VOLUME 2, NUMBER 4, JANUARY 2003 Privatization is the Name of the Game


Increasing Exports
American Motives
The permanent Anglo-Saxon whim in the Gulf is a strategic necessity
Does Russia have the answer?
Privatization: Beware Russia and OPEC

Editor: Stuart Wilkinson
Director: Mazhar Al-Shereidah

The world had been facing complex oil situations throughout December 2002 to January 2003, mainly as the result of the following general factors: But one has to take into consideration the following general issues:

The ongoing war in Afghanistan.

The high tensions between India and Pakistan.

US war preparations to attack Iraq.

Washington’s inclusion of Iran in the exclusive list of countries that integrate “The Axis of Evil”.

The frequent accusations by US think-tanks that Saudi Arabia is an enemy of the US.
The horrific carnage in Bali.

The widespread perception by Muslim populations that their religion, culture and traditions are under attack.

The electoral victory in Turkey of a more tradition-oriental party to run both government and Parliament.

The continuation of Russian repression against the Chechens.

And specifically

The relaxation of discipline among OPEC members.
The poor performance of the world economy in the 4th Quarter.
The oil glut that was reflected in prices.

On the other hand, and contrary to sound reactions of the market under such conditions, prices remained relatively high due to:

The high risk of war in Iraq.

The alert prevailing in face of the atmosphere created by the “War on Terrorism” and the escalating Israeli-Palestinian conflict.

The rise of North Korea with its atomic weapons capabilities as a new threat to world peace.
The sudden eruption of an oil conflict in Venezuela.

Looking at the world map, the location of Indonesia, the United Arab Emirates, Iran, Qatar, Kuwait, Saudi Arabia and Iraq, all of which are OPEC members, explains the understanding that these countries have of the very serious difficulties now facing Venezuela. Nigeria, Libya and Algeria also share the anxieties that usually accompany similar unrest.

It can thus be seen as natural that when OPEC first met on the 12th December it tried its best to send calming signals to everybody, perhaps as part of a collective therapy intended mainly to give confidence amongst its own ranks.

OPEC’s Ministerial Conference in Vienna on 12th December decided to bring OPEC 10 (OPEC less Iraq) output down to a new production ceiling of 23 mn b/d, with effect from 1 January 2003.

The plan adopted at the Vienna meeting, was proposed and energetically followed through by Saudi Arabia on the basis of the following rationale: The extent of over-quota production by the OPEC 10 had then reached a point where the Organization’s credibility and effectiveness were being subjected to damaging strains.

Saudi Arabia intended to reduce its crude production to roughly the level of its new quota of 7.475 mn b/d. OPEC sources were hoping for a net cutback of between 0.7mn b/d and 1mn b/d, raising the output ceiling for the OPEC 10 to a more realistic level, and at the same time creating a healthy degree of commitment amongst the member countries concerned for cutting their remaining excess of actual over-quota output in order to achieve proper compliance with the new ceiling.

In practical terms, the above may be construed to mean the following:

The production ceiling for the OPEC 10 was to be raised by 1.3 mn b/d - approximately 6% - from 21.7 mn b/d to 23.0 mn b/d, with effect from the 1st January 2003, with the individual quotas of the member countries being increased by the same percentage on a pro-rata basis.
A significant part (around 40%) of the at that time current over-quota output of 2.5-3.0 mn b/d would thus be, as it were, “mopped up” by the 1.3mn b/d quota uplift. As regards the remaining 1.2-1.7mn b/d, this was what the member countries concerned were being called upon to eliminate in order to, in the words of the press release, “ensure strict compliance with the new production level.” (1)

OPEC Oil Ministers had deepening problems regarding the maintenance of supply-demand balance and price stability at target levels in the face of mounting over-quota output of crude oil, which in early December was estimated to have reached somewhere in the region of 2.5-3.0 mn b/d.

Neither the questions of Iraq nor of Venezuela were seriously considered at the Vienna meeting, due to the potential damage they could cause to OPEC’s credibility.

Just when OPEC was announcing its declaration on the 12th December, the effect of the oil strike in Venezuelan on the market could be seen as being similar to what happens during a war, an embargo or a revolution.

The Venezuelan opposition was, and still is, gambling on the PDVSA strike to bring the Chávez government down. That actor intends to harm his enemy. Unfortunately the victim in this case has been the Venezuelan oil industry and that nation’s economy as a whole.

Additionally, the Venezuelan crisis could not have come at a more undesirable moment for the US with regard to timing. The opposition in Caracas seems to have miscalculated Washington’s willingness to actively engage its diplomacy, let alone give support to a military coup against President Chávez.

Since May 2002 Venezuela had not only increased its production well over its quota of 2.5 mn b/d but simultaneously Chávez was offering the US government a long-term oil supply deal (20 years). So far, American authorities had no reason to complain especially when Caracas was expressing its desire to promote foreign investment in its gas sector, oil refining and downstream activities in general.

It thus remains to be seen, at this sensitive moment for the US when the fate of Iraqi oil production is at stake, whether this prolonged oil strike in Venezuela fits within Washington’s military timetable.

The opposition went as far as to discredit the official overtures to Washington. As the following text indicates, some of the arguments used by the opposition could be seen as damaging to the country’s long-standing interests:

“There are many areas in which the oil relationship between the United States and Venezuela are of mutual interest to both nations. Stabilizing oil prices at a mutually acceptable level is a priority on both sides. Venezuela is geographically close, it does have an established pattern of supply, and it could if properly managed become a supplier on the same level as Mexico and Canada, or even larger. Venezuela's long-standing democratic tradition is yet another large plus in its favour, as long as it remains so.

But when we speak of agreements, certain other realities must be considered. First: The government of the United States is not in the petroleum business. It is the U.S. private sector that owns and runs the business, however highly regulated. It is part and parcel of the practice of free enterprise.

The bottom line is that major global oil producers actually pump and process more oil than entire countries, including Venezuela. Consequently, if Venezuela really wants an oil deal with the US, it must start out by adequately protecting and promoting US private investment in this country, particularly in the oil patch. This is why a Bilateral Treaty for the Reciprocal Protection of Investments, otherwise known as BIT, is so important.

Providing fair and equal treatment to US companies operating in Venezuela, an investment treaty is the best way of ensuring increased investment, production and a market for Venezuelan oil with its most reliable customer.

Another component for an agreement would be market access. The United States government cannot do much to guarantee Venezuela's position as a supplier. That is up to the private sector and market conditions. On the other hand, US authorities could do (and in the past have done) much to complicate Venezuela's possibilities of becoming a larger supplier. The highly regulative nature of the business allows for all kinds of quotas and restrictions on suppliers, refiners and customers. The case of reformulated gasoline is just one example.

It turns out there is more the US government can do to block a supplier than to promote a particular source, particularly if that source is not within US boundaries. So the brunt of the question is for Venezuela to consolidate market access into the United States.

A free trade agreement with the US, Venezuela (precisely because of its oil) is a much more logical candidate for a FTA with the US than any other nation in the hemisphere.

In brief, if Venezuela wants to consolidate its position as an oil supplier in the US market, if it wants to ensure that the United States remains its most reliable customer, it should seriously resume work on a BIT and start thinking of an FTA. Otherwise, talk of an oil deal will most probably remain what it has been over many years: Talk.

