “global financial crisis”. Following the bursting of the housing bubble, the conversion of risky mortgages into complex financial derivatives and their sale across the globe, coupled with inadequate regulatory mechanisms in financial markets and, in particular, banks investing in high-risk assets without sufficient capital bases, fundamentally shook the world’s largest economies, led by the US.
Prior to this upheaval, the surging global economy had driven demand to such an extent that the price of Brent crude oil soared to a peak of $150 per barrel; however, as global demand fell in the wake of the crisis, this price plummeted sharply to below $40. However, political turmoil in the Middle East—particularly the Arab Spring, the civil war in Libya and sanctions against Iran—subsequently caused prices to rise again to the $100 range. This period stood out as one of the clearest examples of the impact of geopolitical developments on oil prices.
Meanwhile, the significant surge in ‘shale oil production’—which gained momentum particularly in the US in 2014—and the Organisation of the Petroleum Exporting Countries’ (OPEC) refusal to cut supply to offset this increase created a serious supply glut in the market, causing prices to fall back to the $30–$40 range. Following this, demand for oil suffered a severe blow from the COVID-19 pandemic that shook the world in 2020; global oil demand was virtually wiped out in a short space of time; indeed, in April 2020, futures contracts for oil were priced negatively for the first time.
Of course, another development that shook the industry—and consequently the oil supply-demand balance—in recent history was the Russia-Ukraine war, which began in February 2022. Shortly after the outbreak of this war, the price of Brent crude rose to as high as $140.
From 2023 onwards, developments such as the Israel-Hamas war, attacks on ships in the Red Sea and, most recently, tensions between Israel and Iran have threatened energy transit routes in the Middle East. In particular, with the prospect of the closure of the Strait of Hormuz—through which 20 per cent of the world’s oil passes—prices soared from $69 to $79 within a few days.
Following this, just as the major social uprisings that paved the way for the overthrow of the Iranian regime were reaching their peak, US President Donald Trump’s order on 28 February triggered the “US& Israel-Iran War’ triggered by US President Donald Trump’s order on 28 February, the price of Brent crude rose to $108 on 8 March and as high as $120 on 9 March. The primary driver of this surge was, once again, the closure of the Strait of Hormuz. In particular, the state of war in the region—which serves as an energy source for China and Southeast Asian countries—began to shake not only the countries that are consumers of this energy but also the countries that sell it.
The most significant and, at the same time, the most striking development in this regard was the rift within the United Arab Emirates within OPEC, which was established in Baghdad in 1960 with the participation of Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela. OPEC, established with the participation of five countries to coordinate member states’ oil policies and ensure the stability of oil prices, was later joined by Qatar, Indonesia, Libya, the United Arab Emirates, Algeria, Nigeria, Ecuador, Gabon, Angola, Equatorial Guinea, and the Congo. However, as the global energy crisis escalated due to Iran’s blockade of the Strait of Hormuz, the United Arab Emirates (UAE) announced on 28 April that it would withdraw from OPEC with effect from 1 May.
In a statement to the state news agency WAM, the UAE government said: “The time has come to focus our efforts on what our national interests require and on our commitment to our investors, customers, partners and global energy markets.”
The UAE’s sudden decision deals a heavy blow to oil-exporting nations and, at a time when Iran’s blockade of the Strait of Hormuz is increasingly straining the global economy, signals a fundamental reshaping of global energy dynamics.
The UAE statement added that the decision, “also stems from a commitment to actively contribute to meeting the market’s urgent needs, given the ongoing geopolitical turbulence in the near term arising from disruptions affecting supply dynamics, particularly in the Arabian Gulf and the Strait of Hormuz.”
“This decision is consistent with the UAE’s long-term strategic and economic vision and the development of the energy sector. It reinforces the UAE’s commitment to its role as a responsible and reliable producer, anticipating the future of global energy markets,” it stated.
The UAE’s decision came just one week after it was announced that the country had begun discussing financial support options with the US to mitigate the economic impacts should the war with Iran drag on.
According to a report by the American newspaper The Wall Street Journal, citing US officials, Khalid Mohammed Balama, Governor of the Central Bank of the UAE, raised the idea of establishing a swap line to provide access to dollars in the event of a potential liquidity crisis during his meetings in Washington with Treasury Secretary Scott Bessent. Emirati officials stated that, whilst they had so far avoided the most severe economic impacts of the conflict, they might require financial safeguards in the future.
Emirati officials also informed the US that the decision to attack Iran had drawn them into a destructive conflict, adding that should a dollar shortage arise, they might turn to the Chinese yuan or other currencies for oil sales and other transactions. These developments are viewed as an indirect risk for the US dollar, which holds a dominant position in global oil trade. According to as yet unconfirmed reports, Saudi Arabia and the UAE have decided to sell oil in Chinese yuan rather than US dollars.
Thus, China—a vast nation situated at one end of the “Silk Road”, historically known as the first major international trade route—has emerged as a key player in the “Oil Road”, the multi-billion-dollar trade route for oil, of which it was the first historical user, thereby shattering the “petro-dollar” and created the legend of its own currency, the “petro-yuan”.