Volume 2, Number 7, April 2003, “Divide and Conquer: A New International Oil Order”

Volume 2, Number 7, April 2003

“Divide and Conquer: A New International Oil Order”


• Reshaping the Middle East
• US Overview of the World Energy Scene
• Competition for Investments in Post-War Iraq
• Jostling for Position
• The War on Terror and the Next Phase
• Industry wants High Prices rather than Growth

Editor: Stuart Wilkinson
Director: Mazhar Al-Shereidah

“Divide and Conquer: A New International Oil Order”

The war has now been won, but a fundamental tension is perceived to be at the heart of US policy in the Middle East. Unresolved, this problem will leave the world’s most important oil region trapped in the same mire of political backwardness that has persisted since the end of the colonial period. How to secure the long-term stability of the region without unleashing the very forces of destabilization that threaten it now. The region’s post-colonial status quo has created stagnation and left the mosque as the only outlet for disaffected youth.
The power of the US in the Middle East has never been greater, but Washington’s moral authority with the people has never been lower, and the Bush administration’s deep ideological commitment to Israel’s Likud Prime Minister, Ariel Sharon, has turned the situation critical.
The outside world needs to see democratization across Arab nations as the key defence against instability and a guarantor of oil supplies. Winning the peace, however, will be a lot more difficult than winning the war. (1)

Reshaping the Middle East...

Many Europeans are frustrated with, if not baffled by, the Bush administration’s approach to the Middle East (2). However, the Bush administration does have something of a Middle East vision based on more than domestic political considerations. At the heart of the plan is the determination to use America’s unprecedented power to reshape the Middle East supporting America’s friends in the region, opposing its enemies and seeking to promote democracy and freedom. This means using force and standing by a particularly American optimism about being able to reshape the world through the application of American power and ideals – but the President himself seems to be sold on it. It is important to understand and take seriously the new thinking in Washington.

There are at least four main assumptions behind Bush’s strategy for the Middle East, first is that the status quo has become unacceptable. It has now become a problem for Americans themselves. Another aspect of the status quo that Bush feels must be changed concerns Iraq. The sanctions that Saddam wrongly but successfully argues are the cause of Iraq’s humanitarian problems, and the troops in Saudi Arabia contribute directly to the anti-American and anti-Western sentiments that fuel Islamic terrorism. a status quo that itself creates a serious threat to the West.

A second assumption underpinning the Bush approach is that Iraq’s development of weapons of mass destruction poses an unacceptable threat that would make long-term peace and stability in the region impossible.

While it is true that Saddam is unlikely to have any interest in co-operating with Islamic terrorists – who are as much his enemy as America’s – he has also demonstrated a desire for vengeance and hatred for the US that for Americans with a traditionally low tolerance for vulnerability and a fresh memory of the large-scale killing of 11 September and the anthrax attacks that followed, living with that risk is unacceptable.

In 2000, in the Bush view, Clinton gambled on the Camp David summit, pushed the Israelis to offer more than they ever had before in the name of peace, himself put forward proposals (the December 2000 “Clinton parameters”) that may have exceeded what Israeli domestic politics would accept – and still the response from the Palestinian side was terrorist violence, supported by Yasir Arafat himself. Bush’s own tentative foray into Middle East peacemaking – the sending of envoys Colin Powell and Anthony Zinni both met with more Palestinian violence – pushed him back to his original, “hands-off” approach.

The final assumption behind the administration’s vision for the Middle East is that in the long run, peace and stability – and an end to anti-Western terrorism – will not be possible until the region’s regimes become more democratic.

Many of the key thinkers behind the Bush administration approach are imbued with a neo-Wilsonian sense of idealism that rejects European “realism” or cynicism about the possibility to spread freedom and democracy in the Arab world. Just as “we” defeated Nazi Germany and Imperial Japan and then installed democratic, pro-Western regimes there, and just as we defeated communism and spread democracy and freedom to Eastern Europe and Russia, the next task is to do so in the Middle East.

The more realistic members of the Bush administration are aware that implementing this grand vision will not be smooth or easy. There will be setbacks along the way and the final product will inevitably be incomplete. But they think they know what implementation entails.