An apparent long-term US-Venezuela oil deal, particularly in view of the looming Iraqi conflict. A pact of this sort has been floated for decades by different Venezuelan authorities including the late Julio Sosa Rodríguez, the one-time ambassador to Washington who envisioned and frequently proposed a role for Venezuela as a "hemispheric supplier". Nevertheless, for decades the US position has been that this is a matter to be ruled by the market rather than by a government-to-government agreement.

The issue of OPEC membership could come up, it should not be assumed that Venezuela must give up many of those things it has sought over the years, such as a fair price for oil and domestic industrial development.

Venezuela 1973 did enjoy the rewards of higher oil prices. This fact points up the real equation: oil producers must find markets and sell what they pump in order to reap the benefits.

The possibilities for such an understanding must be weighed within realistic parameters. In the first place there is the issue of Venezuela as a strategic supplier. The definition of "strategic" arose primarily during World War II. In 2002 there is not a power on the planet that could threaten US security in this manner, and oil supplies continue to be ruled by supply and demand. While many here talk about Venezuela being a reliable supplier of oil to the US, it is in fact the other way around. Putting the matter in its true perspective, one has to say that the US is Venezuela's most reliable customer (in 2001 it acquired 54% of Venezuelan crude exports, or 1,497,000 barrels per day).

Over 70% of Venezuelan oil production consists of heavy and extra-heavy crudes, far more expensive to refine than lighter crudes. For this reason Venezuela years ago acquired CITGO in the United States, five refineries capable of processing 859,000 barrels per day. That, plus the additional refining capacity that PDVSA has in the US gives Venezuela's state oil company a total capacity of 1,100,000 b/d there, a figure very near to the 1,497,000 barrels it exports to the United States every day.

This means Venezuelan oil is vital to CITGO and other PDVSA refineries on US soil, rather than the other way around. On the other hand, what would Venezuela do with its production if for some reason it could not go to CITGO?”. (2)

No matter how the opposition viewed the market, this did take notice of the absence of Venezuelan barrels... and OPEC was called upon again to disengage the crisis.

This slump in Venezuelan production was the main feature of the Conference that OPEC oil ministers held on 12th January. As Venezuelan production declined, Arab Gulf producers lifted production, with Saudi Arabia, Kuwait, UAE and Qatar adding a total of 270,000 b/d in the month. Algerian production hit its highest level in 2002 reflecting the new production capacity that the country has brought on-stream in recent months. Oil production by the OPEC 10 fell by 1.47 mn b/d in December to 22.850 mn b/d, as the sharp drop in Venezuelan production due to the general strike in the country outweighed production gains by Gulf producers. Total OPEC production fell by 1.57 mn b/d to 25.12 mn b/d, reflecting a decrease in Iraqi exports.

Average production figures for the full year 2002 show that Algeria was the only OPEC country to increase average production - by 6.6% in 2002. The largest production declines in 2002 in average production were recorded by Iraq and Kuwait, down 12.9% and 9.3% respectively. In volume terms, the largest drops were registered unsurprisingly by Saudi Arabia, down 410,000 b/d from 2001 and Iraq, down an average 298,000 b/d in 2002. (3)

At the same time, according to a Reuters report on the 16th January this year (“Saudis seen reaching 9m b/d output by February”) there were talks on Saudi Arabia boosting its oil production by between 500,000 and 1m b/d and shouldering most of OPEC’s new output increase, industry sources said on Sunday. By February, the kingdom looks set to pump up to 9m b/d – a level last reached in late 2000. As oil prices return to two-year highs of more than $30, the group’s capacity is being stretched to the limit. Most members have little to spare, so Riyadh will handle most of the group’s supply hike to cover losses from strike-bound Venezuela. “The Saudis are cranking it up. The message is that there is a big increase on the way,” said a senior Western oil executive. “We think they may already be up around 9m b/d.” Some industry sources reckon Saudi Arabia is now pumping at 8.6m b/d and will work towards the 9m b/d mark. It remains to be seen just how much of the kingdom’s additional volume – most of which customers say is Arab Heavy – appears in global markets and how much moves into domestic or international storage. However, Western industry officials have confidence in Saudi Arabia’s ability to stretch its production rates.

This is the traditional Saudi oil policy. Even though there is no real shortage in the market, the Saudi move is intended to assure consumers that the Kingdom and OPEC are not behind the surge in oil prices. In fact at the moment Asian oil stocks are high and there are no supply fears in that continent.

With regard to the Venezuelan case it is important to keep in mind that from the start of his administration, President Chávez has planned to drastically change what he refers to as “a state within a state”. Sources say the new vision for the company has a much more nationalist approach to the operations, with cost reductions and increased fiscal contributions to the government as the twin pillars of the plan.

The country’s production capacity has already declined sharply under Chavez’s four-years in office. PDVSA reduced its spending on Exploration and Production, and, as a result, the company’s crude oil production has fallen from 3.3 mn b/d in 1997 to around 2.6 mn b/d in 2002. Capital expenditures were set at $3.8 bn in 2002, far short of the amount needed to maintain current production levels in a country that has a 25% annual depletion rate, let alone to increase capacity.

Prior to the strike, the country’s capacity (that of PDVSA and of the joint ventures) was estimated to be about 3.2 mn b/d. Analysts say production capacity could contract by 20% to 30% this year.

If the Chávez Administration prevails with its restructuring plans, analysts say he could put some of PDVSA’s assets on the block, especially its foreign refining plants. More than half of the company’s 3.3 mn b/d refining capacity, 2 mn b/d, is located in the US, the Caribbean and Europe. It has long been mooted that President Chávez has wanted to sell the company’s 50% stake in its three European refining joint ventures – none of which process Venezuelan crude - located in Belgium, Sweden and Germany.

The turmoil in Venezuela so far has had only marginal impact on world oil supplies, with the psychological impact greater than the actual physical loss of exports. The loss of some 2 mn b/d of crude normally would have caused severe shortages of supplies but the glut of crude and refined products floating around in December tempered the impact. Higher Iraqi oil exports over the past few weeks have lessened the blow. The market may see tighter supplies in early March but, in fact, there are still unsold Iraqi and North Sea barrels available for February. There is about a two-week window in early March when one could see a crunch but the expectation of higher Saudi and Iraqi supplies arriving in the US market by the second half of the month could keep prices in check. In addition, programmed de-stocking for year-end accounting purposes by oil companies kept planned buying at a minimum.

Chávez’s plans call for PDVSA, a $46 bn company, to be split into two operational centres in an effort to tighten government control and reduce the risks of future dissent among the employee ranks. PDVSA headquarters in Caracas will be shut down, with administration functions relegated to two separate operations in eastern and western parts of the country. The 7,000 staff based in Caracas almost all taking part in the general strike action will be fired along with the other roughly 30,000 company employees currently off the job.
Oil Minister Ramirez estimates that bureaucracy costs will be reduced by $1bn a year. Overall, PDVSA’s operating costs account for 67% of the total budget. (3)

However, it is unlikely PDVSA would consider selling its retail chain, CITGO. The eight refineries located in the Gulf and East Coasts are specially designed to handle heavy Venezuelan crude and provide the company with a secure export outlet. There are also plans on the drawing board to increase domestic refining capacity but this looks increasingly unlikely given the country’s severe fiscal crisis; and foreign investors will be very reluctant to participate in any joint venture now, analysts say.

