Since September 11, even their best friends – the American oil industry – have taken to calling Saudi Arabia the ‘Kernel of Evil’. It doesn’t take an Einstein to recognise why Iraq is suddenly so important. A unilateral Saudi cut of even a few million barrels a day now – or the total overthrow of the government by extremist Muslim students and clerics, a revolution of the kind many current Bushies experienced up close in the friendly oil pump of Iran back in 1979 – would be globally, economically catastrophic.
Webdiarist Hamish Tweedy asked me a while ago to explain what I meant by ‘control’ of Iraq’s oil. I started with a few paragraphs about production rate manipulation and the irrational amplifying effect of oil marketplace paranoia since 1973. Then I started reading more deeply into the oilier Bushies, and before I knew it I had a major X-Files thesis on my hands, in danger of paranoia-overspeed myself. When you start to doubt that the Bilderberg Group really is just a bunch of rich guys who happen to get together once a year for a bit of harmless fun, you know you’re in serious need of spiritual guidance.
There is no doubt that the Bush oil men are mostly obnoxious berks who operate fast and loose commercially and who clearly don’t give a hoot about Middle Eastern and Caspian Sea Basin democracy, Human Rights, WMD or terrorism sponsorship, except as it might effect their oil operations. But as I’ve argued before, the way in which this invasion and occupation of Iraq is ‘all about oil’ is no Big Oil conspiracy. In fact, as this invasion looms, many Big Oil players are even growing anxious; having spent so much time and money championing the Bushies, it’s now as if they can’t quite believe, at this late hour, what kind of grand, crazy oil misadventure they have actually helped set in motion – not that it is stopping them from jostling and clawing for the best of the commercial spoils.
But the truth is this global oil-energy crunch was always going to happen; in the end, it simply comes down to the runaway freight-train of Western globalisation, the awkward matter of who owns the oil that is fuelling its charge, and how the irresistible force of the former has now come hard against the immovable object of the latter.
The people involved are irrelevant, really. It’s the oil, and the global oil numbers, that matter. So I’ve largely ditched the Machiavellian side of the story except for some general observations about neo-conservative economics as a postscript. Sorry about the delay, Hamish, and the hideous length of this fairly dull reply. But a fairly dull reply is, alas, the only way to answer your question properly.
Here is why and how I think this invasion and occupation is about controil.
LET THE LIFEBLOOD OF THE GLOBALISING WORLD FLOW ‘FREE’
‘Whoever’s in power, the oil will flow.‘ Global Oil industry mantra
Oil is the most traded commodity on the planet in both volume and value. It is impossible to overestimate its importance to the globalised economy, in the same way that it is impossible to overestimate the importance of the English alphabet to the complete works of William Shakespeare. The global oil market is globalisation; industrialisation – ‘economic development’ – means little more than increased oil use. All markers of world economic health, as we in the West define it, stem from the state of the oil trade. Control it to a greater extent than anyone else, and the choice fruits of tomorrow’s crop are yours.
The Global Oil Marketplace
But there are two oil markets, in truth, and this is where the battle for ‘control’ of the world’s oil is fermented. The global oil marketplace is where the polite game is publicly played out; a commercial network of oil-producing countries, oil-using countries, production, exploration, support, refining and distribution companies, financing and trading enablers, regulatory bodies, analysts, commentators, research and development sectors, and consumers.
Although this marketplace is built upon regional and domestic marketplaces, the ubiquity and fungible nature of oil, the sophistication of information and transport networks, the break-down of some trade barriers and the multinational flavour of the major corporate players makes this marketplace truly a globalised one, albeit far from truly free. Oil and oil products are bought and sold daily, via thousands of trades on many different forums, in an ongoing and essentially worldwide auction. The biggest market forums are in New York, London and Singapore; the global oil trade is hellishly complex, but broadly, there are three key buying and selling arrangements.
Most oil changes hands via contracts – term bulk supply deals between producers and oil companies, suppliers, refiners, all combinations and permutations in between. Contracts differ, but payment is now invariably tied to the daily marketplace; while terms are agreed at time of contract, it’s by linkage to a fluctuating price marker, usually a crude benchmark spot price. Thus, all global oil exchange, the vast bulk of which is predictable in volume and rhythm, is exposed to short-term marketprice fluctuation. The oil may flow and flow, boy, but the price jigs about like a drunk at a hoedown; if you have the shootin’ irons to fire bullets at its feet, then you have a powerful economic lever at your disposal. This is why this invasion and occupation is ‘all about oil’.
Spot trading is the daily buying and selling of individual amounts of oil, and is what determines the marketplace price of oil. Theoretically, spot trading smooths out short-term imbalances in the underlying (real) oil market supply-and-demand equation; companies with a short-term excess of regional supply (relative to their own output market demand) sell it to those who have a short-term shortfall. Check out a website like http://www.platts.com to see the oil cargoes being traded daily.