The first step in the process would be regime change in Iraq. It would allow for the lifting of sanctions on Iraq and the rebuilding of that country’s oil production network, generating billions of dollars of revenue to be spent on the Iraqi people. It would reduce the need for American troops in Saudi Arabia. By developing Iraq’s vast oil potential over the long term, it would lessen America’s dependence on Saudi Arabia, allowing the US more easily to press for political reform there. Finally, the Bush team believes that the elimination of the Iraqi regime will send a decisive message to friends and adversaries alike throughout the Middle East: The second phase in the project would be an Arab-Israeli peace. The Bush team, his 24 June 2002 Rose Garden speech held out the vision of a recognized Palestinian state.

Bush began to do this in his January 2002 State of the Union speech, in which he not only denounced the “axis of evil” that included Iran and Iraq, but also called for sweeping political change in the Arab world many in the Bush team like to recall similar scepticism when Ronald Reagan denounced the Soviet Union as an “evil empire” and called for democracy and freedom there. Indeed, Bush explicitly cites the example of Reagan. Other administration officials, Secretary of State Colin Powell and his Policy Planning Director Richard Haas, have also begun to speak about the need for the US to support democracy in the Muslim world. In a 4th December 2002 speech to the Council on Foreign Relations, Haas argued that previous Democratic and Republican “US policy will be more actively engaged in supporting democratic trends in the Muslim world than ever before.”

However, there are plenty of reasons to be sceptical about Bush’s grand vision.
The assumptions behind this scenario; that an American occupation of Iraq will over the long-term be accepted in the Arab world; or that the US will really be able to impose stability and democracy in an artificial state that has never had much of either – are extremely optimistic at best and irresponsible at worst.

It is also excessively optimistic to think that defeating Iraq will somehow convince the Palestinians and their supporters in the Arab world that their struggle is futile and that their only choice is now to bow to the new regional power – the US – and its Israeli ally. Indeed, while it is true that Saddam’s defeat in the Gulf War and the collapse of the Soviet Union were in part responsible for the Palestinian decision to accept the Oslo peace process, neither these factors – nor for that matter the defeat of many other Arab regimes over the years – have prevented the Palestinians from continuing their struggle today, more violently than ever.

While making Ariel Sharon the most frequent visitor to the Oval Office; doing nothing to oppose Israeli settlement activity; calling Sharon a “man of peace” (a moniker it is not clear that Sharon himself would choose); allowing cabinet officials like Defence Secretary Donald Rumsfeld to refer to the “so-called occupied territories”; and failing even to appoint a high-profile Middle East envoy (or even, until December 2002, a senior official at the National Security Council to focus on the issue) does give the impression to the Arab world that the US is not an honest broker in the conflict .

It will also be hard – indeed it would be risky – to try to change the nature of the regime in a place like Saudi Arabia, so long as the US remains extremely dependent on the Saudis to stabilize the world oil market, as is likely to be the case for a very long time. Changing the forms of government in the Middle East is also problematic because in most cases, there is little prospect in the near-term of replacing the current leaderships with anything better (and the real imposition of democracy anytime soon could produce Islamic or other regimes that might be even more anti-American or anti-Israeli than the current ones.)

But the US must also be realistic. While it is fine for the US to talk about democracy and freedom in the Arab world, Bush is unlikely to achieve it during his presidency, or even his lifetime.

Much of the Bush vision, then, is problematic and, in the best case, will take generations to realize. Some of the assumptions are wrong, Neither the Bush administration nor anyone else has all the answers in the Middle East

US Overview of World Energy Scene...

Broadening out the context, US Under-Secretary of State for Energy, Alan Larson, speaking at New York University on 4th March 2003 outlined the United States’ view of the global energy situation:

• Energy remains a vital ingredient in the modern industrial economies where roughly one billion of the world’s people live. Over the next 50 years, rapid economic progress in the rest of the world will require expanded supplies of energy, including oil and gas.

• It would be naïve to believe that continued strong economic growth in the US and dramatic progress in reducing global poverty can be achieved without substantially increased supplies of energy (3).

