PETROANALISIS VOLUME 2, NUMBER 1, OCTOBER 2002 “THREATS TO THE PRINCIPLE OF A NATION’S SOVEREIGNTY OVER ITS HYDROCARBONS RESOURCES”

“THREATS TO THE PRINCIPLE OF A NATION’S SOVEREIGNTY OVER ITS HYDROCARBONS RESOURCES”

Index
· Main Facts and Figures
· World Oil Supplies: Plentiful and More Diversified
  • Better Dialogue Needed between Producers and Consumers

· Hugging the Bear

· Is it about Opening Up

· Washington Looks Closer Home

Editor: Stuart Wilkinson

Director: Mazhar Al-Shereidah

Main Facts and Figures...

q Exploration efforts are being carried on successfully world-wide in an ever more diversified geographical environment.

q Additions to oil and gas reserves, although modest, are permanent.

q Demand is adequately and timely supplied from a growing number of exporting countries distributed throughout the world map.

q Prices in the first quarter of 2002 were around $20.00/b (WTI).

q Since March 2002, the price has tended to increase.

q Price increase was due to political tensions perceived with anxiety by the market and expressed in the form of a “price premium”.

q After March of this year, the world economy has shown very slight changes when compared with the previous year.

q Oil demand has remained almost stagnant.

q Supply by OPEC and non-OPEC increased.

q The market has been over-supplied for the last 10 months or so with volumes that could be placed somewhere between 1.5 to 2.0 Mn b/d.

q Shut- in capacity stands at over 5.0 Mn b/d.

q In OPEC, production expansion projects are putting pressure on the Organization to accommodate the new capacity realities.

q The quota system needs to be addressed by OPEC, otherwise weak credibility would quickly lead prices to slide.

q Weak credibility would contribute to uncertainties in the oil market in 2003.

q Major uncertainties would surface from the US drive for a regime change in Iraq due to the country’s great oil potential and its possible role as a “second Saudi Arabia”.

q Some analysts even ask the question whether OPEC can survive with substantial flows of fresh Iraqi exports.

q Iraqui oil enjoys valuable geographic and cost advantages.

q The highly probable involvement of leading oil majors, from the USA, UK, Russia, France and China, in Iraq could increase the world’s proven oil reserves by up to 7-10 % of light crudes, which would enhance the reality that the world is not yet running out of oil.

q Since the world is not missing out on oil, the market could be more relaxed through increasing:

Proven reserves

Production capacity

Shut in capacity

Competition for market share amongst OPEC members on one hand and between OPEC and non-OPEC producers on the other.

“THREATS TO THE PRINCIPLE OF A NATION’S SOVEREIGNTY OVER ITS HYDROCARBONS RESOURCES”

The dominant subject affecting the oil market throughout October was the war on Iraq. Questions about when and how overshadowed those on whether and who would wage this war. Fears in the Middle East are at a high level as uncertainty grows about the region’s future unrest, which is dominating people’s minds. Caught between how to best appease Washington without angering their own populations, oil producers in OPEC seem to have chosen a magic formula: the payment of a “silent tribute”. Overproducing generously in excess of their own established quotas and ceilings, they have managed to bring the price down just before Americans go to the polls for Mid-Term elections.

In the light of these developments, in this month’s issue we first look at the new concept of regime change through the question of world oil supply; the futility of the embargo on Iraq, and how these sanctions have indeed backfired on the big American oil companies; and why several qualified analysts believe that the post-war oil development is expected to be quite profitable for the oil business.

Second, we look back at the notion of dialogue stated in the Bush Energy Plan as the convenient means to achieve a fair and peaceful approach to the world’s energy problems.

In the third section, we emphasize the large gap between the USA and the rest of the “Great Powers” by concentrating on the language utilized by high-ranking American officials, when addressing their Russian counterparts, in order to underline the inferiority of Moscow. It is perhaps the American military might that allows this nation to take control of Middle Eastern oil that is behind the unmistakable prepotent attitudes.

The discussion of the need for the globalization of the opening up, or rather the breaking off, of states’ monopolies of their oil industries in oil rich countries of the Middle East constitutes the fourth section that ends with the spotlights now being put on West African crudes as an alternative to the Gulf’s oil.

The last section reviews recent US strategic moves in Central Asia in the light of Asia-Pacific’s dependence on Middle Eastern supplies and the emerging concept of whether Washington is seeking the establishment of a patronage on Muslim oil foreseeing possible future competition and conflicts. An appreciation of the strategic importance of Venezuelan oil in the Western Hemisphere closes this month’s report.

I. World Oil Supplies: Plentiful and More Diversified

The United States is a major oil producer, oil consumer, and oil importer. Americans buy about 17 million vehicles annually. There are 200 million vehicles on US roads today, and the gasoline these vehicles consume accounts for some 45% of total US oil consumption. US gasoline consumption alone represents almost 12% of total world oil consumption.

The United States today accounts for some 19.6 million barrels per day of total world oil consumption of 76 million barrels per day.

As such, long-term oil supply availability, both from other countries and the US itself, and oil supply security are fundamental considerations. President Bush and President Putin, for example, have already met in Texas to discuss energy co-operation.

But what about the unilateral restrictions that have turned into self-inflicted wounds for the US? In order to understand the picture one has to begin with the US embargo on Iraq.

US embargo on Iraq: self-imposed suffering? ...

When one looks at the table below on Iraqi oil fields it can be see that American companies are not there – Russian and French companies have taken the lion’s share. Here, the following question poses itself: Is this a direct consequence of Washington’s embargo policy? Clearly. And some could conclude that the embargo has not contributed to the diversification of US imports and to the development of a major production capacity for the world economy.

Russia, indeed, has almost fully normalized its relations with Iraq, benefiting from the absence of the United States there. In fact, US and Russian interests clash on the question of Iraq. The table below clearly shows the prominent role played by Russian and French oil companies.

Iraqi Oilfields: Status of Negotiations With International Oil Companies (IOCs)


A) Agreements Signed

Field

Country

Companies

Remarks

1

West Qurna

Russia

Consortium led by Lukoil,

Zarubzhneft and

Machinoimport

Contract signed in early 1997,

but no work done so far; production capacity up to

800,000 b/d

2

Ahdad

China

Chinese consortium led by

China National Petroleum

Company (CNPC)

Contract signed in June 1997;

no work done so far; capacity 90,000 b/d

B) Major Projects Under Discussion

3

Majnoon

France

TotalFinaElf

Selected for direct negotiations; production capacity

600,000 b/d

4

Nahr ibn ‘Umar

France

TotalFinaElf

Selected for direct negotiations; production capacity

450,000 b/d

5

Nasiriya

Italy

Spain

Agip

Repsol

Talks with both European firms; Production capacity

300,000 b/d

6

Chavraf

Turkey

TPAO

Discussion with TPAO for the 100,000 b/d field.

Earlier talks held with Japex; production capacity

130,000 b/d

7

Tuba

Algeria

India

Sonatrach

ONGC & Reliance

The Algerian and Indian firms agreed to bid for the

200,000 b/d Tuba field in November 2000

Indonesia

Pertamina

Also bidding for Tuba

8

Nur

Syria

Syrian Petroleum Company

(SPC)

E&P agreement signed in May 2001 for the 50,000

b/d field; no work done since.