There are also ‘merchant refineries’ who trade solely as third party middlemen in such transactions. Reduce global oil trade to an oil pump at one end and a gas station at the other, and spot trading should represent the station manager’s fine-tuning of bowser pressure according to where the cars are lining up. Spot trades are made for prompt delivery (real time), and also on a ‘forward’ basis; buying and selling of spot oil that will be available in the short future. The state of the marketplace spot price – rising, stable, falling – is supposedly an indication of the underlying (real oil market) supply-and-demand equation. Sometimes it is.
Futures trading is a purely financial mechanism via which oil marketplace whizzkids can take a lot of the risk out of the oil trade, and/or speculate profitably from it. Buyers and sellers make 1,000 barrel+ oil deals up to eighteen months in advance; a futures trade is an agreement to exchange a certain amount of a certain oil product at a certain time and place for a certain price, although the deals are rarely actually effected, just continually on-traded. Using this mechanism, though, real oil traders can lock in a futures deal profit-loss hedge to offset loss-profit against the oil they buy on a contractual or spot basis, as a way of minimising exposure in volatile times, and making their financing more predictable. The futures market has become another supposedly important indicator of underlying (real) oil market trends. And sometimes it is.
Key oil marketplace spot price benchmarks are Brent Crude (European markets); West Texas Intermediate (sweet light crude, American markets); and Dubai Crude (Eurasian and Asian markets). Another important price indicator is the OPEC Basket Price, an average of seven OPEC crude spot market prices, which that organization supposedly uses to determine production policy. And sometimes they do. OPEC’s aim is to maintain basket price a $22 – $28 per barrel. It’s hovered well above $30 for some time now.
Until recently, the trading price was not marketplace-determined as such, but ‘posted’ (quite literally on a noticeboard at the well-head in the early days) by oil companies, and later OPEC. Now spot price is king, but it’s still not truly market-determined; the price of oil has always been controlled, and we’ve always paid far too much to the producers and suppliers, relatively too little to the refiners and retailers, and generally almost nothing to the proper owners. The oil marketplace is not really a commodity marketplace. It’s more like a speculative one. Except that there’s no risk at all if you have a big enough stake in it.
The Underlying Oil Market
This is the underlying global oil equation, the ‘rational’ one where over time supply-and-demand principles should apply. Sometimes they even do.
Global Oil Supply: The crude oil pumped from the ground by the oil-producing countries on a daily basis, plus existing oil stocks worldwide (see below).
Global Oil Demand: The crude oil used by the world on a daily basis for refined products: engine fuels, heating oils, lubricants, and feedstock for chemicals, construction materials, dyes, paints, industrial catalysts, all the synthetics, plastics, and general muck.
Global Oil Stocks: The crude oil that exists at any given time in the refining, transport, storage and reserve movement chain, and which, with spot trading, helps in smoothing the oil market supply-and-demand pressures. Oil stocks rise and fall, especially seasonally, but are estimated at up to 7-8 billion barrels of oil at any given time. Most is held in commercial storage, only some is discretionary (ie it can easily take up the slack), and some, as in the US and Japan, is held in official government strategic reserves. This last is the ‘backs-to-the-wall’ public oil weapon net importers now have to combat the oil-producers’ production weapon. The International Energy Agency (see below) states that its member countries now hold about 4 billion barrels in oil stocks (public and commercial), or about 115 days of IAE country net imports.
US Public Stocks: The US Strategic Petroleum Reserve salt-domes currently hold 599.3 million barrels, the most ever. In November 2001, President Bush directed the SPR to begin filling to maximum capacity, which is 700 million barrels. It’s arguable that at this point America had already decided to invade and occupy Iraq. The current level represents 53 days inventory import protection. With commercial stocks (which are now at a long-term low), total US import protection is still currently about 150 days.
Some extra-marketplace players
OPEC: Organisation of Petroleum Exporting Countries, an oil cartel founded in 1960 and headquartered in Vienna, now consisting of Saudi Arabia, Iran, Iraq, Kuwait, United Arab Emirates, Venezuela, Qatar, Nigeria, Indonesia, Libya and Algeria. It aims to co-ordinate action to safeguard joint and individual member advantage, including oil revenues, market share and price stability, and OPEC power.
OAPEC: Organisation of Arab Petroleum Exporting Countries: Algeria, Bahrain, Egypt, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, Syria, Tunisia and United Arab Emirates. More of a squabble forum than a useful cartel up to now.
OPEC Plus: An informal description used to note recent decisions of non-OPEC producers like Mexico, Norway, Russia and Oman to participate in OPEC-led production cuts, to counter enduring low prices following the Asian economic collapses of the mid-nineties.
IEA: International Energy Agency, a twenty-six member anti-cartel energy organization formed by the OECD in 1974, and based in Paris, to safeguard the energy interests of members. In particular, each member maintains minimum crude oil stocks equivalent to 90 days’ imports (based on previous year’s import rate), and agrees to mutual ‘oil shock’ relief activity in direct embargo supply crises. Australia is a member.
How the two oil markets interact
You can, I think, summarise this in the same way that William Goldman once described the art of screenwriting: ‘Nobody knows anything.’ Some general comments can be made, though. Most importantly, oil is a price-volatile commodity. This is a reflection of several things, including the near-monopoly nature of oil production, the profound artificiality of oil price, the paranoia of the oil marketplace since 1973, and the symbiotic and thus unpredictable nature of the underlying oil use supply-and-demand rhythms.