• The transportation sector has been the Achilles’ heel of oil conservation.
• Over the next generation, oil and natural gas will continue to play a central role in the world economy and international energy markets.

• We must find more oil and gas supplies, and these supplies must be reliable and made available at prices that permit sustained economic growth.

• Energy independence was a mirage and energy security had to be pursued in co-operation with friends and allies.

• We knew that two-thirds of the world’s known oil reserves were in the Middle East.

• We knew that imports were supplying roughly half of our oil needs, and an even greater share of the needs of some of our most important allies and economic partners.

• We knew that OPEC nations were providing roughly one third of the total oil exports, but also controlled two-thirds of world reserves.


• Depending on political events there, Venezuela could be a source of expanded oil and gas production.

• Closer to home, Venezuela and the US have also enjoyed strong historical energy ties. Traditionally, we had considered Venezuela to be one of our most reliable oil partners, and we still very much want this to be the case. Venezuelan oil policy, until recently, has been built upon a reputation of reliability to international markets, which was of great mutual benefit.

• Through World Wars, politically inspired embargoes, and global dislocations, Venezuela found that its national interest was best advanced through maintaining a reputation of reliability. Unfortunately, through a collective failure to come to consensus within the boundaries of their political system, it has been clearly demon-started that Venezuela’s democratic institutions and its reputation in the US as a reliable supplier appear no longer matters of primary importance to President Chávez, PDVSA or the political opposition.
• US firms continue, of course, to be hard at work in Venezuela, and CITGO continues to operate in the US as a commercial entity. The benefits that these reciprocal energy investments bring to both parties, and to the relation-ship, are clear to me but they do not seem to be clear in Caracas. The US will continue to work to help Venezuelans resolve their political differences. We are disturbed by measures taken by President Chávez and the Government of Venezuela that can only be seen as polarizing the conflict and eroding Venezuela’s democratic institutions

• However, until a sincere political compromise is achieved, and the level of rhetoric lowered, world energy markets simply cannot view Venezuela with the same certainty that they once did, and, sadly, neither can the US. The damage done cannot be repaired overnight. And when the Venezuelan parties show a commitment to seek reconciliation and restore their position as a reliable partner of the US, they will find a willing and ready partner in the United States.

On this, the Washington DC-based PFC Energy’s Market Intelligence Service on 24th. February (4) considered that next year could be more difficult: “PFC Energy expects lower oil prices following a US-led war with Iraq. With the prospect of ever-larger deficits and lower foreign assets, the likely response of the government will be to open up the oil and gas sector,
However, pressure from overseas will temper the government’s actions. Chávez’s government still needs to maintain some level of cordial relations with the US.
But, it is extremely vulnerable to an oil price collapse in 2004 and 2005.

PFC Energy expects a major depletion of foreign assets to dangerous levels to take place in those years if prices fall below $20/B WTI as is expected ... Chavez’s recent announcement that the government would be interested in developing the Tomoporo oil field follows logically from its need to expand revenues. The ability of the Venezuelan authorities to attract sufficient in-vestment will be a key challenge for the government. Attracting further foreign investment could be quite a serious challenge, given the fact that the oil sector and its workers have played a central role in attempts to overthrow Chávez, the problems already experienced by investors in the upgrading projects and the perceptions among major international companies that the upstream oil sector is quite mature in Venezuela. As a result, the government will be forced to revisit the issue of the Hydrocarbons Law. This will become an urgent necessity when prices fall next year and prospects for a political solution remain elusive”.

North America

• We are strengthening our energy co-operation with Canada and Mexico.
• Mexico has begun to allow independent power producers (IPPs) to sell power to the public grid.
• Energy consumption in Mexico is expected to grow by 25% during the next five years; IPPs could attract the required investment in new generation and transmission infrastructure.
• North American energy trade is a two-way street.
• Mexico is becoming an important source of our oil imports. At the same time, the US is a net natural gas exporter to Mexico, and our refineries supply over 15% of Mexico’s refined petroleum products.

Saudi Arabia
• And the other major Gulf producers like the UAE and Kuwait repeatedly emphasize their commitment to be reliable suppliers.
• Saudi Arabia’s own efforts in working with other major producers to offset the Venezuelan disruption is an example of its leadership role.