9

Kifl Structure

Tunisia

ETAP

Heads of Agreement signed in early 2002

10

Amarah

Vietnam

Petrovietnam

Preliminary accord signed; production capacity

80,000 b/d

11

Halfaya

Discussions held with BHP, CNPC and a South

Korean consortium; production capacity 250,000 b/d

12

Rattawi

Discussions held with Shell, Petronas, Nexen and

Crescent; production capacity 250,000 b/d

13

Rafidain

Discussions held with Sidanco, Tatipeneft, JNPC and

Pacific & Perenco

C) Western Desert

14

Block 3

Indonesia

Pertamina

Agreement in principle signed in April 2000; 2bn barrels of oil reserves and 1.2 tcf

of gas reserves

15

Block 8

India

ONGC Videsh ltd

(OVC)

Agreement ratified at end 2000, but no work done because of US

pressure on New Delhi

Source: MEES, 16 July 2001 and updated information.

One has to agree with Robert E. Ebel, Director, Energy Programme, Centre for Strategic and International Studies, when he said in his remarks to the Open Forum ‘Geopolitics of Energy into the 21st Century’ held in Washington, DC on 30th April 2002 that:

“The United States presently imposes unilateral economic sanctions on four oil producing and exporting countries: Libya, Iran, Syria, and Sudan

Together these sanctioned countries produce about 5.8 million barrels per day. Have our sanctions been successful? Have these sanctions bought about the desired changes in the targeted country?. Unfortunately, there is no real evidence that they have. Unfortunately, sanctions are like taxes. Once imposed, they are difficult, if not impossible, to remove.

Oil is truly a global commodity, and that means we are vulnerable to any event, any time, anywhere, that impacts on supply or demand.

We may talk about the power of oil: Oil fuels military power, national treasuries, and international politics. It is no longer a commodity to be bought and sold within the confines of traditional energy supply and demand balances. Rather, it is a determinant of well-being, of national security, and international power for those who possess this vital resource and the converse for those who do not.

Contributions of Venezuela to world oil supply have been declining under this President. Somewhat damaged is the long-held judgement that Western Hemisphere oil supply was inarguably secure. Nevertheless, this not seen as a sufficient assertion”. (1)

More than just oil at stake...

So one is talking in terms of war games, and the subject of war in Iraq has been widely dealt with.

However, it is worth looking at the various views and opinions on this subject as David Ignatius reported in The International Herald Tribune:

“The scenario for lower oil prices is simple. Prices have increased this year mainly due to political factors.

That’s the first thing many suspicious Arabs say about US policy in the Middle East - and the first thing some sceptical Americans also say. Let’s assume for the moment that the cynics are right: When you peel away all the high-minded talk about Arab democracy, America’s national interest lies in maintaining a reliable supply of oil at stable prices. So the first question about a war with Iraq is what it will do to the oil market?

The surprising prediction of several oil experts is that oil prices may actually crash next year, from the current level of about $29 to $15 per barrel or less. That’s because Saudi Arabia may raise its production in an effort to force down prices and crush its higher-cost competitors, especially in Russia.

Indeed, US oil companies are said to fear they would be excluded from post-war contracts. Even the Iraqi opposition denies that US companies would get special breaks after the liberation.

OPEC’s ability to manage supply and uncertainty about what will happen in Iraq are two disturbing issues. Both factors would disappear after an Iraq war. Oil prices are likely to fall when the war begins - or if the Bush administration accomplishes its war aims through inspections or other means. Prices collapsed the day Operation Desert Storm began in 1991, and they declined by a total of nearly 50 percent over subsequent weeks.

Oil prices that low might fuel a new global economic boom, particularly in Asia. But such low prices could prove disastrous for Russia and its oil-driven economy. Managing a portfolio of risks is what oil companies do,” noted J. Robinson West, the chairman of Petroleum Finance, who sponsored a gathering of top industry CEOs this month in Venice. The consensus of that group, West said, was that the oil market will remain volatile, whether or not the United States invades Iraq. Experts are sceptical about reports that the Russians, French and Americans have already divided up oil rights in post-Hussein Iraq.

Looking through this narrow lens of economic self-interest, some analysts foresee disaster.

Russian companies have been jockeying to keep their Iraqi contracts, whatever happens in the future. But French oil executives have been complaining privately that they have received no assurances that contracts would be honoured, and it’s doubtful the Russians have either. Iraqi opposition leaders aren’t making any promises. Nevertheless Middle East Economic Survey carried interviews with economic advisers to three leading opposition groups. All agreed that current contracts “have to be reviewed;” and they cautioned that US companies won’t have any inside track “No Iraqi government would last 24 hours if they allowed something like that, ” said Salah Shaikhly, an official of the Iraqi National Accord. A war in Iraq could trigger a new economic boom or a deeper slump. But most of the downside risk is already built into oil prices. So if forced to wager where prices will be in a year, a sensible gambler would bet on a price decline - and a corresponding boost to the global economy”. (2)

Walid Khadduri, editor in chief of the Middle East Economic Survey (MEES) said “We are all assuming that will happen again,” The only factors that would prevent a sharp price decline would be a prolonged war or an Iraqi attack with unconventional weapons against oil installations in Kuwait or Saudi Arabia, he said. If a long war led to a sustained increase in oil prices, that would probably worsen the current global economic slowdown.

Nonsense, say the oil experts. They note that senior Bush administration officials are so busy worrying about weapons of mass destruction that they have paid little attention to oil politics in Iraq.

The likely downward pressure on oil prices next year was explained in a recent report by the Petroleum Finance Co. The Washington-based consulting firm notes that oil exports from Iraq itself would increase by at least a million barrels per day over the next few years.

“With a stable, pro-Western regime in Baghdad, production could climb even more, to more than 5 million barrels per day from the current 3 million barrel level. Two other members of OPEC, Nigeria and Algeria, are also increasing their production capacity.

Finally, there’s the Saudi factor. If prices begin to collapse, the only response available to Saudi Arabia is to force a decline in non-OPEC supply by sustained lower prices, argues the Petroleum Finance report. Prices could stay below $15 a barrel for 18 to 24 months, they predict”. (2)

Is it all about oil?...

“Oil - a commodity synonymous with wealth and power for a century - could be the great prize of a new US war with Iraq.

‘If we go to war it's not about oil.... But after Saddam, it becomes all about oil,’ says Lawrence Goldstein, president of the Petroleum Industry Research Foundation.

The president himself was an oilman, as was Vice President Dick Cheney, goes the reasoning. National Security Adviser Condoleezza Rice served on Chevron's board - she even had an oil tanker named after her, for goodness sake.

With imported supplies predicted to jump to two-thirds of national consumption by 2010, the oil industry is one that in the age of the OPEC operates more by cosiness than confrontation. Prior to last September 11th it used to lobby in Washington generally favouring the relaxation of US restrictions on doing business with Hussein not his removal” says Peter Grier of the Christian Science Monitor. (3)

‘Clearly, there is more than just oil at stake’ in Iraq, says Alan Tonelson, a research fellow at the US Business and Industrial Council Educational Foundation. The presence of so much petroleum in and around Iraq is at the very least a complicating factor as the US and the world weigh their options.

Oil, after all, is a main reason that the US is so interested in the Middle East in the first place. The region remains the world’s pre-eminent source of high-quality, easy-to-obtain petroleum. This is a situation that has sensitive geostrategic implications for the oil industry and would require that the US act as guarantor of stability.

The US has served as the Western world’s guarantor of Gulf stability since the end of World War II, when it took over that role from a weakened Britain. For Saudi Arabia and the smaller gulf oil states the arrangement has worked well.

Iraq, before the brutalities of Hussein's regime crushed its commercial spirit, was one of the easiest countries in the Middle East for Western firms to do business with. It was long stereotyped as the Germany of the Middle East - relatively well-educated, efficient, and eager to make money. Though they say little publicly, some administration officials are already planning for the day when Baghdad resumes this role following a change in regime.

