How is it that the world is now contemplating oil prices above US$100 a barrel?
Less than 10 years ago, prompted by the Asian financial crisis, there was a collapse in the oil price to around US$10 a barrel. And in 2003, prices averaged a mere US$29 a barrel (all prices ignoring changes in the value of the US$).
Recently, admissions about the US occupation of Iraq being ‘largely about oil’ have emerged from luminaries as diverse as Alan Greenspan (ex-Chairman of the US Federal Reserve Bank) and the Australian Defence Minister, Brendan Nelson. Yet, it is not so long since the unlamented Tony Blair and Don Rumsfeld both dismissed such notions as mere ‘conspiracy theories.’
But it is not sufficient just to accept an ‘oil connection,’ we should also ask whose oil-motivated interests was the Iraq War meant to advance? Was it about feeding the addiction of the USA’s gas-guzzling SUVs? Or was it about advancing the interests of US-based international oil companies (IOCs), long since locked out of access to Middle East oil?
A different but related question is: what oil-related interests have in fact been advanced by the Iraqui War and occupation? To the extent that near-record oil prices are in part a result of the War, then massive profit increases for the IOCs have certainly been a major effect of the invasion, if not a provably intended one.
In 2003, US spokespeople were blunt about the Iraq invasion being only a start in ‘transforming’ the Middle East. But was it also about rolling back OPEC? Partly as a result of the 1970s ‘OPEC Revolution,’ National Oil Companies (NOCs) now own and control more than 80 per cent of global oil reserves while the formerly dominant ‘majors’ (the IOCs) hold only around 10 per cent.
Was the Iraq War also about ensuring that the US forever has its hands on the oil (and gas) spigot as part of a geopolitical strategy to permanently dominate global politics?
For instance, was a prime purpose establishing permanent US bases in Iraq, thereby consolidating US control over the Middle East, Iran, and beyond to the increasingly important oil and gas provinces of the Caspian basin and Central Asia?
There is a case to answer on all these charges. But there are also internal conflicts, policy inconsistencies and unintended consequences which should not be surprising, given the disarray in US foreign (energy) policy.
In the real world there are Government conspiracies, and there are also cock-ups the two possibilities being by no means mutually exclusive. The Iraq War perfectly exemplifies the cock-up scenario: multiple unintended outcomes adding up to fiasco, quagmire and a major loss of US international prestige.
Is the sharp increase in oil prices then, at least partly an example of such an unintended consequence of the US’s Iraq plan gone wrong? And if so, in what ways?
For some influential neo-conservative proponents of the Iraqi War, bringing about a collapse in the price of oil was the central motive.Their explicit purpose was to privatise the Iraqi oil sector as part of a wider plan to turn the economic system of ‘American Iraq’ into a Middle East bridgehead for extreme neo-liberalism. That this was masked as ‘building democracy’ is especially ironic given that not even consultation was involved, let alone the approval of any Iraqi Government.
In this scenario, collapsing the price of oil would be achieved by rapidly expanding Iraq’s oil capacity from 2 million barrels a day (Mb/d) to 6+Mb/d. Supposedly as rashly promised by then Deputy Defense Secretary Paul Wolfowitz this would enable Iraq’s ‘transformation’ to be self-financing. In this impossible dream, as a new dominant major oil producer, Iraq would tend to sideline Saudi Arabia; some of whose citizens, unlike Iraqis, were actually implicated in 9/11.
An intended consequence was to ‘break’ OPEC by reducing the oil price and oil revenues of its Middle East member-States. To the IOCs, the implicit bait (implausible as it might seem) was that, in this hypothetically neo-liberalised Middle East, the IOCs could then gain re-entry to the low-cost drilling regions of OPEC-Middle East. This was precisely the dream held out by Cheney (then Halliburton CEO) in his 1999 speech to the Institute of Petroleum and, as Vice-President, in his 2001 top secret discussions with IOCs.
Unsurprisingly, no Iraqi constituency could be found for privatising its National Oil Company or for turning control of this precious national asset over to a committee of foreign oil interests. By 2007, a single Iraqi Government-owned NOC remains an entrenched principle in the Hydrocarbon Law passed by the Iraq Parliament in February.
However, Iraqi militias have also been sabotaging production capacity and pipelines and, hence, this US grand plan. More recently, civilian bloodshed has led to mass emigration of Iraq’s own oil experts and inhibits their replacement by foreigners. After four years, Iraqi oil production has scarcely regained pre-2003 levels of around 2 Mb/d let alone the 6+Mb/d of the neo-cons’ dreams.
Meanwhile, among the major IOCs, this ideological, neo-con plan to collapse oil prices was causing major consternation. Ever since their effective expulsion from the Middle East in the 1970s, the IOCs have largely been confined to exploring and producing in high-cost regions of the world (North Sea, Arctic, Mexican Gulf, off-shore Africa, Central Asia). A collapse in the price of oil would seriously damage their profits and disrupt their investment plans.
Consistent with this corporate interest and based on the history of US interventions and other instabilities in the Middle East, a sharp increase in price was all-too-predictable. But what the IOCs failed to predict (along with the fiasco) was the open-endedness of this price shock.
This has been due not only to unrelenting demand for oil from the US and especially from booming China, it also reflects a range of political obstacles to increased supply including Iraq’s continued instability.
Tragically for the IOCs, a high oil price has not been self-correcting and the continued political instability associated with that price has proved anathema for an industry with long investment lead-times.
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