Competition for Investment in Post-War Iraq...
Such a view will not be complete without taking into account the now-defeated Iraq – a country that in itself will eventually present a huge investment opportunity for foreign oil firms. Furthermore, a post-war Iraq is likely to increase the competition among Mideast Gulf producers-principally Kuwait, Iran and Saudi Arabia-for upstream investment dollars (5). “Big volumes do not necessarily mean big profits”. BP chief executive John Browne warned. A US-sponsored government in Iraq may want to open reserves to foreign investment, but it will also be aware that any perception it is giving away national assets would threaten its survival. The James A. Baker III Institute, warns that “a mechanism should be developed to ensure that all proceeds and activities involving Iraq’s oil industry are transparent, public, and remain in the ownership of Iraq’s treasury” But the administration itself is only just starting to plan seriously for post-war Iraq under the unofficial leadership of US national security advisor Condoleezza Rice.

The sheer size of any oil opening will ultimately attract investors even if the contract terms are no better than those of the country’s neighbours are. The most likely form of investment will be similar to Kuwait’s operating service contract, Iran’s buy-back contracts, or even Iraq’s existing and untested “Modified buy-back” formula. Under these, companies can book reserves for a limited time, with returns on investment around 12-15 PC. The majors need to build a presence in the region as reserve bases in other areas of the world decline.
Iraq has identified projects that would bring 3-mm b/d of new oil production capacity on stream. Updating technology at already producing fields, and development of unexplored acreage in the western desert could add still more.
The scope of opportunity in Iraq is vastly bigger than in neighbouring countries. Kuwait’s plans –the most attractive regional investment opportunity so far –envisage building an extra 450.000 b/d of capacity using foreign investment.
Where private companies can hold equity in the region, they receive a guaranteed but low profit that is unconnected to the market price. Investors in Abu Dhabi, including Shell, BP, ExxonMobil and TotalFinaElf, take a fixed, fee of about $ 1 for every barrel produced,. Rates of return are also at the centre of negotiations over the Saudi gas initiative.

Jostling for Position...
Major oil companies, however, have been tight-lipped about their wishes of plans for a post-war Iraq, not wanting to fuel criticism by sectors of the public that the war is about oil. But they are all anxious not to be left out once Iraq presents real opportunities.

Company executives have privately met White House officials to discuss post-war Iraq plans. US companies would improve their position against French and Russian firms should an US-led attack oust Saddam Hussein. (6)

BP is the major with the weakest presence in the Mideast Gulf, apart from ChevronTexaco, but is has been vocal in calling for “a level playing field” in post-war Iraq.

Oil service deals will dominate efforts to get Iraq’s industry block on its feet during the months or years that it will take a post-war government to put in place major exploration and development contracts.

Iraqi service contracts could give oil companies an edge when more lucrative production-sharing or buy-back deals are eventually offered. Even though service contracts do not allow companies to book reserves and provide little upside, the could be the only short-term opportunity for firms to play a role in Iraq’s upstream.

ExxonMobil, for example, is in “pole position” to gain from regime chance in Iraq and that “with its huge political weight...ExxonMobil is likely to have a major part to play in the shifting geopolitical landscape post-11 September.” As author Martin Amis says: “The war...will not be an oil-grab so much as a natural ramification of pure power”.

The US has given little thought to the role of its companies in post-war Iraq. Without regime change, “a significant portion of the world’s supply of oil will be put at hazard”, wrote key administration hawks Donald Rumsfeld and Paul Wolfowitz to President Bill Clinton in 1998. They still believe this, and are implementing the solution. But that is different from pursuing a war for oil companies (7).

As long as the oil flows, it is of no consequence, which companies produce, it. The US majors point out that, far from helping them, Washington limits their scope through sanctions on Iran and Iraq. “As long as there are sanctions, US companies are not involved at all in Iraq.” Says ExxonMobil chief executive Lee Raymond. Post-war, he says, “I suspect we can compete as well as anyone”.