In a rare discussion of this topic, Under Secretary of Commerce Grant Aldonas said earlier this month that war with Iraq might end up having a positive economic effect.

‘It will open up the spigot on Iraqi oil, which would certainly have a profound effect in terms of the performance of the world economy for those countries that are manufacturers and oil consumers,’ he said during a press conference.

After a war, Saudi Arabia could be in for a nasty shock. It would take some time - five years or so - but eventually the Iraqi oil industry could produce upwards of six billion barrels a day, estimates Amy Myers Jaffe, an energy analyst at the James A. Baker Institute for Public Policy at Rice University.

It’s possible that the Iraqis would manipulate this flow in concert with fellow OPEC members to keep prices high. It’s also possible that a new Iraqi regime would try to pump as much as possible to help fund vast reconstruction projects - and, perhaps, to keep its new ally, the US, happy ”. (3)

Today Saudi Arabia is the only country in the world that has the reserves to replace the oil exports of any other country in the world in a crisis. That makes the country critical to the future stability of oil markets. Iraq could shoulder much of that same role - making Saudi Arabia less strategically important to the West.

Will prices plunge or jump? And if pumped at full capacity, abundant Iraqi oil could lower the world price by $3 to $5 per barrel.

Greater perception of risk...

Some have even suggested that there could soon be a new world oil map.

Washington’s plans for a ‘regime change’ in Iraq are but one part of an evolving US attitude towards the whole of the oil-rich Middle East. America’s enemies in the region - and some allies - have reason to shudder.

Since Iran’s 1979 Islamic revolution, US policy has been guided increasingly by the doctrine of containment.

But September 11th has shattered that doctrine. The replacement emerging on the right of US politics is of “pre-emptive” action against even potential threats to US interests. That doctrine, with its open-ended logic, is casting its shadow across the region. The Iraqi regime is no worse now than before September 11th. What has changed is the US’ perception of risk.

The US is already drawing up the structure of a successor regime to make sure Iraq’s centre holds. And after Iraq? No wonder Iran’s political establishment is panicking, having seen a US client regime established in Afghanistan earlier this year.

US energy secretary Spencer Abraham, in Moscow, pressed Russia to stop its aid to Iran in building an $800mn nuclear reactor. Conservative US thinking regards Iran as the wellspring of political Islam. “The most recent war against the US by Muslim fanatics… began nearly a quarter of a century ago when Shiite fanatics took power in Iran, writes former CIA director James Woolsey.

“Most starkly of all, the American right is scrutinising the US relationship with Saudi Arabia. In the past, criticism of the House of Saud was the preserve of liberals and human rights groups - September 11th has changed all that. Laurent Murawiec of right-wing think-tank the Rand Corporation is of the opinion that the US does not want a regime change in Riyadh, but it does want to weaken the theocratic hold of the Wahhabi movement.

Such thinking, is inspired by the Israeli right’s analysis of the region. The Bush administration is showing a growing willingness to intervene in Middle East states. The primary US interest in the region - ensuring oil supplies - has had to make room for security issues since 11th September.

Washington’s plans for Iraq are risky. But they could just be the beginning of a tumultuous period of US intervention across the region. Thus even US allies have reasons to beware.” Petroleum Argus states. (4)

Meanwhile, an indication of efforts being made within the United States to improve its domestic oil position can be seen by the following details provided by the Energy Information Administration:

“US proven oil and gas reserves rose in 2001, according to the Energy Information Administration (EIA) of the US Department of Energy. The EIA says that reserves additions exceeded production by 21% for oil and 31% for natural gas in 2001. Much of the oil reserves increased due to the deepwater Thunder Horse discovery, which when developed is expected to be the largest producer in the Gulf of Mexico, with a capacity of 250,000 b/d. Total discoveries of crude oil were 2.565 billion barrels in 2001, almost twice the 2000 discoveries and greater than three times the prior 10-year average. New field discoveries amounted to 1.407 billion barrels in 2001, four times as much as in 2000 and over six times as much as the prior 10-year”. (5)

But just where will the oil imports come from? One must assume that these would follow some traditional pattern and in proportion to reserves, facilities and production capacity - not everyone would agree with this point of view, however.

II. Better Dialogue Needed Between Producers and Consumers

According to “Strengthening Global Alliances”, i.e. the Bush Energy Plan, a recommendation read:

“We need to strengthen our trade alliances, to deepen our dialogue with major oil producers, and to work for greater oil production in the Western Hemisphere, Africa, the Caspian, and other regions with abundant oil resources... By 2020, Gulf oil producers are projected to supply between 54 and 67 percent of the world’s oil. Thus, the global economy will almost certainly continue to depend on the supply of oil from Organization of Petroleum Exporting Countries (OPEC) members, particularly within the Gulf. This region will remain vital to US interests. Saudi Arabia, the world’s largest oil exporter, has been a linchpin of supply reliability to world oil markets... Refocusing that dialogue beyond short-term market developments to long-term issues of world economic growth, improving data quality, and addressing energy infrastructure is needed to maintain a smooth flow of energy from the wellhead to the consumer... The NEPD Group recommends that the President direct the Secretaries of State, Energy and Commerce work to improve dialogue among energy producing and consuming nations”. (6)

Top 10 Suppliers of US Oil Imports in 2000 (thousand b/d)

Canada

1,686

Saudi Arabia

1,566

Venezuela

1,519

Mexico

1,359

Nigeria

887

Iraq

613

Colombia

332

Norway

332

UK

330

Angola

296

Note: In 2000, nearly 55% of gross US oil imports came from four leading suppliers: Canada (15%), Saudi Arabia (14%), Venezuela (14%), and Mexico (12%).

Source: US Department of Energy, Energy Information Administration, “Strengthening Global Alliances”, Chapter 8, p.4.

Ample oil reserves, but in few hands...

Here we may look again at the views of Robert E. Ebel:

“Troubles ahead? To be sure. Where is the growth in energy demand coming from? Unstable countries. Where is the growth in energy supply coming from? Unstable countries. We have taken this approach only to alert policy-makers as to just how fragile timely energy supplies really are.

Where is the world oil future to be found? Not in current oil production levels. The future will be found in oil reserve levels. Which countries possess the greatest oil reserves? Just four countries - Saudi Arabia, Iraq, Iran, and Russia - together control almost 70%, that is, 7 out of every 10 barrels, of world oil reserves. That is not particularly reassuring for future oil supply and price stability.

We can define a number of oil trends:

European dependence on Gulf oil will remain significant; Asian dependence on Gulf oil will expand dramatically; and US oil imports will continue to grow”. (1)

Ebel continues explaining very important realities...

“The media seems to take particular pleasure in ask the question: are we in danger of running out of oil anytime soon? no, we are not.

US consumers are a funny lot. They really do not care where their energy supplies come from. US consumers have just two concerns, and energy independence is not one of them. Price and availability, however, are daily concerns.

Our political leaders often speak of the need to seek energy independence. But, is US energy independence a political fantasy? Might we want to consider adopting the approach taken by the European Union? Do not speak of attaining energy independence. Rather, the approach taken has been how best to manage the risks associated with such dependence.

We must recognize existing contradictions in our policies and the political and economic importance of key producing countries as well. We must re-assess our sanctions policy. And we must continue to fine-tune our policy in the Caucasus and Central Asia. Encourage China to diversify its energy sources, encourage market reforms in those countries where supply-demand decisions rest with bureaucrats. Developing countries and the rapidly industrializing South, cannot afford to place environmental policy ahead of economic growth. That raises the prospect of a divisive North-South controversy.