PDVSA chairman Alí Rodríguez Araque has said the company plans to spend about $40 bn over the next five years to increase capacity to a targeted 4.5 mn b/d to 5 mn b/d. Even before the strike action, analysts say these plans were too optimistic, given the investment climate in the country. The latest cash crisis will almost certainly force the company to revise its targets. The political risks associated with the new nationalistic approach adopted by PDVSA will almost certainly deter any prospects of foreign investment, experts say. A new hydrocarbons law raising the tax rate for foreign investors will also limit participation.

This situation, without any doubt, makes Washington worry with regard to its long-term strategy of obtaining the highest possible percentage of the country’s oil requirements from the Western Hemisphere.

Furthermore, the sudden disappearance of friendly short haul supply for now more than 50 days does not seem to fit into the Pentagon’s short-term plans in Iraq. Thus, perhaps, the Venezuelan crisis at this time could be viewed as an urgent issue to be solved. Washington has spent months painstakingly building the momentum towards war against Iraq, only to find that fire has broken out elsewhere. This could be considered as an unwelcome development (4). The war scenario is suddenly not as tidy as Washington had in mind. President George Bush faces the prospect of waging war in the Mideast Gulf at a tune when a crucial alternative supply - Venezuela's 2.7 mn b/d of oil exports - is at a standstill. This could send oil prices to dangerously high levels - tilting the fragile US economy into a recession, and with it the rest of the world.

Fixated on Iraq, the US Administration has been caught off-guard by the Venezuelan crisis. Washington regarded Venezuelan president Hugo Chávez as a populist nuisance, but as long as oil kept flowing, Venezuela's growing domestic polarization was perceived as an internal matter.

The US would dearly like to see the Venezuelan situa¬tion diffused before the optimal window for waging a large-scale attack on Baghdad passes in the Spring. Both sides in Venezuela are dug in without a solution, Washington's Iraqi adventure looks even riskier - for the global economy and for Bush’s political fortunes - than before.

Even after the crisis subsides, it will take some time for Caracas to get the industry back on its feet. The abrupt shutdown might have damaged oil wells, and concern is growing about the safety of the industry, Venezuela may be chronically unstable for the foreseeable future.

Put within a broader framework, the Yale University professor of history, Paul Kennedy, considers that the US has Enemies on all fronts as shall be seen later from an Iranian point of view, but first let us look at the North Korean defiance to the US:

“Since the Spanish empire in the 16th century, global powers have had to juggle multiple threats.

It's ironic but not surprising. The greatest power in the world is now facing a double crisis. The republic of George Washington's "no tangling alliances" finds itself, 200 years later, in conflict thousands of miles from home, with Iraq in the first instance, and now North Korea. Historically, for a world-wide empire to have only two crises or enemies to deal with at the same time is something of a luxury; usually, it has been three or four. According to Henry Kamen, book “Spain's Road to Empire: The Making of a World Power 1492-1763”, Spain was, after all, the world's first truly global empire. Greece, Rome, Persia and Ming China were mere locals. From about 1500 onward, Spain held the most powerful position in Europe, with possessions in Asia, Africa and the Americas, and communications lines across both the Pacific and the Atlantic.

There was no real equivalent until the rise of the British empire in the 18th century or America's global hegemony today. Such was the price of pre-eminence.

Historically, too, most great global powers tend, rather oddly, to assume that other nations and states accept their benign and disinterested leadership; and the imperial elite thus concludes that the few who don't are rebels, or renegade powers, or members of some axis of evil. Monarchs were sure they were carrying out God's work in a needy and fractured world, that theirs was a mission to crusade against rogue powers: Dutch rebels, English Protestants, the ever-dangerous Ottomans.

Three hundred years later, Victorian Britain had its own list of foes: the Afrikaners in South Africa, the fundamentalist Muslim Mahdi in Sudan, the anti-foreign "Boxers" in China.

A globally-stretched superpower is bound to face multiple foes, challenges and strategic tensions, and certainly so in this anarchic, competitive world of 190 nation-states. Many Americans none the less hate to think that such feelings could be directed at their nation, and offer all manner of reasons why US dominance contributes to the common good, to international prosperity and stability... Ignore the hard fact that America has many enemies who see the world through very different spectacles.

The current debate - "Is Iraq or North Korea the greater danger to peace?" - look rather silly. Former US secretary of state Warren Christopher, along with other Democrats, has asserted that Iraq should be put on the "back burner" and that the Bush administration should attach much greater priority to the North Korean nuclear threat. In contrast, William Safire, the conservative New York Times columnist, is calling for the US to substantially withdraw its troops from the Korean Peninsula and let South Korea, China and Russia handle the impossible Pyongyang regime. He wants the president to go straight after Iraq.

P. Kennedy adds: I don't want to enter this "who is the worst enemy?" debate. My point, again, is that facing such strategic dilemmas is the natural inheritance of great powers. These days conservative historians in America discuss the debate in simplistic terms, as being one between appeasers and patriots. The reality was much more complex. Pretty well everyone was an appeaser - and a hard-liner. But how could the hegemonic power appease anywhere without seeming to appear weak? This, then, is the challenge confronting the Bush administration as it discovers that a single-minded focus on Iraq and the odious Saddam Hussein is made increasingly complicated by the grotesque aggressiveness of North Korea. There is now a double-headed military threat, as well as the political embarrassment that, in the eyes of the rest of the world and of many Americans, the rogue state that the US government wishes to spank in the Middle East appears somewhat less heinous - and much less nuclearized - than the country it wishes to handle diplomatically in the Far East.

To govern is to choose, as the French saying goes. Pentagon adviser. Do they wonder when Pakistan will erupt in chaos? Whether Mubarak's regime in Egypt will be swept away? What to do as Saudi Arabia trembles with internal unrest?. Latin America is, with a few exceptions, teetering on the brink of economic collapse. Half of Africa faces starvation. It might be unwise to put all the family savings on the "smash Iraq" option, and have little in reserve except diplomacy, the price of being number one. The US is the world’s Titan. A global empire has many strengths and resources. It very rarely has the privilege of choosing exactly when and where to fight its many jealous rivals. (5)

The previous interesting thoughts don’t seem to have much room in Washington’s current war preparations. Lessons of earlier interventions in that area seem to have been forgotten.

In the Middle East the focus is being put now on Iraq, yet there are other longstanding conflicts that perhaps are more complex by their nature as a recent essay by Mostafa T. Zahrani (6) on historical distrust between Iran and the US that goes back to the very early ‘fifties. Not less appealing to that region’s political mood is the Palestinian issue whose roots can be drawn back to the late ‘forties. Policymakers in Washington as elsewhere do what they at a specific moment believe is in their nation’s best interest. However no-one can ever foresee all the implications following those decisions and the resulting tasks facing their successors half a century later.

In 1953 there was the coup that overthrew the Iranian nationalist leader Mohammed Mossadeq. In Zahrani’s paper one reads the following.

“We can say the 1953 coup and its consequences afforded the starting point for the political alignments in today’s Middle East and inner Asia. With hindsight, can anybody say the Islamic Revolution of 1979 was inevitable? Or did it only become so once the aspirations of the Iranian people were temporarily expunged in 1953? Was the radicalization of the clergy, for that matter, inevitable?”