BP chief John Browne says “the most important thing for us is a level playing field” in Iraq. Shell chief Philip Watts says: “The events in the Middle East are deeply troubling. It is not just the present uncertainty but also the longer-term potential for instability and the alienation of many in the Islamic world from the West that concerns me”

The major’s fear Iraq will offer little more than oil field service contracts. The fear oil prices will fall if foreign investment in Iraq boots output to 7 MN b/d in 10 years. This would be irrational, risking confrontation with OPEC that could end in price collapse.

The war on Terror and the Next Phase...
Chairman of the Defence Policy Board, US Department of Defence, Richard Perle, was interviewed by John Holmes on 18th. February in the ABC Online Four Corners' program on the battle about where and how to prosecute the next phase of the war on terror.
Richard Perle, has been involved in US security and foreign policy for more than 30 years, and his observations throw bright lights on key aspects of US foreign policy, and especially oil policy where he clearly states that US interests are served by the maximum number of producers producing the maximum quantities of oil which can be then bought at ever-lower prices. (8)

“JONATHAN HOLMES: Is there a set of core beliefs that you've come to about United States' role in the world that's sort of held true right through that time that you could encapsulate for us
RICHARD PERLE: Yes there is and it was very much exemplified by Senator Henry Jackson, "Scoop" Jackson who was a mentor for many of us directly and for all of us indirectly and it is the belief that democracies must confront totalitarian rule when they find it.

JH: There was and is a strong kind of moralistic element to this isn't there as opposed to that very kind of pragmatic balance of power Henry Kissinger attitude, can you talk about that at all?
RP: Scoop was a realist, he understood that power has to be balanced so it was not that he was naïve about the real world of power politics, it's just that he was unwilling to abandon the issues, the core value issues.

JH: What brought you and Paul Wolfowitz together?
RP: We both turned up volunteers in 1969 to write a report on the debate over ballistic missile defence.

JP: In Paul's case, his extended family largely perished in the Holocaust, that may have been the experience of quite a number of those that are now called neo-conservatives, but do you think that had an effect on the way he looked at the United States as a democracy, the importance of conserving it?
RP: I think for many of us the rise of Nazi Germany, the appeasement that permitted Hitler to get as far as he got, the Holocaust, the terrible suffering was one of those seminal events that informed a whole generation, not just neo-conservatives. The fact that Paul had family connection to the Holocaust may well have deepened the sense that this was an immediate matter for him.

JH: All of you I think moved over to the Republican Party, beginning of the Reagan years, I'm still a Democrat, I think Paul has changed his registration. Jeanne Kirkpatrick changed hers some years ago so did Eliot Abrams and others
RP: Yes I did serve in a Republic administration. I thought the President was pretty tolerant about that. I thought Carter's foreign policy was a disaster and Reagan had to deal with, the build up of the American forces. There was a moral dimension to the Cold War and the politicians and the diplomats who had made the policy up until that moment didn't want to deal with that. I don't believe the Cold War could've been won without that moral ideological offensive. That's the single most important thing Ronald Reagan did. I think this President is much closer to Ronald Reagan than he is to his father. I do believe that he's tougher minded, I think he's got a deeper sense of these moral, ideological issues. Ronald Reagan knew far more than President Bush but President Bush has absorbed information like a sponge and I think his judgement, his ability to analyze his insight into the principal issues he has to deal with is formidable.

JH: You don't think it's true that moral fervour has been easily manipulated by those who know more?
RP: No, no I don't think so at all, I don't think he's been manipulated, I think that he is the architect of his own principal ideas as was Ronald Reagan.

JH: Probably the last time that you had a similar fervour in Europe, an anti-American fervour was when the Intermediate missiles were going in, although the governments were more supportive, what was your attitude to those demonstrators then and do you feel the same today?

RP: I was the official responsible for that in the defence department then and I lived through every minute of that. I think I travelled to Europe 96 times in the space of three or four years. so it wasn't quite as naïve as I think the current demonstrations are… The demonstrators today seem more genuine than more naïve but then as now people were responding viscerally to the prospect of war, in this case armament and in the 1980s without a deep comprehension of what was at stake.

JH: They are thinking very much about the death and destruction that would occur to the Iraqi people if there were a war?