The United States imports some 57% of its oil supplies and we work to gain security of supply. Canada, Saudi Arabia, Venezuela, Mexico, Nigeria taken together provided some 62% of our oil imports in 2001. Iraq was the sixth leading oil supplier to the United States during 2001. We imported almost 800,000 barrels per day from Iraq and refined that oil, producing considerable volumes of jet fuel. Some of that jet fuel was used by our military aircraft in bombing runs over Iraq, thus returning Saddam Hussein’s oil to him, but in a slightly different form.

Who can produce what? Can one see any major shifts in production capacity amongst individual countries? No shifts are anticipated. For the year 2020, Saudi Arabia is projected to be in the lead, followed by the former Soviet Union, with Iran, Iraq, and Venezuela each holding a comparable share of the estimated world total, and Nigeria standing in sixth position.” (1)

The US presence has not contributed to more co-operation but rather to the opposite, and oil relations are not seen to be as solid as they have been over the last 70 years.



Not only is Saudi Arabia changing, 38% of its native population were born after the Gulf War for example, but more importantly so too is the essential structure of international relations undergoing fundamental changes. The US oil situation is a very complex one, and to resolve the question is not an easy task at all since multi-directional efforts and approaches are required.

III. Hugging the bear


 Ebel considers that:

“Our key concern is energy supply reliability. We have responded to that concern in a number of ways by:

  • Maintaining U.S. defence capability.
  • Encouraging burden-sharing to protect supply.
  • Placing emphasis on tension-reducing measures, including collaborative energy infrastructure projects.
  • Working to protect critical infrastructure.
  • Maintaining and expanding our Strategic Petroleum Reserve.
  • Promoting diversity of supply and transportation routes.
  • The policy we have adopted in support of Caspian and Central Asian oil development. That policy could be defined, with tongue-in-cheek, as "happiness is multiple export pipelines, all running in the same direction, and all bypassing Iran."
  • The deepwater exploration prospects that are good in Nigeria and Angola.

And with regard to the role of Russia: this country is the number two oil producer and exporter in the world. Does Russia have the potential to return to production levels matching those of the mid-1980s? The geologic potential is there. So the answer is yes, if Russia, the EU, and the United States want it to happen; and if Russia improves its investment climate; and if foreign investors respond... and this means the world oil market must be sufficiently attractive to offset the risks of doing business there.

Russia holds 32% of world natural gas reserves; it leads the world in gas production and in gas exports. Russia has been a reliable supplier to European markets. And what of a recent statement by President Putin, warning Europeans that their energy dependence on Russia could create obstacles if Moscow were not treated as an equal partner in future agreements?

With regard to the much-publicized Caspian and Central Asian areas, their oil potentials have been victims of media hype. The region cannot be viewed as a substitute for Persian Gulf oil. It is the equivalent of another North Sea. That equates to a production level of 5 to 6 million barrels per day. By the end of this decade, this region probably will be providing between 3% to 3.5% of world oil supply. A figure that is not pivotal, but important at the margin.

The thought had occurred to some that Russia, plus Azerbaijan and Kazakhstan, taken together might challenge OPEC at some time in the future. That challenge would fall considerably short. The future of oil will be defined by the measure of oil reserves, and OPEC oil reserves far exceed those of the former Soviet Union”. (1)

Here again, the question of US-Russia oil relations is a core issue given the asymmetry as can be appreciated by the remarks of Ambassador Richard N. Haass, Director, Policy Planning Staff at the State Department:



“Post-September 11th, it has become clear that we live in what Secretary of State Colin Powell likes to call the Post-Post-Cold War world. This is an era defined by a number of realities: foremost among them being American primacy, the low probability of great power conflict, and the spread of democracy and free market economics. But it is also a time of continuing regional threats, persisting widespread poverty and the exclusion of too many people from the benefits of globalization, and increasing transnational challenges.

One of these transnational challenges has emerged as the greatest threat to the national security of the United States and the rest of the world "the new totalitarian threat". Indeed, the murders of September 11th have helped create a new strategic clarity in the American mind. Not since the height of the Cold War has it been so obvious what the United States is for and what it is against.

There is a renewed national consensus on America’s purpose in the world.

In a fitting twist on the old Cold War theme of America coming to Europe’s defence, NATO crews manned air surveillance flights over several American cities, including New York and Washington.

Co-operation extends well beyond the military sphere. The United Nations Security Council voted unanimously to require all UN members to freeze terrorist financing, and improve border security.

The United States can be more successful working with partners than working alone. Yes, our interests may sometimes differ from those of our partners, but effective co-operation does not always require identical interests, only common concerns.

Fortunately, we also live in a time when war between great powers is almost unthinkable. Let’s stop for a moment and consider what a remarkable change this is. The 20th century was defined by balance of power politics. When it broke down, it gave us two world wars. When it held, it gave us a Cold War. In both cases, defence, not development, had first call on our blood and treasure.

The true ‘peace dividend,’ then, is the new-found freedom to turn from containment and confrontation to consultation and co-operation. The United States and other global powers can move and are in fact moving from a balance of power to a pooling of power to solve problems.

The US-Russian Relationship in the Post-Post-Cold War World...

Given today’s international landscape, it is clearly in the interest of both the United States and Russia that Russia be fully integrated into this Post-Post-Cold War world.

Russia can be a critical partner in building security and stability in the regions it borders - Europe, Central Asia, and the Far East. We can now work with a democratizing Russia to help integrate these areas more fully into the global system.

There is a high opportunity cost - in two ways - if the United States, Russia, and Europe fail to seize the moment to integrate Russia into Western and international norms and institutions. A failed or isolated Russia would represent yet another source of transnational threats - from loose nukes and other weapons of mass destruction, to large migration flows into Central and Western Europe, to drugs and disease.

It used to be axiomatic that if something was good for the United States, it was bad for Russia, and vice versa. But integration is also good for Russia.

Only by turning away from old habits of insularity and autarchy can Russia enlist the United States, Europe, and others in support of its own prosperity, stability, and security.

As President Putin himself has said, Russia’s economic development and long-term prosperity require that Russia be fully integrated into the world economy and its key financial institutions.” (7)


In recent years, Russia has enjoyed real improvement in its economic performance. But some of this reflects higher oil prices and an improved exchange rate - favourable conditions that may not last. Russia also needs a prolonged period of stability in its relations with other countries.

Those who govern Russia must recognize that. Foreign investment will only flow where the risks do not outweigh the returns.

Integration is also essential to Russia’s security. As a European nation, Russia has much to gain from fully normalizing its relations with the individual nations and multilateral institutions of Europe.

A strategic but unequal ally...

“The shared American, Russian, and European interest in Russia’s integration was on display (...) in Rome, where the NATO-Russia Council was launched. The Council represents a new era in NATO-Russia relations through a new level of Russian involvement in European security.

Russia, the United States, and Europe... The three of us, along with the United Nations, are co-operating closely on the Middle East in the "Madrid Quartet." The United States, Russia, France, and Britain also worked closely together in the UN Security Council to agree on a revised ‘smart sanctions’ regime for Iraq”. (7)

US-Russian relations are of course still evolving from a Cold War relationship where the relationship that prevailed was what we could do to one another rather than one of what we can do with each other.

“We don’t call Bush-Blair meetings Summits. When the same can be said about a meeting between the American and Russian Presidents, it will be a small but telling indicator of an increasingly normalized relationship between the two countries.

Take energy, for example. As a significant supplier of energy to Europe and East Asia, Russia contributes to the diversity of global energy supplies and could become a key player in stabilizing global oil prices. There are opportunities for Western investment and joint ventures with Russian companies to improve oilfield recovery rates in Russia and to engage in joint ventures in third countries.

