The scramble for oil

Published : Feb 28, 2003 00:00 IST

The U.S.-led war on Iraq is an attempt to gain access to the country's oil reserves, the second largest in the world, in the context of fast-depleting global oil resources.

WAR invariably clouds reality. As the United States prepares to attack Iraq, there is only the shrill talk of the Iraqi regime's weapons of mass destruction. In contrast, there is silence on the question whether the war is, in fact, a scramble for the oilfields in West Asia, particularly those in Iraq. As the George W. Bush administration, widely regarded as one with the closest ties to the "oil oligarchy" in U.S. history, trains its guns on Iraq, it is becoming increasingly clear that the oil factor is playing a key role in the reactions of the other major powers. The economics of oil and the politics of imperial power are being shaken into a deadly cocktail in West Asia.

In the United Nations Security Council, France and Russia had adopted postures that would have suggested that they were on the side of restraint. But the fact that oil companies from both these countries have struck deals with Iraqi President Saddam Hussein's regime to develop oil fields in the country could well imply that they are bargaining for a stake in the Iraqi oil pie in a post-Saddam Hussein Iraq. In fact, recent reports indicate that the oil factor is regarded as "issue number one" in the calculus of the "regime change" that is being planned for Iraq by the U.S. military establishment. There are indications that U.S.-led Special Forces will handle the task of securing control of the oil wells in Iraq before the ground assault gets under way.

THE U.S. is the biggest consumer of oil in the world; it consumes roughly one quarter of all oil that is traded globally. Facing its most chronic shortage in oil stocks in 27 years, the U.S. turned to the most unlikely source for help - Iraq. In December 2002, even as the Pentagon promised to unleash 300 cruise missiles a day on the country, U.S. imports of oil from Iraq had doubled from 0.5 million barrels a day in November to one million barrels a day. Market reports indicate that the oil majors such as ChevronTexaco, ExxonMobil and Shell were involved in these supply contracts. The extra supplies to the U.S. were made possible because the companies diverted oil that would have otherwise flowed to destinations in Europe and Asia. Oil prices have increased sharply - above $30 a barrel - the highest level since November 2000. However, long-time observers of oil markets believe that this is largely fuelled by speculative forces in global oil markets citing the war in the Gulf and the political crisis in Venezuela, which has resulted in the curtailment of supplies amounting to over 1.5 million barrels a day in recent weeks. On the other hand, to the growing global peace constituency, the military strike on Iraq is mostly about oil. Under mounting pressure to answer the issue, voices of the U.S. establishment have taken pains in recent weeks to point out that the war is not about gaining access to "cheap oil".

Iraq has the world's second largest proven reserves - about 112 billion barrels - second only to Saudi Arabia (see chart). The U.S. Department of Energy estimates an additional 100 billion in "unproven" reserves. Iraqi oil is easier to extract, costing just 97 cents a barrel, compared to the extraction cost $6 a barrel from Russian oil wells, and about $4 a barrel from offshore wells in the North Sea. Moreover, oil wells from fields in Iraq - Basra and Kirkuk, for example - produce `sweet' grades of crude that are simpler and cheaper to refine because of its lower sulphur content. Industry sources have explained that U.S. refining companies prefer Iraqi crude because the profit margins are higher, primarily because they cost less in terms of meeting pollution control norms.

International oil companies have been jockeying to secure concessions before "regime change" actually happens. For its part, the Iraqi government has been wooing oil companies from several countries, using the small window of opportunity that the U.N.-directed oil-for-food programme allows. The government has signed contracts with companies from France, China, Spain, India, Indonesia and Russia. Conspicuously absent from Iraq are the biggest oil companies - ExxonMobil, ChevronTexaco and British Petroleum - all based in the U.S. and the United Kingdom. The willingness of companies from countries other than the U.S. and the U.K. to strike deals with the Saddam Hussein regime has raised the hackles of the hawks in the U.S. For instance, Richard Lugar, Chairman of the Foreign Relations Committee in the U.S. Senate, said that if the Russians and the French want a share of Iraqi oil after the regime change, "they need to be involved in the effort to depose Saddam as well". Recently, a team of U.S. Republicans went to Moscow to persuade the government and the Russian oil companies that a war in Iraq would not compromise the concessions that they had obtained. Recent reports from oil analysts indicate that ExxonMobil is in "pole position in a regime-changed Iraq".

A Russian delegation went to Baghdad recently to negotiate with the Iraqi government on behalf of Lukoil, a Russian company, whose contract to develop the huge West Qurna field had been cancelled by the Iraqi government in December 2002. The field has proven reserves of at least 15 billion barrels, worth a mind-boggling $450 billion at current prices. Lukoil is reported to have offended the Iraqi government by trying to spread its options by simultaneously negotiating with the U.S. and Iraqi exiles to protect its concession in a post-Saddam Hussein Iraq. The delegation of Russian Ministers and executives returned to Moscow with three signed contracts. Russia is under pressure to maintain access to oilfields because it is dependent on revenues from oil. There have been reports that average prices of oil from Russian companies need to be at least $18 a barrel. The Russian interest in Iraqi oil is two-fold: One, the access to oil fields in Iraq will enable Russian companies to maintain a high average price for their crude; and two, from a strategic perspective, to prevent U.S. control of oil fields, which could potentially be used as a means of unleashing a price war that may harm Russian interests.

Although the objectives of going to war cannot be oversimplified, it is evident that the "dovish" positions of the Russian and French governments stem from the fact that companies from these two countries have established a toehold in Iraq, which they do not want to lose after "regime change". This explains why French Prime Minister Jean Pierre Raffarin, to paraphrase a recent newspaper headline, "sent ships east" even as he talked peace.

EVER since the rumblings of war started, media reports have concentrated on the objectives of the hawks and the doves in the U.S. establishment. The prominent "hawk' is said to be U.S. Vice-President Dick Cheney, who played a key role in the drafting of a key policy document, "Strategic Energy Policy Challenges for the 21st Century", in 2001. The document explicitly stated that the U.S. ought to use its military might to gain access to Iraqi oil fields. It pointed out that Saddam Hussein's tendency to "manipulate oil markets" and his potential to become a pan-Arab leader may result in pressures to lift sanctions against his regime. The document said: "Once an arms-control programme is in place, the U.S. could consider reducing restrictions (sanctions) on oil investment in Iraq... Iraqi reserves (oil) represent a major asset that can quickly add capacity to world oil markets and inject a more competitive tenor to oil trade." It is important to emphasise that the document was submitted several months before September 11, 2001 and that Cheney has himself had close ties to the oil industry. The State Department and Cheney's staff are reported to have recently arranged two separate sets of meetings with the officials of leading U.S. oil companies including ExxonMobil, ChevronTexaco, ConocoPhilips and Halliburton, the company that Cheney ran before his election, to discuss plans for a new Iraq after Saddam Hussein.

The supposedly "dovish" line, credited to U.S. Secretary of State Colin Powell, places emphasis on "the protection" of Iraq's oil for its people, with the U.S. playing the role of a custodian of the interests of the Iraqi people. The State Department has referred to a precedent in the U.S. interpretation of international law set in the 1970s when Israel occupied the Sinai desert in Egypt. The department pointed out that the U.S. did not support Israeli attempts to transfer oil resources. A recent report prepared by the Heritage Foundation, generally regarded as a right-wing think tank, "The Road to Prosperity for a Post-Saddam Iraq", provides a blueprint in which the U.S. could act as the guardians of the Iraqi people after the Saddam Hussein-led regime is overthrown. It estimates the cost of rebuilding Iraq to be about $200 billion. It suggests that Iraq would benefit by withdrawing from the Organisation of Petroleum Exporting Countries (OPEC) and that the country would be able to increase oil revenues by pumping more oil - up to 6 to 7 million barrels a day. A more significant part of the blueprint relates to the prescription for the privatisation of the Iraqi oil industry. The authors of the report suggest that the "new Iraqi government" must establish a legal system that will guarantee property rights and provide a climate conducive for privatisation. After "educating the Iraqi population", the report suggests, the new government ought to "prepare to privatise assets in the industrial, utility, telecommunications, banking transportation, port and airport, and pipeline and energy sectors". In the face of such a profound change mandated for the Iraqi people, it would appear that a choice between the hawks and the doves would be hardly relevant.

Although the access to cheap oil from West Asian sources will offer tremendous advantages to the U.S., there is increasing recognition that it is trying to establish a long-term stranglehold over energy markets, particularly oil and gas. U.S. interest in Iraq is also related to its dependence on Saudi Arabia for its oil supplies. The U.S. Energy department estimates that by 2020, Saudi Arabian output of oil will need to increase from the current level of 8 million barrels a day to 22 million barrels a day. Given the volatile situation in the West Asian region, the U.S. would also like to spread its bets over a larger number of options instead of depending heavily on the monarch in Saudi Arabia. In terms of oil economics, Saudi Arabia and, potentially, Iraq, are the key "swing producers" in the petroleum market, with the ability to cut or increase output at short notice. The U.S. manoeuvre in Iraq is aimed at positioning itself in a situation in which it can determine the price of oil in the world market. Incidentally, this is a key strategic element in U.S. efforts to maintain the dollar as the pre-eminent global currency.

In short, the U.S. will be able to have a greater room for manoeuvre while dealing with countries that are currently its allies. The U.S.' plan, to bypass the state-owned Iraqi National Oil Company and, instead, back the new free-market Iraqi companies in a "regime-changed" Iraq, is part of this design.

The U.S. attempt to gain strategic control over a substantial proportion of finite petroleum resources is happening at a time when prominent petroleum geologists across the world have warned that oil production is about to peak in the near future. They rest their claims on a finding made by U.S. petroleum geologist M. King Hubbert in 1956. Hubbert postulated that oil production from any large oil field follows a bell-shaped curve, reaching its peak at mid-point. At this half-way point, production starts to decline. Hubbert's prediction that the production of oil from wells in the U.S. would peak in 1969 proved to be remarkably accurate (it actually peaked in 1970). Geologists agree that Hubbert's findings are corroborated by what has happened to oil fields in the former Soviet Union and West Asia.

There is a general consensus among petroleum geologists that global petroleum output, in relation to what still remains under the ground as reserves, is rapidly approaching the half-way mark; after this point, they warn, based on the Hubbert theory, that oil production will be on a terminal decline. Global oil consumption is about 76 million barrels a day and demand is currently growing at 2 per cent per annum. Consumption is projected to reach 96 million barrels a day in 2010 and 115 million barrels a day by 2020. The U.S. dependence on oil imports is projected to increase from current levels of about 52 per cent, to two-thirds in 2020. However, the gloomy part of the oil story relates to the fact that despite all the so-called advances in technology - including the use of the so-called global x-ray techniques and improvements in oil well technologies - an astonishingly large proportion of the oil still comes from wells that were tapped decades ago.

A study by a Canadian geologist, Matthew R. Simmons, shows that the overwhelming proportion of global oil production is concentrated in a small number of wells, most of them of older vintage. About 20 per cent of all the world's oil comes from a mere 14 giant oil wells. Moreover, the average age of these wells is 45 years; several are of 1920s and 1930s vintage. Only 60 oil fields, out of a total of about 4,000 worldwide, produce more than 200,000 barrels a day; only 60 more produce 100,000 barrels a day. Only three oilfields found in the 1980s still produce 200,000 barrels a day. Of the 420 oil fields officially stated to have been discovered in the 1990s, only 11 produce over 100,000 barrels a day. Simmons points out the notion that the largest fields "always seem to be found first was certainly the case in the last 50 years".

In short, there is a growing consensus among geologists that mankind has found almost all there is to find as far as oil is concerned. The prognosis for gas is a little different and could be even more catastrophic because of the physical properties of petroleum gas and its geological characteristics. Incidentally, related to this is the growing U.S. involvement in countries belonging to the Caspian basin. However, unlike West Asia, the promise of oil in the region is not substantial. U.S. involvement, according to observers, may have more to do with the region's potential as a source of gas supplies, which explains the extensive networks of pipelines that U.S. companies have been aiming to build in the region.

According to one estimate, by 2040, assuming current production trends and proven reserves, about 43 per cent of global oil output will be from five West Asian countries. Saudi Arabia is projected to account for 16.3 per cent, Iraq 7.3 per cent, Iran 7.1 per cent, Kuwait 6.3 per cent and the United Arab Emirates 5.7 per cent. It is expected that production in Saudi Arabia will peak in 2011, while those in Iraq will peak in 2010.

These figures imply that the market, as traditionally assumed, will become increasingly irrelevant to the oil business. Instead, the access to scarce resources through the use of overwhelming force and control is what will govern the game. It is that road on which the U.S. has set upon while training its guns on Iraq.

A statement against war

The following is the text of the statement issued by UNESCO Goodwill Ambassadors after their meeting in Paris:

On the occasion of our annual meeting, held in Paris on February 5-6, 2003, we, the Goodwill Ambassadors of UNESCO wish to express our great concern over the risk of war in Iraq.

Expressing ourselves in our own names, we wish to recall the Preamble of the UNESCO Constitution, which states:

" - That since wars begin in the minds of men, it is in the minds of men that the defences of peace must be constructed;

- That ignorance of each other's ways and lives has been a common cause, throughout the history of mankind, of that suspicion and mistrust between the peoples of the worlds through which their differences have all too often broken into war; [... ]

- That the wide diffusion of culture, and the education of humanity for justice and liberty and peace are indispensable to the dignity of man and constitute a sacred duty which all the nations must fulfil in a spirit of mutual assistance and concern;

- That a peace based exclusively upon the political and economic arrangements of governments would not be a peace which could secure the unanimous, lasting and sincere support of the peoples of the world, and that the peace must therefore be founded, if it is not to fail, upon the intellectual and moral solidarity of mankind; "

Convinced that a war may be avoided, we urgently request on the one hand to the Iraqi authorities to provide their cooperation and to comply fully with the requirements expressed by the United Nations Security Council and, on the other hand, appeal to all States Members of the United Nations to work for peace.

- Patrick Baudry; Pierre Berge; Pierre Cardin; Marin Constantin; Cheick Modibo Diarra; Miguel-Angel Estrelle; H.R.H. Princess Firyal; Ivry Gitlis; Ikuo Hirayama; Jean Michel Jarre; Omer Zulfu Livaneli; H.R.H. Princess Lalla Meryem of Morocco; Kitin Munoz; Ute-Henriette Ohoven; Kim Phuc Phan; Madanjeet Singh; Zurab Tsereteli; Giancarlo Elia Valori; Marianna Vardinoyannis.

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