RP: That's what they think and nobody can prove this. I think that the French now conceive of themselves as the leaders of the European Union and the formulators of the common view of the European Union whether the others like it or not and Jacques Chirac conceives of the European Union as a counter weight to the United States, which is okay, we can live with that but a counter weight is not an ally. Counterweight is opposition, it implies different objectives and certainly the balancing of your ally doesn't add to the strength of the two of you as allies so it isn't an alliance relationship and I think we need to recognize that.

JH: I mean you did have somewhere between 6 and 10 million people they reckon around the world demonstrating over the last weekend.

RP: Yes. I couldn't help but be struck by the irony because I saw the 6 million figure, that is the number of Jews who perished when well-meaning people, including peace demonstrators, failed to understand the threat that Adolf Hitler posed. It's a failure to appreciate the threat and the danger if Europe is ever again a continent that thirsts for war, God save us.

There's nothing artificial about recognizing that Saddam Hussein has weapons of mass destruction, so I make no apology for the fact that some of us were concerned about this long before September 11. Yes, he does have links with Al-Qaeda, there's no question about that. It has been documented.

JH: In 1996 you and Doug Feith and others were involved in producing a strategy paper for the Netanyahu government.
RP: It was unsolicited advice.

JH: Unsolicited. Nevertheless it did advocate a fairly radical break with the Israeli policies at that time and indeed with American policies at that time, that paper has made many people say that the hidden agenda behind the neo-conservative drive to invade Iraq is essentially an Israeli agenda, a Likud agenda.
RP: I don't know what that Likud or Israeli agenda is.

JH: Well the agenda that you suggested they should have back in 1996... an agenda for removing Saddam for reordering a large part of the Middle East in favour of Turkey and Jordan of trying to completely change the dynamic of the Middle East to make it more possible for Israel to survive?

RP: Well, nobody was talking about Israeli domination our consistent theme was to defend western democracy in the region as in the world. I mean I simply don't accept that the Arab world has to live under totalitarian rule, under dictatorial rule and I don't think most Arabs would accept that either. What's wrong with that, there's nothing hidden about that agenda.

JH: Don't you think it's strange that a group of people including officials like yourself who were senior in the United States Defence Department, presumably privy to all kinds of United States policies and secrets and so on should be giving open strategic advice to foreign governments?
RP: Well we write articles all the time but this wasn't advice to a foreign government, it was an open paper, it was published.

JH: But commissioned by Netanyahu...
RP: No.

JH: By Likud...
RP: No, no, no not at all, it had nothing to do with Likud. So you don't think there's any reason for people in the Middle East in believe that the United States can be impartial in its operation in the Middle East ... I don't think we are impartial. I don't think we should be impartial, we should have a point of view about what is in the best interests of the things that we value.

JH: Do you think that it's right though that the United States simply because it is powerful should be the arbiter of right and wrong, should be the one that decides on war and peace in the Middle East or anywhere else on its own?
RP: Well. I think we act in our own interests but we do so from a position of respect for and devotion to liberal democracy.

JH: But the United States' national security strategy right now, emphasizes its sovereign right to pre-emptive action especially against states that may be in possession of weapons of mass destruction, and hardly emphasizes or even mentions the United Nations Security Council, that entire machinery that was set up after all by the United States after Second World War as an arbiter of these things is almost ignored...

RP: Indeed the UN is about 50 per cent dictatorships so what moral authority attaches to that?

JH: On September the 12th already before there was any evidence that Iraq, whether there is evidence now or not, had anything to do with that attack, Paul Wolfowitz was already advocating that United States should strike at Iraq, your own Defence Policy Board advocated a very similar thing within days. This struck many people as pure opportunism what you and Wolfowitz were arguing immediately after September the 11th was not that the United States should attack the Al-Qaeda training camps in Afghanistan, you were advocating an attack on Iraq. It was perfectly reasonable, logical, inevitable that attention would turn to Iraq...

The fact that people like Paul Wolfowitz, people like yourself on behalf of the Defence Policy Board were advocating within days of the September 11th attack that the United States should strike back, not at Afghanistan but at Iraq has led many people to say the neo-conservatives were simply using September the 11th to further an agenda that had been there all along.
RP: No, all the rest and Iraq was on the top of that list.

JH: But it were already at the top of your list for other reasons and surely it's true that the political climate made the use of military force against Saddam by the United States possible after September 11th whereas it would not have been possible before.
RP: I think it was not possible before in the same way, just it would not have been possible to destroy the Taliban before September 11. No, the world changed on September 11, it changed for Americans fundamentally and we have to be prepared to stay long enough to see decent successful regimes, and I have no doubt we'll stay.

JH: And is it about Iraqi oil?
RP: No, no, if it were about Iraqi oil, we would lift the sanctions and say please produce more oil, we'll buy it. It may be about Iraqi oil for Jacques Chirac, but it isn't for us.

JH: It's not about the United States controlling 12% of the world's oil in a situation where it is facing some degree of energy shortage?
RP: What does it mean to control the oil? I mean the oil is produced by Iraqis, it will go on being produced by Iraqis, the difference is that it will be produced in the interests of all the people of Iraq and not just for a handful of people around Saddam Hussein, who have become enormously wealthy by stealing that oil from the Iraqi people. No, I mean our interests are served by the maximum number of producers producing the maximum quantities of oil, which we can then buy at ever-lower prices.”

Industry wants high prices rather than growth...
However, not everyone would be happy with Perle’s idea of lower-and-lower oil prices. According to the Petroleum Argus, oil is a weapon of mass disruption, and an oil shock disrupts the entire global economy: Morgan Stanley economist Stephen Roach indicates that UN sanctions against Iraq and Kuwait in 1990 brought a windfall for other OPEC members as they seized market share. Saudi Arabia hiked output from 5mn b/d in 1989 to 8mn b/d in 1991, sharply boosting its revenues. Volume growth allowed OPEC to pursue moderate price policies for much of the ‘nineties. The economic boom and rising oil demand reinforced this, at least until the Asian crisis in 1997.

There will, however, be no return to the roaring ‘nineties. After a devastating asset bubble, the world economy is in “a far more precarious state” than 12 years ago, says Roach. The spirit of the age has turned from globalization to unilateralism. This is a time of confrontation, reminiscent of the ‘seventies, when producer nations were asserting there sovereignty. Upstream nationalizations in OPEC compelled the majors to develop oil elsewhere. In 1974-84, non-OPEC output rose by nearly 50pc to 41mn b/d. (9)

The predominant industry interests want high oil prices more than growth. This coalition includes producers from OPEC to Russia, oil companies and even consumer governments, wary of dependence on the Middle East. In the past three years. Brent has averaged over $26/bl – who wants to push it down? Companies face no imperative to expand upstream as they did in the ‘seventies. Oil is not perceived as a growth business compared with, say, natural gas. It is an industry approaching its declining years. It is not the end of the oil age, but it may be the beginning of the end. If so, prices could stay high for years - they must do so, in order to spur use of alternative fuels, greater efficiency and technological change. This process of creative destruction will be the final use of oil as a weapon.


1) Petroleum Argus- 24 February 2003
“Winning the peace”
2) Mees17 March 2003. “Bush’s Middle East vision” by Philip H Gordon
the Journal of the International Institute for Strategic Studies (JIIS), vol. 45, no 1, Spring 2003, Philip H Gordon is a senior fellow in foreign policy studies at the Saban Center for Middle East Policy at the Brookings Institution in Washington DC.
3) “US overview of global energy scene”
by Alan Larson
US Under Secretary of State for Energy, Alan Larson at New York University on 4 March 2003.
4) Venezuela: “Chávez survives; now what?”
Washington DC-based PFC Energy’s market intelligence service on 24 February
5) “Post-war Iraq will up competition for investment”. 24 February 2003- Petroleum Argus
6) Weekly Petroleum Argus – “Majors jostle for position”
7) Petroleum Argus 10 March 2003
“No oil for blood”
8) ABC Online Four Corners: interview with Richard Perle. Jonathan Holmes interviews Perle, Chairman of the
Defence Policy Board, Department of Defence on 18 February, 2003.
9) Petroleum Argus- Global Markets 3 March 2003
“Shocks and surprises”

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