The United States and Russia could also cooperate in the economic development of the Russian Far East. Addition to benefiting Russia, a revival there would have positive reverberations in China, Korea and Japan.

Another area for co-operation is Central Asia. It seems to me that assuring Russia a prominent role in the economic reconstruction of this region could go a long way towards alleviating Moscow’s concerns about the growing U.S. military presence there”. (7)


In the following paragraphs, the readers can see just who has the power and who is expected to accept the role of the vassal.

“Russia needs to complete its transformation into a democratic, market-oriented state. Nothing is more important. Russian leaders must recognize that this is the key to Russian prosperity, and to continued integration with the West and with international political and economic institutions.

Russia also has work to do to overcome the enduring legacy of distrust and suspicion that exists in Europe generally, but is particularly prevalent in Central and Eastern Europe. Given the considerable historical baggage, it is naïve to think that it is sufficient for Russia to say simply: ‘Russia is not the Soviet Union.’

We continue to have concerns about the proliferation of weapons and missile technology from Russia, be it government-sanctioned or not, in particular with regard to Iran.

As a first step, it is important to realize the full potential of the newly created NATO-Russia Council”...

“Assuming the United States and Russia can get past the poultry dispute, we expect that Congress will lift the Jackson-Vanik trade restrictions still in place from the era when Soviet Jews were prohibited from emigrating to Israel.

Let me conclude with five observations about the US-Russian relationship going forward in the Post-Post-Cold War world:

  • First, it will take hard and sustained effort to make the US-Russian relationship work. Both sides must recognize and accept that the two countries are unequal in virtually every measure of wealth and power.
  • Second, there is no structural reason why the United States and Russia can’t have good relations. The two countries are not rivals, they do not share a disputed border, there is no history of ethnic hatred between them, and there is no longer a fundamental clash of ideology.
  • Third, the United States and Russia must accord a high priority to the economic and commercial aspect of the relationship, including energy policy.

· Fourth, there is a limit to what the United States can do for Russia.

· Finally, both the United States and Europe need to improve the quality of consultations with Russia. When either Americans or Europeans are about to make decisions that have an impact on Russia or the relationship, they owe it to Russia to consult in advance, not simply announce a decision after the fact. That does not mean Russia will have a veto, but it does mean decisions will be made with full knowledge of the impact on the relationship. And, we expect our Russian partner to do likewise.

The Cold War ended peacefully. That was a remarkable accomplishment. Still, history warns that we must also win the peace. After World War II, the Soviet Union missed a historic opportunity to integrate into the West. While former adversaries such as Germany participated in the Marshall Plan, joined the Bretton Woods institutions, and built prosperous, democratic countries, the Soviet Union chose a path of isolation behind its Iron Curtain.

Now, with the new century here, as President Bush told the Bundestag last week, ‘Russia has its best chance since 1917 to become part of Europe’s family.’ For the sake of the American people, the Russian people, and the world’s people, this most recent opportunity to integrate Russia must not be lost”. (7)

US-Russia relations are very important for the emerging world order, but it is also very true to say that it is certain, that no matter how much US-Russian oil relations are growing in importance, the reality is that Middle East oil remains King.

Even as talk of war with Iraq and the continuing fallout from the September 2001 terrorist attacks stoke concerns about US dependence on Gulf oil, Western oil companies are showing no intentions of veering away from the Middle East, oil executives say, according to The New York Times (23 Oct. 2002).

The Bush administration has made the broadening out of the sources of America’s oil

supplies a touchstone of its energy and foreign policies, but officials concede that progress has been slow.

“I believe that the administration’s emphasis on increasing and diversifying global energy supplies is having a positive impact on investment decisions - but this impact is difficult to quantify,” Energy Secretary Spencer Abraham said. (8)

Recently, the administration has encouraged US efforts to import more Russian crude oil and announced plans to open a Consulate in Equatorial Guinea, which is rich in oil. American oil companies say they welcome such efforts.

The proportion of US oil imports flowing from the Middle East, however, remains high - about 24 percent, down from levels seen during the oil crises of the 1970s but up by one-third over the past few years. Oil executives had not markedly changed their plans as to where to seek, produce and purchase oil.

“Diversifying supply is important for any country, and the industry is looking at other things besides the Middle East,” said Clarence Cazalot jr., chief executive of Marathon Oil Corp., a Houston-based energy company pursuing projects in the Middle East, West Africa and most recently Russia.

But at the end of the day, oil has to come from where oil is available, he said, and most of the oil and gas in the world is in the Middle East. “It’s just an inescapable fact of life.” (8)

IV. Is It About Opening Up?

American oil companies work in riskier places than they did a generation ago. In 1970, fields in the United States and the North Sea still held great promise. But production has been declining in those regions, and over the past 30 years, companies have plowed billions of dollars into such countries as Nigeria, Angola, Brazil and Kazakhstan.

The American oil industry now spends about one-third of its budget for exploration and production in developing countries, according to the American Petroleum Institute. Over the next 20 years, it has estimated, companies will allocate the vast majority it of their exploration and production budgets to those regions.

American companies have invested comparatively little in the Middle East, largely because the region’s State-run oil companies are only now considering partnerships with foreign oil companies for the first time in decades. Indeed, oil executives say that from their perspective, diversification would mean greater involvement in the Middle East, not less, and that the region’s vast oil holdings overshadowed its history of turbulence.

“We bought into Qatar and Oman to get a foothold in the Middle East,” said Robert Allison jr., chairman of Anadarko Petroleum Corp., an exploration and production company based near Houston that has invested about $100 million in those countries.

“The exploration decisions we make today won’t come into play for another four, five, ten years. We need to position ourselves in the Middle East for when Iraq and Iran become part of the family of nations again.” (1)

The United States, the world’s largest consumer of petroleum, imports most of its oil, a trend that has grown over the past 30 years as consumption has ballooned and domestic production slipped. Oil from Canada, Mexico, Venezuela and Nigeria together accounts for more than 50 percent of imports.

But the Bush administration wants to diversify even further. Over the past year, the administration has pushed hardest for getting more oil from Russia, now the world’s second-largest producer after Saudi Arabia.

“Many analysts and industry executives perceive the administration’s oil diplomacy as a rebuke to Saudi Arabia, the biggest supplier of oil to the United States.

In the wake of the attacks of September 11th 2001, which were carried out mostly by Saudi citizens, strains have emerged in the relationship between Washington and the Saudi government”. (8)

Given that context, a tradeoff is needed in the Middle East in a similar way that it was obtained in Russia.

Unfortunately, exploring for oil is a risky and expensive business outside the Middle East core area, as can be seen from the following example:

“Norsk Hydro reported a 82 per cent fall in third-quarter net profits as the Norwegian energy group suffered higher exploration costs, negative currency effects and continued weakness in the international aluminium market.

Net profits fell from NKr1.33bn ($173m) to NKr513bn in the quarter. Exploration costs rose from NKr295m to NKrl.3bn. of which 85 per cent was spent on unsuccessful overseas projects in the Gulf of Mexico, Angola and Trinidad . The group has failed to find hydrocarbons in all five of the large deepwater wells it drilled this year.