Foreign interference in Iranian internal affairs reached a climax in 1907 when Britain and Russia agreed formally to divide the country into zones of influence, this being done without consultation with, or the consent of, Iran.

It was in 1908 when oil was struck just as the British navy was fully converting from steam to petroleum. So strategically important was Iranian oil that in June 1914, just before the outbreak of the First World War, the British Parliament took the unusual step of approving the government’s investment of 2.2 million Pounds to acquire 51 percent of the stock in the Anglo-Persian Oil Company.

“As seen by Mossadeq and his National Front Party, the chief issue was Iran’s right to nationalize a British oil giant that held exclusive rights to drilling and selling the country’s petroleum. In Britain, meanwhile, Clement Attlee’s Labour government vainly tried to reverse nationalization and sought unsuccessfully to install a pro-British politician as prime minister in Tehran. Foreign Secretary Herbert Morrison informed the Iranian ambassador in London on May 2, 1951, that Britain refused to recognize the take-over of the oil company. Mossadeq replied on May 8 that nationalization was the sovereign right of all states but that Iran would consider British claims for restitution.

Thus Mossadeq viewed the oil issue as a test of sovereignty.

Mossadeq, a veteran upholder of Iranian nationhood and constitutional rule, but scarcely a radical indeed he was a wealthy landowner.

While Truman was in office, Mossadeq met with American officials, including the president, Secretary of State Dean Acheson, and Assistant Secretary of State George McGhee, in an attempt to resolve the oil dispute. The administration then regarded Mossadeq and his movement as a potential barrier against Soviet domination of Iran.

The British tried to persuade Washington that Iranian nationalism was not deeply rooted but “artificially stimulated,” that aid to Mossadeq would only delay his fall, that economic pressure would compel him to comply with British terms, and that the collapse of his government would not bring about Communist rule in Iran. The Truman administration disagreed, and continued to the end to consider Mossadeq as a bulwark against communism.

The Truman administration gave way to the Eisenhower team. Initially, the United States tacitly supported Iran and its right to nationalize its oil, if it provided sufficient compensation, and in time this support evolved into efforts to mediate the dispute. There was a consensus in Washington that the overriding objective was to prevent Iran from falling under Soviet domination.

The political calculus changed, however, after the election in November 1952 of Dwight D. Eisenhower and a Republican Congress in the United States, and after the return of Winston Churchill and the Conservatives in Great Britain. That same November, a new British foreign secretary, Anthony Eden, sent a team of officials to Washington to discuss plans for removing Mossadeq. C. M. (Monty) Woodhouse, then SIS station chief in Tehran (and later a well known author and Conservative parliamentarian) met at CIA headquarters with Frank Wisner, director of covert operations, and with Kermit Roosevelt, chief of Middle East operations. Woodhouse found that while Truman would not approve the British plan, President elect Eisenhower was more open to the idea. As Woodhouse put it to the Americans, “Even if a settlement of the oil dispute could be negotiated with Mossadeq, which is doubtful, he was still incapable of resisting a coup by the Tudeh [Communist] Party, if it were backed by Soviet support. Therefore he must be removed.

The Shah wrote later: “The worst years of my reign, indeed of my entire life, came when Mossadeq was Prime Minister. Every morning I awoke with the sensation that today might be my last one on the throne.

What is striking is that until the final months Washington resisted joining with Britain to unseat Mossadeq, and that even within the CIA, the Tehran station chief was reportedly opposed to “putting U.S. support behind Anglo-French colonialism.”

American Motives

“The Eisenhower team was avowedly pro-business, and Secretary of State John Foster Dulles and his brother Allen, the director of central intelligence, had been prominent Wall Street lawyers specializing in international business.

The coup was in fact something of a test of the administration’s new strategy for combating Soviet expansionism. During the 1952 election campaign, Republicans had accused the Truman administration of dealing ineffectively with communism, arguing that Democrats had “lost” China and Eastern Europe, and had become bogged down in a seemingly endless war in Korea. Once in power, the Eisenhower team began to formulate a new global strategy, which became known as the “New Look.” The strategy sought to retain the Truman defence policies while acting more aggressively and using a wider variety of initiatives against communist adversaries.

Washington’s decision to involve itself in Iran was shaped by historical experience. In violation of agreements made during the Second World War, Soviet troops had remained in Iran after the war. This began to fuel an internal debate about Soviet intentions, and although Moscow pulled back its forces from northern Iran in 1946, this did not assuage US fears of ultimate Soviet intentions.

For Americans, the unintended result was the rise of political Islam. Containing communism was the justification for the coup. The Consequences gave birth to radicalism and fanaticism.

Its impact on Iran’s domestic politics was that the Shah and Prime Minister Zahedi put in place a rigid authoritarian regime that banned all forms of opposition.
“Once back in his palace, the Shah thus thanked Kermit Roosevelt, grandson of Theodore and head of the CIA’s Middle East Department: “I owe my throne to God, my people, my army and to you!” Or so Roosevelt quoted him in his 1979 memoir, Countercoup.
The Shah in the early 1960s embarked on a land reform program the centrepiece of his White Revolution that eliminated almost all of Iran’s large landowners, thereby essentially destroying the traditional upper class, economically and politically. Unfortunately, land reform, together with Iran’s rapid economic growth, led many Iranian peasants to migrate to urban areas, swelling the ranks of an urban lower class, setting the stage for future events.

The White Revolution was also a test case for the new Shia leadership among the dominant Islamic clergy. It was during the 1960s that Ayatollah Ruhollah Khomeini, whom the Shah initially labelled as “fanatic and backward,” emerged as a powerful dissenting voice.
More importantly, his was an expression of indigenous religious nationalism in reaction to the increasing incorporation of Iran into the Western political and economic system under the authoritarian aegis of the Shah.
The suppression of the old established opposition, exemplified by Mossadeq, resulted in the emergence of new and much more radical groups, some Marxist, some secular Islamic.

Yet the influence of Islamic ideology is also vitally important.
In the 1960s, the opposition of the ulama, or clergy, against the Shah paved the way for doctrinal rethinking. No one had a right to rebel against a ruler. It was following the Shah’s post-coup suppression of Iran’s existing constitution that Imam Khomeini first raised his voice in opposition, insisting that legislation would be valid only if enacted by Parliament and approved by the ulama, as previously provided. He made this distinction clear in 1962, when he stated: “We speak to the regime in its own accepted terms not that the Constitution is, in our view, perfect. Rather, if the ulama speak in terms of the Constitution, it is because Article 2 of the Supplementary Fundamental Laws does not recognize any legislation opposed to the Koran as law; other than that, the only accepted law is the law of Islam and the traditions of the prophet Mohammad and the Imams. Whatever is in accord with Islam we shall accept and whatever is opposed to Islam, even if it is in the Constitution, we shall oppose.” This was the new thinking that was to play so important a role in the Iranian Revolution.

The occupation of the US embassy occurred in November 1979. Behzad Nabavi, an influential figure in Iran’s current reform movement, who supported the take-over, believed at the time that if the US embassy had not been seized, a repeat of the 1953 coup would have occurred. In the back of everybody’s mind hung the suspicion that, with the admission of the Shah to the United States, the countdown for another coup d’état had begun. “Such was to be our fate again, we were convinced, and it was to be irreversible. We now had to reverse the irreversible.” The common belief among many Iranians was that the American hostages were held partly as a guarantee that Washington would not repeat its past mischief.