Oil, more and more quickly than any commodity, reshapes its own marketplace, way beyond the mere reactive correcting of imbalances: expanded oil use itself creates expanded oil use, and vice-versa. The time lag between marketplace price changes and underlying market supply-and-demand pressures is where all the economic fun arises. Balancing short-term oil profit an/or national revenue against long-term market maintenance and growth has always been a tricky affair, and since the chaos of the seventies and early eighties, achieving marketplace price stability has been impossible.
There are two interlocking components to ‘control’ of the oil market. Short-term control, still up for grabs, depends on the ability to control or influence marketplace price, and is now a matter of production power. Long-term control is a matter of total reserves and production expansion potential, and the ability to direct future investment and oil market growth.
Brief history of global oil price v. global market forces
Before 1973, the big global oil companies had always held the actual and psychological cards in the global oil pricing game. In the simple beginning, annual oil royalties were paid to governments or rulers for ownership, via concession, of the oil in their ground.
US, British and European companies invested in and developed foreign fields, and sold the oil they extracted, posting a price, a controlled one usually arising from some level of de-facto company cartel liaison. All were constantly guided by those oil market considerations of making profit versus expanding this new oil global market; production patches were staked out, and although there was some competition, especially between the Europeans and the US companies in the Middle East, as non-US production grew in ubiquity and market power, the internationalised companies – the so-called Seven Sisters (BP, Shell, Texaco, Exxon, Gulf, Socal and Mobil) – colluded increasingly well to keep price a matter of collective control.
These global giants had fallen into the box seat; when Eisenhower had to introduce import quotas to defend the US domestic industry, it was clear that Middle Eastern oil especially, cheap to produce and plentiful as it was, would be, in a global market sense, unbeatable.
Over the post-war years, producer-countries began demanding, and receiving, a cut of the growing downstream profits in addition to fixed royalties, but since the companies still ‘owned’ the oil through the concessions, and still had the upper hand in investment, technical development and expertise, they maintained strong control of contractual price mechanisms.
Mexico had tried to nationalise its industry as far back as 1938, and were promptly cut out of the nascent global marketplace by investment starvation. Venezuela and the Arab countries won major contractual improvements in 1948 (including introduction of the kind of 50-50 profit-share deals that American oil-bearing land owners took for granted).
Iran’s new socialist leader Mossadeq went too far: He had the hide to nationalise oil completely in 1951. The CIA flexed its new muscles and helped the briefly-exiled Shah regain control of the country, and thus the West its oil industry – which with the departure of the Anglo-Persian Company (later BP) had collapsed. America had a new, if temporary, Persian Gulf friend.
Through the fifties, global oil demand soared but was outpaced by rapid production expansion. The Gulf countries awarded more concessions, more oil flooded onto the market, and marketplace forces started to bring the price down independently of the global companies.
Since companies still posted prices – fixed ones upon which contracts with countries were based – but couldn’t control how many new concessions countries awarded (production), the downstream marketplace price fell, and it was the companies who began to bear the weight of the difference. In the late fifties, they began cutting posted prices dramatically, which obviously cut oil producing country profit-share revenue.
The consumer was flexing his muscles, and neither company nor producer-country wanted to cop the pain; some major latter ones responded to the cuts in post price by forming OPEC, in 1960, and coordinating aggressive posted price negotiations with the companies. At this stage, US domestic production was still import-protected and Russia was Russia, so as producers, both were peripheral to the global price control battle between countries and companies.
Still, throughout the sixties, since both demand and production capacity were ballooning, there was plenty of consumer dough around for everyone, and although bickering over contracts and posted price was a constant feature, things didn’t come to a head until the seventies. On the one hand, the countries controlled total production (through the ability to award new concessions); on the other, the companies still set posted price, and had to get oil onto the market profitably. So long as overall global supply (production) exceeded overall global demand (use), the downward marketplace price pressures meant producer-country oil market power and oil company oil market power’ were working appositely, cancelling each other out, which suited the fast-developing global economy and the average American Graffiti-esque consumer.
The companies wanted to keep posted prices lowish (closer to the true marketplace); the countries wanted them highish (maximising contractual profit share) but helped lower downstream marketplace price by increasing production/supply (with more new oilfields). This combination fuelled the explosive Western industrial growths of the post-war era. It’s also a reminder of why secured Western control of tomorrow’s oil price is so important.
However, the balance shifted in the seventies when booming global oil demand began outstripping supply, or production expansion rate – a kind of slingshot effect (sell a desert island one car and then flood it with enough cheap oil and investment dough to justify their own car factory, and next thing you know, everyone there wants your oil).
Downstream marketplace price now started to exceed posted (contractual) prices, and so the companies began to make money at the expense of the countries. That is, they’d pay fifty-percent of a low posted (contractual) price profit to the oil owners, and make fifty percent of a high marketplace price profit for themselves. