The 21st Century Oil Wars 

An IDC Analysis


New Delhi, 01 February 2004

Most of us may think the first two wars of the 21st century –– in Afghanistan and Iraq –– were triggered by the terrorist attack in USA on 11 Sep and the alleged possession of WMDs by Iraq. But a deeper examination reveals that these obvious reasons were more of an excuse; the real cause was the American desire for unfettered control over the Middle East oil. Iraq's 112 billion barrels of proven oil reserves, for example, are the world's second-largest, exceeded only by Saudi Arabia's 261 billion barrels.

Conservatively valued at $25 per barrel, Iraq's oil reserves would be worth $2.8 trillion, or nearly $120,000 per person. US proven oil reserves, by way of comparison, total 22 billion barrels, less than one-fifth of Iraq's. Iraq also has 110 trillion cubic feet of proven natural gas reserves, whose worth is estimated to be another trillion dollars, or more than $40,000 per capita. Despite a revolution in oil-exploration methods that occurred during the last two decades of 20th century, Iraq, for reasons known to Saddam, still remains about 90 percent unexplored. Iraq's vast Western Desert region, for example, possibly contains as much as 100 billion barrels of oil in deep formations.

With relations between Saudi Arabia and USA on down-slide, especially after 9/11, and Iran continuing to be pronouncedly anti-American –– Iraq became the only place for the USA to wrest strategic control over Middle East oil. WMD were used as a provocation though the US decision makers were well aware of their nonexistence and they are now slowly admitting it, David Kay and Lord Hutton notwithstanding. Saddam, his Baathist officials and their supporters in Iraq knew this truth. And that is the reason why their (insurgents to the Americans) actions now are more in by way of sabotage and damage to oil pipelines and installations.

Another reason that egged the US to remove Saddam were his intentions to invite French and Russians oil companies to modernise and improve oil exploration and production, after the UN sanctions were lifted. This is borne out by developments in Russia where president Putin lost no time in putting behind bars the oil tycoon Khodorkovsky as soon as he got scent of the latter’s likelihood of making a deal with ExxonMobil thereby passing control over major Russian oil resource to Americans, but causing much annoyance to the US administration. Only the other day Collin Powel diplomatically expressed this during his visit to Moscow. But US policy makers know that Russia under Putin will be prepared to spite its nose to safeguard a strategic commodity like oil, which is the biggest foreign exchange earner.

All this and more has been succinctly elaborated by Youssef M Ibrahim, former Middle East bureau chief for the New York Times and energy editor of the Wall Street Journal in an article for The Daily Star. He is also the managing director of the Dubai-based Strategic Energy Investment Group, which assesses political risk in the Gulf and Middle East.

His views are reproduced below for the benefit of our readers:

“Oil and politics make an intoxicating cocktail addictive, but with deadly consequences. It has always been so. Just look at the events of the past three decades –– the rise of OPEC in the early 1970s and its spectacular initial success in setting global oil prices; the 1973 Arab oil embargo that shook Western economies to the core; last year’s US-led invasion of Iraq, a country that happens to possess the world’s second-largest oil reserves, after Saudi Arabia. Not to mention the oft repeated call by neoconservatives in America to “occupy” Arab oil countries.

Just a few weeks ago Russian oil tycoon Mikhail B. Khodorkovsky, head of the Yukos energy firm, was arrested when he “defied” a Kremlin directive by trying to sell a major stake of his firm to ExxonMobil.

To understand the meaning of the Kremlin’s move against Yukos, it is important to appreciate that ExxonMobil is one of the world’s two largest corporations, along with General Electric, and the biggest of all oil companies. It is therefore a major player in American politics. The bottom line in all these episodes is the same: Oil is the one strategic commodity of the world that governments, from superpowers to minor states, will never allow to be free of political control.

To be sure, there are still some naive people out there who think the invasion of Iraq had nothing to do with oil. It was all, they maintain, about weapons of mass destruction, which have yet to be found ­ and about building democracy. The US is progressively abandoning this project in its effort to get out of Iraq by June, the deadline officially announced by US President George W. Bush. To such people one can only say dream on.

Just before the invasion, neoconservative spokespersons, including Paul Wolfowitz and Richard Perle, were openly saying that one of its benefits would be to turn Iraq into a private US gasoline-pumping station, lowering oil prices and assuring America a substitute to an increasingly recalcitrant Saudi Arabia. The occupation of Iraq, have no doubt, was about oil.

Russia’s move against Khodorkovsky was similarly about the control of the country’s oil, and US attempts to bring about “regime changes” in places like Iran, as well as Washington’s toleration of vulgar dictators in various other oil producing countries, such as former President Suharto in Indonesia and Moammar Gadhafi in Libya, are all about ­ you guessed it –– oil. Why else would the US preach democracy in Latin America yet be gentle with Venezuela and Mexico, which are corrupt regimes, corrupt with oil, and similarly attempt to resume ties with Libya, which by any yardstick, is not a democracy, yet is also a major oil producer?

The neocons have been saying for years that the US was losing its 70-year-old hegemony over the Gulf’s oil. First it was through the nationalization of oil by its producers (OPEC), then because of the 1979 Iranian revolution which replaced America’s favorite Gulf ally, the late Shah Reza Pahlavi, with Ayatollah Khomeini, and finally because Saddam Hussain attempted to invade Kuwait in 1990 and then started inviting China, France and Russia to come in and explore for oil in Iraq. Saddam actually gave them contracts that would be activated the moment UN sanctions were to be lifted.

A similarly dramatic struggle for the control of oil is going on in Russia. President Vladimir Putin, a former KGB boss who takes no prisoners when it comes to national interests, moved swiftly to arrest Khodorkovsky after warning him not to play politics with Russia’s oil without checking with the Kremlin. When the defiant Russian tycoon, who thought he would be protected by making a deal with ExxonMobil, challenged Putin, he found himself behind bars facing charges of tax evasion, bribery and theft.

The most likely outcome here is that America will not lift a finger to protect Khodorovsky because Putin has made it clear to Washington that this is a red line, where the Kremlin differentiates between free capitalism and business on the one hand, and “strategic interests” on the other. The message is clear. Putin will ensure Mother Russia has control over its own oil production. Oil earns Russia its largest share of foreign currency and gives it power. It is important also to notice how much support the Russian leader enjoyed at home over the Khodorkovsky issue. If he expropriates the Khodorkovsky stake of about 40 percent this would make the Russian government a major shareholder in Yukos.

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