Oil and gas production rose by the equivalent of 33,000 barrels of oil a day to 452,900 b/d, but higher dollar oil prices were offset by a strengthening of the Norwegian krone and weakening of the dollar”. “(There was a) 62% drop in third quarter net profit, raising its full-year oil output estimate. Net profit for the quarter fell to 513 million kroner (e69.1 million) from 1.33 billion kroner in the same period for 2001. Operating profit fell to 3.95 billion kroner from 4.74 billion kroner in the third quarter of 2001. The drop in profit, arising mostly from heavy exploration in international oil operations. Output during the quarter averaged 452,000 barrels of oil equivalent a day, an increase of 33,000 barrels of oil equivalent a day from the third quarter of 2001”. (9)

Economic risks are not the only ones: terrorist threats and actions are more and more frequent, and this works against the Middle East’s comparative advantages. The Guardian expresses the opinion that:

“The Bali bombing could mark the start of a wider terrorist campaign against westerners in the Far East, including more soft tourist targets and oil companies operating in the region.”

And The Wall Street Journal reported that an unnamed US oil company had been warned by the US embassy that the energy industry could be a target.

Susilo Bambang Yudhoyono, Indonesia’s security minister, also claimed there is information the energy sector will be targeted by terrorists.

A few hours before the Bali blast, the Australian attorney general, Darryl Williams, revealed that Australian oil, gas and power plants could be hit by al-Qaida”. (10)

Ebel lists some of the advantages that the US has gained from Russia to minimize US risks.

“Each incoming administration, sets out to develop an energy policy for the United States. Many, if not most, end up on the bookshelf, gathering dust. Tradeoffs is key to a successful US energy policy. Every energy decision we make has a tradeoff and these tradeoffs carry their own risks and costs. Just what is meant by a tradeoff? Let me offer the following.

  • Roughly 50% of the fuel burned in U.S. nuclear power reactors originates with Russia. These reactors in turn provide 20% of US power generation.
  • Doesn’t that put the United States in a particularly vulnerable position?
  • Is there a tradeoff to justify this vulnerability?

There is. The Russian fuel for US nuclear power reactors comes from the conversion of nuclear warhead material. This conversion at last count had eliminated the equivalent of 5,487 Russian nuclear warheads.

  • The United States has traded a certain degree of energy vulnerability for a reduction in the Russian nuclear threat.
  • This is an acceptable tradeoff, in terms of US national security interests.

Regarding security of supply, if US military power were committed even to an extended protection exercise, say in NE Asia, the capacity to respond to a crisis like that of 1990 in the Gulf would be severely limited.

The US is confronted with two policy contradictions:

  • The future need for oil is at odds with current sanctions on Libya, Iraq, and Iran.
  • The United States deals with its energy policy in domestic rather than international terms, which puts that policy at odds with globalization facing this serious dilemma, Washington is seeking oil all over the globe”. (1)

West African oil is now in focus, and currently the rising star...

Previous rising stars have been the Caspian and Russia.

“The US State Department is due to hold talks with Olusegun Obasanjo Nigeria’s president. Walter Kansteiner, US assistant secretary of state for African affairs, is in Nigeria on the second leg of a six-day trip that took him also to Angola.

The visit to sub-Saharan Africa’s two largest oil producers has focused attention on the strategic importance of this potential bulwark against disruption to Middle Eastern oil supplies.

Mr. Kansteiner spoke earlier this year of the undeniable US national strategic interest represented by African oil. US officials estimate Africa accounts for 15 per cent of US oil imports, and say that sub-Saharan Africa alone is expected to supply 25 per cent of America’s crude requirements by 2015”. (11)

Nigeria, which produces about 2m barrels of oil a day, is the world’s sixth-largest oil exporter and the fifth-largest supplier to the US, while Angola’s production is just under 1m barrels per day and growing fast.

Both countries have large untapped offshore oil deposits that Nigeria’s case are expected to increase capacity by 50 per cent or more within the next few years.

The attention the US is paying to western Africa is viewed in the region as evidence of contingency planning in case an American attack on Iraq, or other security problems in the Middle East.

“The US is also being lobbied domestically to increase its involvement in western Africa, and even to extend its military involvement in the region.

The National Energy Policy Development Group, an organisation established by President George W. Bush early in his administration, recommended last year that the US should form closer ties with Africa to promote geographic diversification of energy supplies and address issues as transparency, sanctity of contracts, and security.

The Institute for Advanced Strategic & Political Studies an Israeli lobby group that met President Obasanjo, claims the US is on the verge of a ‘historic, strategic alignment’ with West Africa and that the region is ‘receptive to American presence’.

The Institute has advocated the setting up of a US Gulf of Guinea military command: the island of Sao Tome, south of Nigeria and a possible site for a naval base, hosted a visit from a US General this week.

The activity comes while the Nigerian government is facing calls at home to leave OPEC and develop its oil trading relationship with the US instead.

Production limits imposed by OPEC are reducing tax revenues for the government, which draws more than 90 per cent of export earnings from the oil sector. Nigerian government officials estimate oil revenues could fall by 40 per cent this year, potentially creating political difficulties for Mr Obasanjo as he seeks re-election early next year.

The government plans to make a statement next week on its relationship with OPEC an announcement that may reveal more about the tryst between the US and west Africa”. (10)

V. Washington Looking Closer Home

Inevitably when looking at the Western Hemisphere, Venezuela is by definition the ‘Jewel in the Crown’. However, this fact should not let policy makers become confused between what is complementary and what is a substitute: Venezuela complements Islamic oil and vice-versa, but Venezuela does not substitute Islamic oil. Previous issues of PetroAnalysis have already covered this subject, and here follows an outline of the analysis:

The Afghan Question...

It may be possible that since the period in which Great Britain withdrew from the Indian subcontinent, the late-1940s, the world has forgotten about the geostrategic importance of that part of the globe. Various countries competed there for the riches and the markets of the area, and at this point it should be remembered that England made its first moves to take control there in the seventeenth century. This was to result in British domination of that part of the world for some three centuries... India at that time being known as “The Jewel in the Crown”.

Having said this, one could ask the following question about a country that previous to the formation of what is now Pakistan bordered on “British” India: what is attractive just now about Afghanistan? Perhaps only known for its precious lapis lazuli, that country is very poor, arid, isolated and backward, with no mineral riches nor attractive wealth. What one has to do here, however, is not to focus on a specific country or sub-region, but look at its neighbours and its location in relation to other countries – doing this the picture becomes clear.

First move...

Finding an interpretation of what is happening now in and around Afghanistan, takes us to the oil question and here it seems to be that Allah was very generous towards Moslems with regard to oil... non-Moslems have relatively very little in comparison. To talk about Allah and Moslems, by the way is quite inevitable: when one switches on any US TV station it becomes clear that Islam has become a major subject in the media. About 80% of world oil reserves are found in a small number of countries inhabited by Moslems, and it is quite difficult for non-Moslems to control the oil in that subsoil.


This, however, is not too much of a problem at the moment... what is important is the transportation of the oil to present and future consumers. One could ask what is wrong with huge Middle Eastern oil reserves – they seem to have been quite fine and satisfactory from 1901 when Knox D’Arcy managed to control the whole of the Persian oil reserves! Later on the British government created what was to become the Anglo-Persian Oil Company, the Anglo-Iranian Oil Company, and then British Petroleum; followed by Bahrain, Iraq, Saudi Arabia, Kuwait, Abu-Dhabi, and Oman until the whole of the Gulf area - with its around 65% of total oil reserves of the world - were to be controlled by the Seven Sisters and their respective governments. These huge reserves are still there, and this area still produces a significant part of oil sold on the international market. Additionally, there seems to be no objection to the quantity in place, neither are there complaints about the high quality of that oil. Furthermore, production costs are the lowest in the world.

Closing the circle...