The Soviet invasion of Afghanistan has been similarly pivotal. Regardless of the strategic goals of the Soviet Union at the time, the revolution in Iran provided Moscow with an excuse to involve itself in the internal affairs of Afghanistan.
“Fear of a repetition of the Iranian Revolution prompted Leonid Brezhnev and his Politburo to authorize in December 1979 a massive invasion to protect an extremist Marxist regime that had seized power in Kabul the year before”.

Moscow’s move to avoid the expansion of the “Islamic Revolution” into the borders of the USSR and into neighbouring states, among others, led Washington to instigate Iraq that unless it attacks first, Iran would occupy Baghdad: The eight years Iraq-Iran war was ignited. The two Gulf “superpowers” destroyed each other while the US went on supporting Israel its strategic ally in the Middle East and on the other side leading Turkey, Egypt, Saudi Arabia and Pakistan to play active roles in weakening the USSR.

Now that communism has disappeared and there is no fear of an eventual Russian-Soviet expansion, control of oil remains to be the most logical reason for present US involvement in the Mideast. But if it comes to war, America’s image as an interventionist power will remain in the memories of generations of that region’s people.

The permanent Anglo-Saxon whim in the Gulf is a strategic necessity
Thomas L. Friedman puts the question: Is the war that the Bush team is preparing to launch in Iraq really a war for oil? My short answer, he says, is “yes.” Any war the United States launches in Iraq will certainly be, in part, about oil. To deny that is laughable. But whether it is seen to be only about oil will depend on how America behaves before an invasion and what it tries to build once it is there.

“I say this possible Iraq war is partly about oil because it is impossible to explain the Bush team’s behaviour otherwise. Why are they going after Saddam Hussein with the 82nd Airborne and after North Korea with diplomatic kid gloves when North Korea already has nuclear weapons, the missiles to deliver them, a record of selling dangerous weapons to anyone with cash, 100,000 US troops in its missile range and a leader who is even more cruel to his own people than Saddam?
One reason, of course, is that it is easier to go after Saddam. But the other reason is oil.

Michael Mandelbaum, the Johns Hopkins foreign policy expert and author of “The Ideas That Conquered the World”, say the Bush team would have a stronger case for fighting a war partly for oil if it made clear by its behaviour that it was acting for the benefit of the planet, not simply to fuel American excesses. I have no problem with a war for oil if it is accompanied by a real program for energy conservation. But when America tells the world that it couldn’t care less about climate change, that Americans feel entitled to drive what ever big cars they feel like, that they feel entitled to consume however much oil they like, the message is that a war for oil in the Gulf is not a war to protect the world’s right to economic survival but Americans’ right to indulge. Now that will be seen as immoral. Should America end up occupying Iraq, and the first thing it does is hand out drilling concessions to US oil companies alone, that perception would only be intensified”. (7)

The reality is that the US is condemned by its extravagant lifestyle to remain dependent on oil from far more than one Middle East producer.

It is arguable that the rise in oil prices that accompanied the last Gulf war tipped the US into the recession that cost his father a second term.

Cars may run on hydrogen cells some day but the initial source for that hydrogen will be oil. And the US will continue to be the world’s largest oil importer.

Even if Mr Bush gets his plan to open Alaska up to drilling approved by Congress this year, it will not dent the US appetite for foreign oil. The US is taking more oil from Russia and West Africa but the bulk of low-cost reserves still lies under the OPEC members of the Middle East. And the latter are likely to account for up to half of world production by 2030 as non-OPEC output falls in coming years. US control over Iraq’s oil would not change these fundamental realities.

As President Bush seeks to reduce American reliance on oil imported from the Persian Gulf, new US government studies predict that in two decades the West will be even more dependent on oil from Saudi Arabia and other Middle Eastern producers some of whom “don't like America”. (8)

Says Jeff Gerth, in the New York Times, Western dependence on Mideast oil is expected to grow:
“In 2025 the majority - 51 percent - of world oil production would come from the Organization of the Petroleum Exporting Countries. About two-thirds of OPEC production, in turn, emanates from the Persian Gulf, according to the Energy Information Administration (EIA).

Saudi Arabia will need to produce 22 million barrels a day by 2020 to meet increased world demand says John Brodman, the Deputy Assistant Secretary of Energy for International Energy Policy. “But the basic geological fact of life is that 70 percent of the proven oil reserves are in the Middle East.” “The geology and economics of oil,” the official said, “is not going to change in the next twenty five years.”

If oil markets were disrupted by a war in Iraq or strikes in Venezuela, only Saudi Arabia could increase its production within a few months to fill the gap.

That is because the Saudis, unlike other oil producing countries, invest hundreds of millions of dollars a year to maintain spare capacity.

The new forecasts highlight a fundamental quandary facing the United States: American dependence on Saudi oil limits the strategic options of the United States even as relations between the US and Saudi Arabia have been strained since the attacks on September 11th, 2001.

Bush's national security strategy, released in September, aimed to "enhance energy security" by having the United States work with allies to "expand the sources and types of global energy supplied, especially in the Western Hemisphere, Africa, Central Asia and the Caspian region." The strategy did not mention the Persian Gulf region, which figures so prominently in the latest forecasts. The Energy Information Administration estimates assume that "sufficient capital will be available to expand production capacity." (9)

Experts wonder whether Saudi Arabia will have the political will to dramatically hike its production to meet the rest of the world’s demand for oil.

“The Saudis are going to have to decide whether they want to produce that much oil in the future,” said Brodman, the energy department official. But so far the Saudis have been very forthcoming, as the following shows:

In an unusual development that underscores the severity of the supply shortfall created by the prolonged disruption in Venezuelan exports, Saudi Arabia and OPEC were also calling in early January on other major oil exporters such as Russia, Norway and Mexico to produce extra barrels. “There is a realization that a shortage might take place,” “We don’t want that.” said a senior official at OPEC. (WSJ 7th January 2003: Saudi Arabia Leads Push For Big Boost in Oil Output.)

And extra oil from the Middle East is already on tankers: Saudi Arabia chartered in early January seven huge vessels to carry about 2.5 million tons of crude from the Persian Gulf to the US Gulf Coast. Two of the vessels were extra large, or ULCC, while the other five are very large, or VLCC. OPEC’s News Summary informed. They will load crude late January or early February and are expected to arrive in the US Gulf Coast sometime in early March. (Dow Jones, 7-01-03)

Furthermore, there are no supply fears in Asia according to Dow Jones, 9th January: Asian countries have sufficient crude oil and products stockpiled to weather any likely disruption to supplies, although their economies are under threat from high energy prices. Leading Asian oil importers Japan and South Korea have 170 days and 100 days of oil supplies respectively stored away in government and commercial stocks, while India can survive for 40 days without any oil imports. And China, too, is in a good position, despite not having any strategic reserves and being reliant on the Middle East for some 45 per cent of its oil imports. It is 70 per cent self-sufficient in oil, and has the ability to hold back some of the crude it exports, if necessary. The real economic damage to Asia could be done if a US-led attack on Iraq happens before Venezuelan oil output is restored. But Asian countries have other worries about the present political world situation as for instance US unilateralism strains Japanese alliance.

