(longish.)
The New Oil Order
Michael Renner, February 20, 2003
Only in the most direct sense is the Bush administration's Iraq policy
directed against Saddam Hussein. In contrast to all the loud talk about
terrorism, weapons of mass destruction, and human rights violations, very
little is being said about oil. The administration has been tight-lipped
about its plans for a post-Saddam Iraq and has repeatedly disavowed any
interest in the countrys oil resources. But press reports indicate that
U.S. officials are considering a prolonged occupation of Iraq after their
war to topple Saddam Hussein. It is likely that a U.S.-controlled Iraq will
be the linchpin of a new order in the world oil industry. Indeed, a war
against Iraq may well herald a major realignment of the Middle East power
balance.
Oil Forever
The Bush administration's ties to the oil and gas industry are beyond
extensive; they are pervasive. They flow, so to speak, from the top, with a
chief executive who grew up steeped in the culture of Texas oil exploration
and tried his hand at it himself; and a second-in-command who came to
office with a multi-million dollar retirement package in hand from his post
of CEO of Halliburton Oil. Once in office, the vice president developed an
energy policy under the primary guidance of a cast of oil company
executives whose identities he has gone to great lengths to withhold from
public view.
Since taking office, the president and vice president have assembled a
government peopled heavily with representatives from the oil culture they
came from. These include Secretary of the Army Thomas White, a former vice
president of Enron, and Secretary of Commerce Don Evans, former president
of the oil exploration company Tom Brown, Inc., whose major stake in the
company was worth $13 million by the time he took office.
The Bush administration's energy policy is predicated on ever-growing
consumption of oil, preferably cheap oil. U.S. oil consumption is projected
to increase by one-third over the next two decades. The White House is
pushing hard for greater domestic drilling and wants to open the Arctic
National Wildlife Refuge to the oil industry. Even so, the administrations
National Energy Policy Development Group, led by Vice President Cheney,
acknowledged in a May 2001 report that U.S. oil production will fall 12%
over the next 20 years. As a result, U.S. dependence on imported oilwhich
has risen from one-third in 1985 to more than half todayis set to climb to
two-thirds by 2020.1
Since the 1970s, the U.S. has put considerable effort into diversifying its
sources of supply, going largely outside of OPEC and outside the Middle
East. The current administration is advocating greater efforts to expand
production in such far-flung places as the Caspian area, Nigeria, Chad,
Angola, and deep offshore areas in the Atlantic basin and is looking to
leading Western Hemispheric suppliers like Canada, Mexico, and Venezuela.2
West Africa is expected to account for as much as a quarter of U.S. oil
imports a decade from now.3
But there is no escaping the fact that the Middle Eastand specifically the
Persian Gulf region remains the worlds prime oil province, for the U.S. and
for other importers. Indeed, the Cheney report confirms that by any
estimation, Middle East oil producers will remain central to world oil
security. The Middle East currently accounts for about 30% of global oil
production and more than 40% of oil exports. With about 65% of the planets
known reserves, it is the only region able to satisfy the substantial rise
in world oil demand predicted by the Bush administration.4 The Cheney
report projects that Persian Gulf producers alone will supply 54-67% of
world oil exports in 2020.5
Saudi Arabia is a pivotal player. With 262 billion barrels, it has a
quarter of the worlds total proven reserves and is the single largest
producer.6 More importantly, the Saudis have demonstrated repeatedlyafter
the Iranian revolution, and following Iraq's invasion of Kuwait that they
are prepared to compensate for losses from other suppliers, calming markets
in times of turmoil. Today, Riyadh could raise its production of 8 million
barrels per day (b/d) to 10.5 million b/d within three months, making up
for any loss of Iraqi oil during a U.S. military assault.7
Iraq: From Pariah to Fabulous Prize
The pariah state of Iraq, however, is a key prize, with abundant,
high-quality oil that can be produced at very low cost (and thus at great
profit). At 112 billion barrels, its proven reserves are currently second
only to Saudi Arabias. The Energy Information Administration (EIA) of the
U.S. Department of Energy estimates that additional probable and possible
resources could amount to 220 billion barrels. And because political
instability, war, and sanctions have prevented thorough exploration of
substantial portions of Iraqi territory, there is a chance that another 100
billion barrels lie undiscovered in Iraq's western desert. All in all,
Iraqs oil wealth may well rival that of Saudi Arabia.8
At present, of course, this is mere potentialthe Iraqi oil industry has
seriously deteriorated as a result of the 1980-88 Iran-Iraq War, the 1991
Gulf War, and inadequate postwar investment and maintenance. Since 1990,
the sanctions regime has effectively frozen plans for putting additional
fields into production. It has also caused a severe shortage of oil field
equipment and spare parts (under the sanctions regime, the U.S. has
prevented equipment imports worth some $4 billion). Meanwhile, questionable
methods used to raise output from existing fields may have damaged some of
the reservoirs and could actually trigger a decline in output in the short
run.9
But once the facilities are rehabilitated (a lucrative job for the oil
service industry, including Vice President Cheneys former employer,
Halliburton) and new fields are brought into operation, the spigots could
be opened wide. To pay for the massive task of rebuilding, a post-sanctions
Iraq would naturally seek to maximize its oil production. Some analysts,
such as Fadhil Chalabi, a former Iraqi oil official, assert that Iraq could
produce 8-10 million b/d within a decade and eventually perhaps as much as
12 million.10
The impact on world markets is hard to overstate. Saudi Arabia would no
longer be the sole dominant producer, able to influence oil markets
single-handedly. Given that U.S.-Saudi relations cooled substantially in
the wake of the September 11, 2001, terrorist attacksrifts that may widen
furthera Saudi competitor would not be unwelcome in Washington. An unnamed
U.S. diplomat confided to Scotland's Sunday Herald that a rehabilitated
Iraq is the only sound long-term strategic alternative to Saudi Arabia. Its
not just a case of swapping horses in mid-stream, the impending U.S. regime
change in Baghdad is a strategic necessity.11
Washington would gain enormous leverage over the world oil market. Opening
the Iraqi spigot would flood world markets and drive prices down
substantially. OPEC, already struggling with over capacity and a tendency
among its members to produce above allotted quotas (an estimated 3 million
barrels per day above the agreed total of 24.7 million b/d), might unravel
as individual exporters engage in destructive price wars against each other.12
A massive flow of Iraqi oil would also limit any influence that other
suppliers, such as Russia, Mexico, and Venezuela, have over the oil market.
Lower prices could render Russian oilmore expensive to
produceuncompetitive, which would cloud the prospects for attracting
foreign investment to tap Siberian oil deposits.13 Russias weak economy is
highly dependent on oil export revenues. Its federal budget is predicated
on prices of $24-25 per barrel.14 Aleksei Arbatov, deputy chairman of the
Russian parliament's defense committee, predicts that if a new Iraqi regime
sells oil without limits, our budget will collapse.15
Oil Company Interests
To repair and expand its oil industry, Iraq will need substantial foreign
investment. Thus, for eager oil companies, Iraq represents a huge bonanzaa
boom waiting to happen, according to an unnamed industry source.16
Prior to the OPEC revolution in the early 1970s, a small number of
companies (referred to as the majors or Seven Sisters) called the shots in
the industry, controlling activities from exploration and production to
refining and product sales. But they lost much of their reserve base, as
nationalization spread through the Middle East and OPEC nations.
Today, state oil companies own the vast majority of the worlds oil
resources. Even though private companies still do much of the exploring,
drilling, and pumping, in many countries they have access to the oil only
under prices and conditions set by the host government. Although oil
companies have managed to adjust to this situation, a directly owned
concession would offer them far greater flexibility and profitability.
The dominant private companies (ExxonMobil and Chevron-Texaco of the U.S.,
Royal Dutch-Shell and BP of Britain and the Netherlands, TotalFinaElf of
France), which are largely the result of recent megamergers, sell close to
29 million barrels per day in gasoline and other oil products. But
production from fields owned by these super-majors came to 10.1 million
barrels per day in 2001, or just 35% of their sales volume.17
Although these corporations have poured many billions of dollars into
discovering new fields outside the Middle East, their proven reserves stood
at just 44 billion barrels in 2001, 4% of the worlds total and sufficient
to keep producing oil for only another 12 years at current rates.18 The
situation is similar for other oil companies. Thus, the oil-rich Middle
East, and particularly Iraq, remains key to the future of the oil industry.
If a new regime in Baghdad rolls out the red carpet for the oil
multinationals to return, it is possible that a broader wave of
denationalization could sweep through the oil industry, reversing the
historic changes of the early 1970s. Squeezed by a decade of sanctions, the
current regime has already signaled that it is prepared to provide more
favorable terms to foreign companies.19 Such an invitation by Baghdad would
be in tune with larger changes that are afoot, as a growing number of oil
producing countries are opening their industries to foreign direct
investment.20
MORE ON...
http://www.guerrillanews.com/war_on_terrorism/doc1085.html