All well and good, but now the US has seemed to realise that people in the Middle East are not very sympathetic to US policy towards their region, towards their causes, and now even towards their culture and civilisation! This seems to be a very recent discovery by the American policy makers, even though this problem has been a public one for over half a century. Faced with these facts it is not that the US wants to abandon the control that it exercises over Middle Eastern oil, but it does need to improve its grip on it and also obtain some other important source of oil in a different geographical area... and speaking of hydrocarbons production, this leads one directly to the Caspian area. Ironically, this region is again mainly inhabited by Moslems – and at the moment Caspian Moslems may be friendlier to the US than the Middle East oil-producing Moslems. Now when one looks at the future pattern of world-wide oil consumption one is brought directly to two Asian giants: India and China. Taking Asia as a whole there are three countries and one region, Japan, India, China and the Asian Tigers that all together import around 11 million barrels a day, and on average 70% of their oil imports comes from the Middle East... and here comes the crunch: it is estimated that in the year 2020 these areas will be importing as much

as 26 million barrels a day.


US patronage over Moslem oil...

If the share of Middle Eastern oil in these countries’ imports remains stable or even increases, some kind of inter-dependence between these Asian countries and Middle Eastern exporters would be created, and which in turn could lead to some form of political understanding. One may add to this the fact that the European Union also imports very significant volumes of the oil it needs from Middle Eastern, North African, and Moslem countries.

So it can be seen that when one takes into consideration that the Palestine cause is of central importance to all Arabs and Moslems, a day might come in which the very recent US veto in the Security Council would not be enough to avoid a consensus among the rest of the international community which would strongly condemn Israeli practises in the occupied territories. The Israeli-American link is on the top of the US agenda, but Washington is prepared to provide Israel with all the support that it needs just in order not to abide by UN resolutions of 1967.

Too many competitors...


The US, therefore, understands that if it does not move to Central Asia at the right time (which it effectively has done) the US position in the future would be worsening in comparison to both Europe and Asia since these two geographical regions would be competing with the US for obtaining the oil that they need. At this very moment the US has merely 10 years of oil reserves left, and this domestic oil in the US is now sufficient for just 40% of its total consumption. Anglo-Saxon countries, as are the US and the UK will be highly dependent on imported oil and there are not so many alternative sources to the Middle East. It is true that something can be found in West Africa, but in addition to the Middle East and North Africa the oil future in that Eastern Hemisphere could include the Caspian.

America prefers to introduce itself into that part of the world and reach important understandings and agreements with the Caspian Sea-Caucasus region in order to be a main player in the transportation routes and pipelines that would need to be built for the satisfaction of oil and gas supplies to India, Pakistan and mainly China. Here we are talking about a population of around 2.5 billion which would be experiencing in the 21st Century a form of repetition of what Europe went through during the 1920s or the 1930s onwards. Such an industrialisation and imitation of the Western pattern of development would need huge quantities of hydrocarbons in the form of oil or natural gas.

For the US it is not just a question of which companies will build these pipelines or which companies will extract the oil - these companies or consortia could be from any country. The point is having one’s hand on the tap. What is the science of the geopolitics of energy? It is security of supply which is equal to national security. So if it is true in the case of the US it also the same for China or India. It is quite definite that Russia is increasing its oil supplies to the international market, and even with the clash that can be seen between the US and Russia on the anti-missile question the US in the future would need to import oil from Russia! And on this question Russia could turn out as friendly or as hostile to the US as are the Saudis and as were the Iranians in the past.

Venezuela and the Western Hemisphere...

Bearing this situation in mind, and then moving to the Western Hemisphere in order to look at the possibility of alternatives and prospects of future oil supplies, we find ourselves in a continent (that of both North and South America combined) with growing oil demand and with very few countries that have really important reserves.

Here without any doubt at all Venezuela is “The Jewel in the Crown”. The country has the greatest oil reserves in the continent... and this is not a question of perspectives, nor that one needs to explore for the oil. Venezuela is a province that has proved reserves, all the facilities, and the very high quality infrastructure and resources. It can thus be seen that Venezuela fulfils all the requirements for a vision that puts security of supply as number one priority.

Venezuela is the best option that the US has. America may experience all the success possible in Central Asia with its strategy for the region - which is a very big geostrategic game which could characterise international relations throughout this century, but the fact is that Venezuela has the hydrocarbon reserves in a very convenient geographical location for the US and with long-standing relations of mutual friendship. This should be most comforting for the US policy maker because there is no reason to worry about this part of the world – the situation fits completely within America’s objectives.

There is no competition with other players. There is no hostility whatsoever towards America from the Venezuelan point of view. Venezuela sees the countries of America as members of a single continent, and history has shown excellent relations between both countries. All of this should give confidence and peace to the US policymaker. And here in Venezuela no matter what colour government there is, oil policy is consistent over time

However, as has already been emphasized, Venezuelan oil is not an alternative to Islamic oil.

In October of last year the United States decided to go to war on terrorism in Afghanistan - and now it is worth trying to see what has been achieved in practical terms. Congressional elections are due soon in November and possibly some people will be asking just what is the State of the Nation, objectively seen, and not necessarily as it is presented by the Bush administration.

If one looks at, for example, gasoline prices - which are very important to voters - one is on the safe side by saying that prices have remained at a very reasonable level. People seem to be happy and one does not hear complaints about the current oil price level so far in this first half of the year. Nevertheless, it would be a rather attractive possibility if the administration could provide its population with plenty of oil just a couple of weeks or months before the elections – a drop in gasoline prices for the winter season would be perceived by the population as a success for the administration.

This could arise, for example, if the situation in Venezuela were to result in important changes in the orientation of Caracas’s oil policy. Such a change could provoke some unrest within OPEC, and if the media could “contribute” in presenting the Organization as losing its power and solidarity amongst its members then oil prices could drop between 2 to 4 dollars a barrel.

On the other hand, the situation in the Middle East shows a failure of US diplomacy there. The US has had a massive military presence for more than 10 years in that highly sensitive area, but instead of having strengthened and consolidated its presence and its influence over that region the contrary is happening.

This can be seen in the case of Iran which has been very successful in attracting more interest from China, Russia and several European nations that do not take into account at all what America thinks about sanctions. Another failure for US diplomacy, is highlighted by the fact that no neighbour of Iraq and nobody in the European Union is willing to subscribe to accompanying the US in any military campaign against the country. The US is so alone that Bush has decided to give the CIA a special mission to do what they have always been doing, but the mere fact that this was publicly announced shows that no-one wants to be seen as a US companion on its adventure into Iraq.

Damage to historic ties...

US relations with Saudi Arabia are going through a very critical period. This is because after having been considered as special allies with mutually beneficial relations for half a century or so, now all of a sudden the US finds itself in a position where influential people have increased their propagation of the idea to help Russia develop its oil industry in such a way as to constitute a real threat or a real competition to Saudi oil. If this new school of thought shows anything it shows just how distant the US is from finding secure and permanent allies in oil producing countries. The thing is that the Israel lobby in the US has purposely worked very hard to worsen relations between the United States and Saudi Arabia.

The lobby has succeeded in its efforts, and this is more damaging to US strategic interests than to anyone else’s strategic interests. This is because in the case of Saudi Arabia, no-one can ignore that the resources are there, the infrastructure is there, and the country’s geographic location is so suitable with regard to the regions where oil demand is growing: that is India, China the rest of South East Asia. Thus if the Saudis see any kind of suspicions pronounced about their ability to be a solid and secure source of supply then they will find themselves in a position where they will have to choose from the many other alternatives that there are. History tells us that oil relations simultaneously create other forms of mutual interests and Saudi Arabia is prepared to play more of a role within the Eastern Hemisphere.