Prime Minister Junichiro Koizumi's advisers, in a report to Koizumi, outline the diplomatic strategy that Tokyo should take in the 21st century. They said that US unilateralism was one of the many cracks now emerging in the bilateral relationship which needed to be addressed. "Unlike Japan, which has put priority on international co-operation over national interest, the US places national interest at the core of its diplomacy". The advisers, who include former diplomats and academics, said in the report: "The notion of compromising for the sake of global harmony is hardly found in US diplomacy," citing the US exit from the Kyoto climate change protocol as one example. The advisers said Tokyo should have its own agenda and the two countries should seek to complement each other's diplomacy, adding that it was time to review the bilateral ties. "If we fail to reassess the relationship, there is a danger that the cracks in the Japan-US ties will get bigger and result in a loss of support for the alliance by both peoples," they said. Koizumi said that he will take the advice to heart and seek a diplomatic policy independent from that of the US". I am looking into ways of carrying out independent diplomacy while putting top priority on the bilateral ties," he said. The report also said there were concerns that the US may lower its threshold for military action due to its overwhelmingly superior power.

Japan’s position reinforces the results of a recent survey which indicates that war with Iraq would even alienate friends of some traditional US allies. The poll of 38,000 people in 44 countries, conducted by the non-partisan Pew Research Centre in association with the International Herald Tribune, found strong public opposition in Muslim countries for a war on Baghdad. Madeleine Albright, called that result “absolutely stunning” and “very difficult to absorb. Albright, who chairs the Pew Global Attitudes Project, said that “clearly, an awful lot of work needs to be done for us to understand Islam, and for Muslim nations to understand what we’re about.” More than 1 in 4 respondents in Ghana, Indonesia, Senegal and Uganda said that suicide bombing was justifiable in defence of Islam; 1 in 3 in Pakistan and Mali said so; more than 4 in 10 in Jordan, Bangladesh and Nigeria agreed; and so did more than half in Ivory Coast; and 73 percent in Lebanon.

While discontent with the United States has grown globally, the Pew report notes, “true dislike, if not hatred, of America is concentrated in the Muslim nations of the Middle East and in Central Asia.” In Egypt, only 6 percent of respondents said they had a favourable view of the United States, compared with 69 percent unfavourable; and in Pakistan, with 10 percent favourable to 69 percent unfavourable.

“Some of these countries think our war on terrorism is targeting Muslim countries,” said Andrew Kohut, director of the Pew Research Centre.

The fact that Saudi Arabia continues to foresee and rush to help the US with additional production whenever it senses that the market needs to be calmed, is in itself a major risk for that monarchy vis a vis the Arab and Muslim world and its own national public opinion.

Most probably Washington will achieve its objective of replacing the Iraqi regime with a client government that can, with US backing, hold the country together. But there is no golden future beckoning. President George Bush may succeed in securing the Gulf's energy supplies without tipping the region into turmoil. But stabilising the demand side of the equation is an altogether tougher proposition.

Previous conflicts in the Middle East have caused or contributed to global economic recessions in their wake. The Campaign will not end in Baghdad. President Bush's war is an open-ended one against potential security threats. That means Islamist militants and "rogue" regimes in Muslim states.

The world, and the global economy, will not feel more secure once Saddam Hussein has gone. The fear of a sudden, devastating attack will continue to hang over the citizens of key western economies. The feel-good factor is not about to return. Renewed US belligerence in the Middle East will inflame the Muslim world and prove a rich recruiting environment for Islamist militants. So the world's largest economy and oil consumer will remain beset by a lack of confidence. The airline industry, a key component of US oil demand, will suffer most from the fear of attack. (10)

Consumer spending in the US and Europe over the key Christmas period was dismal with US consumer confidence at a nine-year low. The dollar lost value last year and the world stands little chance of returning to the robust growth of the 'nineties. That poses major challenges for oil producers, be they companies or OPEC members. Neither can they look to demand growth to improve their financial positions. There will be precious lit¬tle of that. Whether it is BP or Saudi Arabia, the answer to the demands of shareholders and citizens will be in cost cutting, efficiencies and reform. (13)

On the other side what if there is no war in the Middle East after all? Petroleum Argus asks: The US will still wants its conditions met. For George Bush, the cost-benefit analysis is considerably more complex. There are indications that the US president would be only too happy to avert war. No war would mean no $60bn-plus war bill. And it would mean better prospects for the global economy. No war would also mean less risk of a destabilised Middle East if any conflict were to go wrong.

The change to the culture of government in the region would be rather less than seismic.

A crucial issue for oil companies would be the extent of US influence over Iraq if Saddam steps aside. It would be much more difficult for Washington to impose its will on Iraq’s oil sector in a negotiated hand-over than following a military defeat of Saddam.

Thus the main question remains to be WHO WILL CONTROL IRAQ'S OIL? For US oil companies. "'Regime change' to a pro-U.S. government would permit the privatization of Iraq's state-controlled oil resources - and a bonanza for US oil companies," warns Miriam Pemberton of Washington's left-wing Institute for Policy Studies. Administration officials, on the other hand, reject any oil connection whatsoever. When asked, on CBS radio, whether the likely war is over oil, Secretary of Defence Donald Rumsfeld replied, "It just isn't. There are certain things like that, myths that are floating around. I'm glad you asked. It has nothing to do with oil, literally nothing to do with oil".

There is little evidence that the administration has designed its foreign policy to enrich Chevron or Exxon. If the Bush administration were gearing its foreign policy to the wishes of the oil industry, in fact, it would have taken an almost exactly opposite course. (Since the Gulf war, US oil companies, eager to exploit Iraqi resources, have lobbied that US sanctions on Saddam Hussein be reduced or even lifted.). The dove-ish argument is that the nation's oil should be used as a stabilizing force in the Middle East to reassure Iraq's neighbours that America's war with Saddam was just that, and not the beginning of an imperial effort in the Middle East. The hawk-ish argument is essentially the converse: that Iraqi oil resources should be used to remake the Middle East in our democratic, capitalist image by leveraging expanded Iraqi oil production to undermine Saudi dominance in the region and, perhaps, to destroy OPEC itself.

John B. Judis (12) says:

“When I asked a State Department official about Iraq and oil, I was advised to interview the Baker Institute's Amy Jaffe, who was responsible for the section of the CFR/Baker report that concerned oil policy. According to Jaffe, who has worked with the administration's National Intelligence Council project on energy geopolitics, "A large preponderance of people in State, the NSC [National Security Council], and Defence agree with the contents of the report." The study says, the United States must do everything it can to refute the idea that the war was motivated by "an American wish to “steal” or at least control Iraqi oil. (...) Any efforts to secure Iraq's oil installations and its future production must be clearly and credibly presented as actions taken to protect the country's wealth on behalf of all segments of the Iraqi population." The Iraqis, the report says, "have the capability to manage the future direction of their oil industry. A heavy American hand will only convince them, and the rest of the world, that the operation against Iraq was undertaken for imperialist, rather than disarmament, reasons." the report doesn't envisage Iraq becoming a capitalist model for the Middle East anytime soon. Iraq could as easily become an urban and industrial renewal project that will depend, in the interim, on aid and advice from its neighbours and the United States.

The neoconservatives inside and outside the administration take a radical, even revolutionary, view of what is possible and desirable in the region. One senior official compares the region now to Nazi-occupied Europe during World War II and the post-Saddam Middle East to post-World War II Europe. After World War II, we thought strategically about what were the key industrial areas of Europe that need to be under Western control to effect a strategic domination of Europe. If you start thinking of the Middle East in the same way, Iraq jumps to the front, because it is that nexus of oil, education, geography.

The neoconservatives don't worry about offending potential critics in Iran, Saudi Arabia, or Syria because they think of them as enemies who should eventually be swept aside by the installation of a democratic, free-market Iraq on their borders. "This is the moment where our ideas will be vindicated, or we can walk away. You can't count on the international community to establish a new democratic or political order. The way it would work is that the reigning power would distribute power and businesses, and which people it chooses to deal with are automatically made into kings. Do we want to be the kingmaker, or do we want to default that over to the UN? I am not sure we want to cede it. I would bet the UN would seek the acquiescence of Iraq's neighbours - all of which have vested interests. There are three that would be problematic: Riyadh, Tehran, and Damascus. And the UN would work through them.

According to Jamie Dettmer (13), writing in Insight magazine, neoconservative Elliott Abrams, who was recently elevated to senior director for Near East and North African Affairs on the NSC, authored a proposal calling for US, rather than UN, management and control of the oil fields after Saddam's ouster.

“When I called the NSC to ask about the proposal, press aide Mike Anton denied its existence. But a neoconservative administration official confirmed that Abrams had made such a proposal and that it was along the lines that Dettmer had described. "Abrams and people at DOD (Department of Defence) seem to be sympathetic toward the U.S. doing it alone".

Jamie Dettmer writes:

“An occupation that could intensify existing Arab resentment against the United States and prove traumatic in a region where European colonial hegemony produced an unhappy past.

The Tony Blair government in London has voiced privately to Washington its concern that British oil companies will be excluded from the lucrative development of Iraq's oil fields with US, French and Russian firms likely to secure the lion's share of the oil spoils.

A National Security Council working group headed by former assistant secretary of state Elliott Abrams has recommended that the United States assert de facto control over Iraq's oil wells. Abrams apparently has the backing of Vice-President Dick Cheney, Secretary of Defense Donald Rumsfeld and Deputy Secretary of Defence Paul Wolfowitz. US Central Command (CENTCOM)”.

"CENTCOM wants the UN and allies involved intimately now; the buzz phrase is “international buy-in”. Gen. Tommy Franks or someone else will have to become a “MacArthur of Mesopotamia”.

U.S. News and World Report wrote that the Executive Steering Group, a high-level, inter-agency task force that oversees more than a dozen other post-Saddam working groups, was far along in developing a three-phased plan that calls for an initial period of military rule, most likely by a US general says a senior UN source. "We are really being kept in the dark on much of what the Bush administration is pondering for Iraq after Saddam; it is frustrating reading bits and pieces in the press. And I suppose in the end we will be called upon to assist, but it would have been better to have been involved at the start in preparing how to manage a post-Saddam Iraq." A U.S. defence official says "Everything has to go through the Pentagon," The United Nations expects the picture to be grim in Iraq after the removal of Saddam.

UN officials are forecasting that Iraqi oil production will cease, and they expect also the port of Umm Qasr in the Persian Gulf to be shut down. The possible bombing of bridges will leave the railway network crippled and hinder road travel between the east and west of the country, forecasts the United Nations in confidential documents. UN officials expect Iraq's electricity grid to be totally degraded and its water and sewage systems to be seriously disrupted. UN planners say also that they believe about 1 million people will be displaced by a war, with at least 100,000 needing immediate assistance.

Certainly a surge in production would do no one - except, possibly, Western consumers in the short term - much good. Increased Iraqi oil production would be harmful even to the major US oil companies, who would see their profit margins cut with lower prices. Ironically, BP -- became a major U.S. company itself with the acquisitions of Amoco and Arco. For oil-producing countries the results could be devastating. The Kremlin already has let it be known that it could not live with the price of Russian crude oil falling below $18 a barrel.

British Foreign Ministry sources note that while they frequently are being briefed by the Americans on virtually every aspect of policy toward Iraq, there is virtual silence when it comes to Iraqi oil.

Does Russia have the answer?

Until very recent weeks, some specialized publications and many famed columnists found it funny to propagate the illusive story that Russia could displace or substitute Saudi Arabia’s role as an important oil supplier to the world market. The main argument was and might still remain that Russia is more reliable than the Saudis mainly because the latter are Arab-Muslims and this combination raises serious doubts. But the detail that was forgotten, or hidden, for ordinary people is that Russia was already producing at full capacity. Thus if any significant and sudden shortage in supply is there, it would be the Saudis and only the Saudis who do have the ability to step in and avoid a serious supply interruption. This is exactly what has happened again now with the Venezuelan oil strike.

When alternatives are the core issue of an objective discussion, a concrete case can only be compared with another real one: Projects on the other hand need investments, agreements, time and once they materialize, then they could be used as such: comparable realities.Wishful thinking occurred about Russian crude expanding its market in the US after the triumphal arrival of the first tankers with Russian oil in July 2002 to the US east coast. And this now contrasts to the situation in which Russian officials are unable to supply the most pressing heating needs of their own citizens in the remote parts of their vast territory. Furthermore, most of Russia’s sea ports face natural and traditional obstacles in this season of the year, and adding to this the logistic difficulties and shortcomings with regard to pipelines, pumping stations and port facilities, one sees a gloomy picture... in contrast to the illusion that was presented when a rose-coloured imagination fooled those who wanted to fool themselves.

Bottlenecks in Russian ports and pipelines will make it difficult for the country, facing a very harsh winter and frozen coasts, to quickly boost supplies. “We have some spare capacity, but it will take at least three to four months to reactivate. Besides, after years of grappling with stubborn bureaucracies and hostile local oil companies, US oil companies are not buying. Western executives doubt that even Putin can make investing in Russia much easier. The Russian industry, led by companies such as Yukos. and Sibneft, has turned itself around and is now battling to keep foreigners off its turf”. (11) Russia is unable to up production quickly.

"Russia's a long-term option," said Frank Ingriselli, president and chief executive of Global Venture Investments, in New York, says. "If it comes into play in five or 10 years, that's great. And I'm looking at it optimistically".

Privatization: Beware Russia and OPEC

Western firms find access to Russian oil too costly . Though multinational companies are accustomed to tough investment conditions, Russia is particularly difficult. Opportunities for foreigners are few. Negotiations that last a few months elsewhere continue for years in Russia.

If foreigners are allowed in, they should develop new oil and gas fields that the Russians lack the experience to tap. Because that would cost billions of dollars, Western companies want legislation in Russia to protect their investments. (11)

Experts say that Russia will probably miss out on much of the $1 trillion in oil investment expected to be made world-wide over the next decade. "There is often a resistance to getting big foreign oil companies into Russia because, in my opinion, it would show the weaknesses of Russian oil companies," said Simon Kukes, president of Tyumen Oil Co., the fourth-largest producer in Russia. "If this continues, there will only be losers on both sides."

But with an estimated of 49 billion barrels of oil and 1.68 quadrillion cubic feet (47.6 trillion cubic meters) of natural gas in the ground, and proximity to European and Asian markets, Russia is too big to be ignored.

Having healed their oil industry, Russian companies are deeply reluctant to surrender it. "I support having Western companies work with us, but the much more common view among Russian oil executives is: We can do without." Kukes said.

