However, America imported 20% of its supplies from Saudi Arabia and its economy depended on these. Without SA oil, America would immediately sink into an economic recession with unknown social and political consequences.
So what could America do? Both Nigeria and Venezuela are large suppliers of oil, though nowhere as cheap as SA's, nor could production be ramped up quickly enough if supplies from SA ceased, nor did they have the vast reserves of oil that SA has which will continue at high levels for at least the next two or three decades (so long as China and Japan didn't import too much).
So what about invading Saudi Arabia and establishing a provisional government that would take over the thoroughly nasty and corrupt royal regime of the Saud family? This must have been considered, and the Americans must have discounted it because they couldn't have relied upon popular support. Since Gulf War I, the Saudi Arabian Constitution had become an Islamic one under Sharia law, and all important government decisions -- as well as its budget -- were controlled by the higher echelons of the Wahhabis, the majority sect of the Muslim faith in the country, which was further able to control every aspect of ordinary life and education through its 150,000 mullahs in the country and their attendant religious police. Any American invasion would have met with powerful resistance unless, somehow, the Americans could enlist the large numbers of the unemployed which make up the majority of their young, totally unskilled, generation and somehow give them useful well-paid jobs instantly. That would be the only way the Americans could have got away with it, sorely though they must have been tempted.
So that was ruled out, though, as a precaution, the American army and airforce base at Qatar was vastly extended, and extra Special Service troops were placed all around Saudi Arabia, ready at a moment's notice to be dropped into SA if the need arose to protect, or try to protect, the oilfields. This strengthening of Special Service units continues, as also the building up of ordinary troops in Kuwait.
The one remaining strategy was to invade Iraq, a country with the second largest reservoirs of oil, hitherto largely undeveloped. Iraq was a country which, although progressing towards a western way of life with a secular education system and a growing pro-western professional class, were only able to do so because Saddam Hussein was ruthless in murdering all opposition which emerged -- principally extreme Shia clerics and many tens of thousands of ordinary Shias who demonstrated from time to time.
So, the Americans thought, if they invaded Iraq, they could not only overthrow a cruel dictator, could also count on the enthusiastic support of the majority of the population, the Shias, but could also ensure that the existing Iraqi oil production would be available on the free market and that its reserve oilfields would then be available for development by the western oil companies. Within a few years, Iraqi oil could take over the burden of being the main exporter to America. Therefore, if and when an internal revolution reduces Saudi exports for a while, or perhaps permanently, the Americans could count on sizeable imports from Iraq.
That was the theory, anyway. So,as we all know, the Americans invaded, even though they were not able to get the consent of the United Nations Security Council. What has turned out so far has been a disaster, as Irwin Stelzer, one of America's most informed expert, relates below.
Considering the continuing deaths of American and British troops almost every day, and that most other large nations are refusing to help in keeping the peace in Iraq unless their troops are under UN control, and also that the existing oil production facilities are being sabotaged, as Irwin Stelzer also relates, it is a matter of judgement as to whether the situation can be ameliorated in the coming months or whether it will become considerably worse. In the latter case, public opinion in America and England will demand that troops are withdrawn.
If Iraqi oil is not going to be the short-term saviour of America's economy, then America will seriously have to start considering the strategy of invading Saudi Arabia because the country is going to explode of its own volition anyway. The Wahhabis will either displace the Saudi royal family and take over the reins of government directly (and keep oil prices high, to America's discomfort), or the masses of the young unemployed young people will revolt against the Wahhabi clerics and their religious police, as they are already doing in Iran.
In my opinion, the first possibility is unlikely because the Wahhabis already have everything they want. They control oil prices, they control the armed forces via the defence minister, they decide on the contracts with western oil companies for further oil development and have total control of schools and thus what children are taught -- which is very little, apart from being to read and recite the Qu'ran.
The second is more likely -- indeed, in my opinion, it is a certainly. But it's a matter of when. However, Saudi Arabia is a pressure vessel made of much stronger steel than Iran, namely Wahhibism. Whereas young Iranians -- relatively well-educated young people in the large cities -- are probably close to revolting successfully against the religious authorities because they are fully aware of what the young have in the west, the young in Saudi Arabia are more deeply indoctrinated and have little knowlege of the outside world. Nor would they have the skills that would enable a revolutionary take-over to be successfully consolidated. One occasionally hears of small-scale demonstrations by unemployed young in cities outside the Riyadh but they're easily put down.
If -- and I think when -- America invades Saudi Arabia, it is likely that they would meet far more intensive opposition that they received in Iraq. American troops would have to be considerably more aggressive. But there can be no doubt that they would win. But if they were to put in enough troops, then the prospect of establishing some sort of provisional government would be a great deal easier than in Iraq because SA is not so fractured as Iraq is, as between the Kurds, Sunnis and Shias. SA is predominantly Wahhabi with a minority of Shias. If America were to establish a secular educational system and establish enough employment opportunities in Saudi Arabia and thus cut-off grass-roots support for the Al Qaeda then, paradoxically, I believe that America could succeed in SA even though it has failed in Iraq. This would be an enormously expensive strategy but, considering what the present occupation of Iraq is costing, and what could be afforded as oil prices are increased to the rest of the world (sans America, of course) in the course of the next two or three decades, then this would be possible.
Let me summarise the whole situation in simple terms:
1. Saudi Arabia is a religiously oppressed country with no sign that it is going to become free in teh next twenty or thirty years; and, at the same time, it contains the lkagest and cheapest oil and gas reserves in the world;
2. America has an enormous appetite for imported oil and, for another twenty or thirty years until another energy technology comes along, it will have an increasingly desperate need for foreign gas and oil.
Saudi Arabia has a relatively small population and is militarily weak; America has a relatively large population and is the strongest military power in the world.
I see an invasion of Saudi Arabia as inevitable. The only question in mind is when.
<<<< THE PRICE WE PAY FOR RELYING ON SAUDI OIL
Irwin Stelzer
We now know four things about the oil market: prices are staying high, the Saudis are ignoring their promise to cap prices at $28, Iraq will not become a big exporter soon, and when Iraq does become a big exporter it will return to the embrace of the Opec cartel.
Hopes that a successful conclusion of the war to depose Saddam Hussein would bring oil prices down have been dashed, even though oil facilities were largely undamaged during the hostilities. Prices have stayed at or above $30, some 15% higher than this time last year, and show no sign of coming down, not even to the higher end of the $22-$28 range that Opec says it finds acceptable.
The Saudis promised to produce enough oil to keep prices from piercing the $28 ceiling, and now say they are trying to bring prices down. But Bijan Mossavar-Rahmani, president of Mondoil and a shrewd observer of producer-country practices, says it is nonsense to believe that the Saudis are unhappy that prices are topping $30. The kingdom's princes need the money to support their lavish lifestyles, to dole out to the largely unemployable generation their Wahhabi-dominated school system has produced, and to continue funding a variety of terrorist organisations.
Although Venezuela is having difficulty getting its output to levels prevailing before a strike crippled its industry, Nigerian production is increasingly threatened by domestic turmoil, and Iraq's output is curtailed by sabotage, the Saudis have reportedly cut production by about 1m barrels a day. With an economic recovery taking hold in America, China in need of increasing amounts of oil to fuel its 16% annual increase in industrial production, Japan desperate to replace its shutdown nuclear plants with oil-fired generation, and inventories in consuming countries at low levels, it comes as no surprise that the Saudis' decision to curtail output has kept prices well above the ceiling they pretend to want to maintain.
Any hopes that exports from Iraq would dampen prices have been dashed by the inability of coalition forces to stop looting and prevent sabotage of production facilities and pipelines. Hard numbers are difficult to come by, but it seems unlikely that Iraq will reach its prewar output of between 2.5m and 3m barrels a day any time soon, despite optimistic reports from the Coalition Provisional Authority and its ironically named Restore Iraqi Oil group.
Reports from Iraq suggest that repairs in the fields cannot be postponed much longer, and that production from many wells will have to be halted while those repairs are made. Worse still, nobody knows where the $10 billion estimated to be needed to pay for the near-term fixes of Iraq's fields will come from. Iraq's State Oil Marketing Organisation has announced that it has no interest in surrendering its monopoly grip on the nation's oil industry, and will welcome foreign investment only when new areas are to be explored and developed. No matter: most oil companies have no interest in exposing their capital and personnel to the risks of operating in present-day Iraq.
But even if we assume that the money can be found to restore output to about pre-war levels, there will not be enough oil available for export to affect world prices. Of the 2m barrels a day that Iraq might be able to produce by year-end, about 200,000 must be reinjected to maintain oil pressure in the fields, and some 500,000 barrels (estimates range from 350,000 to 750,000) will be needed to satisfy domestic needs for petrol and, in the heating season, kerosene. Both are in short supply. Riots are breaking out in petrol queues, and more will break out when kerosene is rationed during the winter. Odd that, since Saudi Arabia could meet much of Iraq's needs if its princes were truly interested in helping to establish a stable, democratic government on its border.
In addition, I am reliably informed (but cannot independently confirm)that export potential is further reduced because the Kurds in the north are skimming off thousands of barrels of oil headed for export.
So much for the near term. Prices are high (a surprise to those who thought they would fall at war's end), the Saudis were economical with the truth when they said they would keep prices from piercing Opec's $28 target ceiling (a surprise only to the US State Department and members of the Bush family), and Iraq will not be a major exporter for the foreseeable future (a surprise to the Pentagon).
This brings us to the fourth fact now apparent. In the long run Iraq will return to the Opec fold. At the moment, the cartel's Arab members don't want to deal with Iraq's oil administration because -- get this -- the government has not been democratically elected. But when an internationally recognised government is in place, the welcome mat will be out. It will cause the Saudis little pain to maintain prices "by cutting back their production to make room for the dribble of oil that Iraq will be able to bring to world markets.
If the world's consumers think that restoration of calm to Iraq will mean relief from Opec exactions, they had better think again. Only sensible use of strategic reserves, and the development of tax and other policies to curtail dependence on Saudi oil hold any promise of limiting the cartel's power. If you think America is capable of adopting such policies, just consider what its politicians have left undone since the great blackout of 40 years ago.
Irwin Stelzer is a business adviser and director of economic policy studies at the Hudson Institute
Sunday Times, 24 August 2003 >>>>
Keith Hudson, 6 Upper Camden Place, Bath, England, <www.evolutionary-economics.org>
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