What the Israel Lobby has done is to help the Chinese to fulfil their objective of having a measure of hemispheric integration for oil sufficiency - and there is plenty of that in the Middle East, in Iran, Saudi Arabia and definitely in the future in Iraq and other Gulf countries.

Thus if the US maintains its aggressive foreign policy, which is everyday more and more called by Europeans “unilateralist”, it will find itself more and more confined to the oil

resources of the Western hemisphere - which is just about a seventh of total world proved oil reserves. Even with regard to Africa one has to think that this so-called war on terrorism has become a war on Islam. Oil exporter Nigeria is in the majority Muslim, and in Algeria and Libya one has again the phenomenon of “Islamic oil”.

Differences are a problem...

If the world were to be divided through Huntington’s theory of the “Clash of Civilizations” this would lead in one way or another to the use of resources by each civilization in a war that no-one could know how long it would last. Geography and geology tell us that when it comes to oil resources at least 75% of proved oil reserves are Muslim ones. If the US worsens relations precisely with, Saudi Arabia, the country that is the guardian of the Holy Sites of Islam, and every day comments are made on the “Axis of Evil” then there are three countries, two of which Iraq and Iran are Muslim.

This is very bad discrimination, protested at by human rights groups because of the hostile treatment being given to people for merely having a Muslim name or a Muslim appearance: this being a reason to suspect that that person might be a terrorist. These people, however, happen to be in one way or another the owners of 75% of the world’s petroleum reserves.

It seems to be that in terms of oil reserves the US can continue counting on Venezuela – as it has done for the last 80 years - and what is already known as reserves in the Western hemisphere. If Washington persists in its hostility towards Islam, then the US will have a serious need to locate very large reserves, but first of all not in Islamic countries, and second it should prevent competitors from having preferential access to Islamic oil reserves and supplies. When one puts someone in a corner and the enemy has no way of surviving even blowing up all his oil wells will not solve the problem: it took Kuwait just less than a year to be exporting again - so no matter how big the damage is it can be repaired.


US mistakes...

Those countries that are not willing to accompany the US in McCarthy-style foreign policy will be the first to put those fires out and establish some kind of secure and long-standing access to these oil resources. Also they will most probably develop other kinds of understandings which would include industrialization and co-operation in many fields, and this would definitely have effects on the position of the US in the world. The US is making mistakes that are allowing others to be positioning themselves where the US has traditionally been. Instead of consolidating its friendship with, and its protection to, the oil producing countries what has resulted is that the US has sowed poor confidence and hostility: people do not see the presence of US troops in the Muslim region as a pleasant scene, they want them to leave. Also the US is pointing at these countries saying that they are not doing enough to stop the spread of Islamic ideas.

This takes us again to the conflict between Palestinians and Israelis. The first Intifada began in December 1987 and it was the Iraqi invasion of Kuwait and the geopolitical changes that put an end to it. Furthermore, throughout the 90s the OPEC oil price averaged around $15-$16 per barrel. Now the situation is completely different because the period of throwing stones has ended: now the Israeli army has re-occupied and built a wall, and Israel suffers casualties as a result of the suicide bombings. The answer that is being given by the Sharon administration is to have more and more re-occupation, but this flares the sentiments of fellow Arabs, and eventually fellow Muslims in oil producing countries. The point is however, how can one keep on re-occupying without negotiating? Sharon definitely does not want to negotiate. In the US Congress he has very strong support and against this Bush can not do anything: the Bush administration is forced to listen to its pro-Israel dominated Congress. Internal policy considerations oblige the Bush administration to take a path in foreign policy that is contrary to its long-term national interests, and this is the important point.

It would be extremely lamentable if the US were to believe that a change in Venezuela’s government would solve its foreign policy shortcomings in the Eastern Hemisphere. Prices would again collapse, and with low prices it is impossible for the US to achieve the desired 50 percent self-sufficiency in domestic production through the Bush energy plan since the international oil industry needs prices around the present level, of $25 or so, in order to undertake important investments in Alaska, in the Gulf of Mexico, or any other place in the US for that matter.

It should be remember that according to ‘Strengthening Global Alliances’, i.e. the Bush Energy Plan, Venezuela is looked at as important player in the Western Hemisphere.

Recent Canadian and Venezuelan success in making heavy oil deposits commercially viable suggests that they will contribute substantially to the diversity of global energy supply mix over the medium to long term. Leading non-OPEC oil exporters, such as Mexico and Norway, remain critical to the diversity of global energy supply... The United States, with Venezuela, is a co-coordinator of the Hemispheric Energy Initiative process.

In March 2001, a Summit of the Americas Hemispheric Energy Initiative meeting was hosted by the Government of Mexico... Venezuela is the world’s fifth largest oil exporter, and the third largest oil supplier to the United States. Its energy industry is increasingly integrated into the US marketplace. Venezuela’s downstream investments in the United States make it a leading refiner and gasoline marketeer here. Growing US and international investments in Venezuela’s energy sector, particularly in its resource-rich heavy oil sector, are enhancing the country’s ability to meet its development goals and keep pace with a growing world energy marketplace. Venezuela is also moving to liberalize its natural gas sector, which will increase opportunities for foreign investment to expand Venezuelan natural gas production. These positive steps along with conclusion of a Bilateral Investment Treaty, which is now being negotiated, would provide investors from both the United States and Venezuela incentives for increased investment... The NEPD Group recommends that the President direct the Secretaries of State and Commerce to conclude negotiations with Venezuela on a Bilateral Investment Treaty, and propose formal energy consultations with Brazil, to improve to improve the energy investment climate for the growing level of energy investment flows between the United States and each of these countries. The NEPD Group recommends that the President direct the Secretaries of Energy, Commerce, and State to work through the Summit of the Americas Hemispheric Energy Initiative to develop effective and Stable regulatory frameworks and foster reliable supply sources of all fuels within the region”. (6)

The Bush Energy Plan was being promoted in Summer 2000, then, the subject was Enhancing National Energy Security and International Relationships, this was to be sought through strengthening global alliances. At that time dialogue was defined as a principal way to achieve the desired goals. Now, just as then, there are no objective reasons for asserting that still this should not continue to be the case.

References:

1) “Geopolitics of Energy nto the XX! century”. Robert E. Ebel, Director, Energy Program, Centre for Strategic and International Studies Remarks to the Open Forum Washington, DC April 30, 2002.

2) International Herald Tribune. 19-20 October 2002. “Iraq war fallout”. By David Ignatius

3) Peter Grier, Staff writer of The Christian Science Monitor. 0/16/2002. Washington.

4) Petroleum Argus. Volume XXXII, 31, 12 August 2002

5) US Departament of Energy. Energy Information Administration (EIA). MEES. 7th October, 2002.

6) “Strengthening Global Alliances, Enhancing National Energy Security and International Relations”. US Department of Energy, Energy Information Administration. Chapter 8, National Energy Policy.

7) Richard N. Hass. “US-Russian Relations in the Post-Post-Cold War World” to

Remarks to RAND Business Leaders Forum, Tenth Plenary Meeting The Mark Hotel, New York, New York, June 1, 2002.

8) Neela Banerjee. The New York Times. October 23, 2002. “U.S. efforts to diversify yield little progress”

9) FINANCIAL TIMES. 22 October 2002. “Norsk Hydro profits fall after exploration failures”. By Matthew Jones

10) “Oil companies could be next on terrorists' hitlist”. Julian Borger in Washington and Richard Norton-Taylor. October 15, 2002. The Guardian, by Frances Scwartzopff. Dow Jones Newwires

11) “US Takes Good Look At West African Oil”. Middle East & Africa. Michael Peel Published: July 25, 2002

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