Neoconservatives also want to bypass the Iraqi National Oil Company in favour of a free-market approach to oil.

Kim Holmes, who recently became Assistant Secretary of State for International Organization Affairs, commissioned a proposal for Iraqi oil privatization in 2002, when he was director of international studies at the Heritage Foundation. The study, produced by Ariel Cohen and Gerald O'Driscoll, has been well-received among administration neoconservatives, according to John B. Judis.

Cohen and O'Driscoll argue, "the Bush administration should provide leadership and guidance for the future Iraqi government to undertake fundamental structural economic reform. This process should include a massive, orderly, and transparent privatization of state-owned enterprises, especially the restructuring and privatization of the oil sector."

“The neoconservatives aren't looking to enhance Chevron's profits. They support privatization on ideological grounds - they favour investment by new Iraqi companies as much as by US oil companies. They also see the privatization of Iraqi oil as setting in motion a chain of events that could transform the Middle East. If Iraq privatized its oil resources, it would inevitably leave OPEC, which requires each member country to strictly regulate their output and oil exports.

And, if Iraq left OPEC, that would mean that two of the world's largest oil producers (Russia is the other) would be outside of the cartel, fundamentally undermining its ability to regulate world output and prices”.

The importance of this essay written by John B. Judis (14) is notable to people in OPEC countries as can be seen:

“That would probably mean lower oil prices, but, more important to the neoconservatives, it would undermine Saudi Arabia's economic and political clout and perhaps endanger the Saudi regime itself, says one senior official, "I don't think an upheaval or splitting apart of Saudi Arabia would be the worst thing. I don't see a graceful exit for them. ... I would expect them to align with Syria and Iran and Libya to bleed us in Iraq. They may become a real enemy in five years. I don't think we can get more mileage out of this relationship." This official said he was speaking for himself, but other neoconservatives, including Wolfowitz, share a similar outlook.

They see the fall of OPEC and of the Saudi regime as a desirable outcome of a US ouster of Saddam. This imagined chain of events - beginning with Saddam's ouster and concluding with the transition to a democratic, free-market Mideast - is based in part on an optimistic assessment of how quickly Iraq's oil industry can be revived and how much oil it can eventually deliver. Says one official, "If we are going to be making a stand in the Arab world of reconstruction and establish a new political order, Iraq is a good place to start because it has the resources to fuel a reconstruction. It doesn't need the vast amount of aid. That is one big advantage of oil."

Judis continues: “Administration officials directed me to Paul Michael Whibey, a Washington energy expert who used to work in the Washington office of a conservative Israeli think tank, the Institute for Advanced Strategic and Political Studies (IASPS). Whibey argues for an Iraqi oil boom. "In the post-Saddam Iraq, I think we will see very significant additional volumes from Iraq. Iraq probably has oil reserves equal to or surpassing that of Saudi Arabia," he says. Whibey, who directed an IASPS project on African oil, argues that production from Russia and from West Africa, which he compares to the Persian Gulf in its early days, could dramatically reduce US dependence on Saudi oil and speed the demise of OPEC. In such a scenario, says Whibey, "We don't get much oil (from the Saudis). We don't need military bases in places like Saudi Arabia. We have to redefine our strategic interests."

From Whibey's perspective, and those of the neoconservatives, it is not merely desirable for the United States to break with the Saudi regime; it is possible to do so without jeopardizing America's current or future oil supplies. Which course the United States takes with regard to post-Saddam Iraqi oil will in large part be dictated by what happens during the war, should it take place. If the United States goes to war without UN support and if the Saudis prove uncooperative during and after the war, it will reinforce the neoconservative argument for cutting the United Nations and Riyadh out of Iraq's post-war reconstruction. Edward Morse, a former energy official at the State Department and now the executive adviser at Hess Energy Trading Company, calls the neoconservative estimates "wildly optimistic."

Anthony Cordesman from the Centre for Strategic and International Studies estimates that Saudi Arabia has 25 to 30 percent of proven global oil reserves compared with only 4.6 percent for Russia and 10.8 percent for Iraq. In other words, even if the United States does control the oil in a post-Saddam Iraq, it will not necessarily free us of our dependence on Riyadh. There can be little question that the neoconservative hawks have played a decisive role in supplying the rationale for invasion. When oil is involved it is realists, not radical idealists, who usually carry the day”.

Meanwhile oil prices remain high and so do the stakes of a war in Iraq.

The UK's energy minister warned oil companies against making “irresponsible” hikes in gasoline prices in response to a recent surge in the world price for crude. “There is no justification in these circumstances...for any inexorable rise in the price of petrol at the pumps,” Brian Wilson told the BBC.

Wilson said OPEC’s expected production increase would make further gas price increases unnecessary. “It would be irresponsible for anyone in these circumstances simply to say because there is uncertainty, because there is a cut in exports from Venezuela, therefore the price of petrol is going up,” he said “There is no justification for that if OPEC Member Countries do increase production.” (AP, 09-01-03)

Although OPEC acted timely tensions remain high but prospects for those who depend on oil prices are uncertain. For both companies and governments the risks are considerable.

The International Monetary Fund’s rule of thumb is that if a $5 rise in the oil price is sustained for a year, world gross domestic product drops 0.25 per cent. Mr Bush may calculate that a quick US military success would cause only a brief increase in the oil price. But he cannot be sure of avoiding a long conflict that would send prices soaring and keep them there.

Suggestions by the Iraqi opposition are that once in power it would take Iraq out of the Organisation of Petroleum Exporting Countries. A post-Saddam Iraq might be temporarily excused by its OPEC partners from the cartel’s quotas for a time, in order to rebuild its oil industry. An Iraqi government that quit OPEC altogether would risk appearing as a US puppet in the eyes of its own citizens as well as its neighbours.


1. MEES. VOL XLV NO 50, 16 December 2002
2. “US- Venezuela Oil Deal?” Business. November 2002
3. MEES. VOL XLV NO 50. 16 January 2003
4. Petroleum Argus. VOL XXXII, 50. 23 December 2002
5. Paul Kennedy. “Enemies on all fronts: The US should not be surprised at having to face the double crisis of Iraq and North Korea”. The Guardian. 15 January 2003.
6. “The Coup That Changed the Middle East. Mossadeq v The CIA in Retrospective”. Author: Mostafa T. Zahrani
7. International Herald Tribune. “Yes, a war partly over oil”. Ousting Saddam, by Thomas L. Friedman. 6 January 2003
8. “Western dependence on Mideast oil is expected to grow”. 19 December 2002. By Jeff Gerth. IHT
9. Financial Times. “Depending on oil Reliance on the Middle East is, sadly, inescapable”. 6 January 2003
10. “A rising anti-American tide”. Brian Knowlton/IHT. International Herald Tribune. 5 December 2002
11. “Russian reserve on oil”. Neela Banerjee and Sabrina Tavernise. The New York Times. 26 November 2002
10. Petroleum Argus. Volume XXXIII, 6 January 2003
11. Petroleum Argus Volume XXXIII, 20 January 2003
12. “Who will control Iraq's oil?” by John B. Judis. 1-9-03.
13. “After Saddam, an Uncertain Future” by: Jamie Dettmer 01-03-03
14. “Over a Barrel” by John B. Judis. 1-20-03

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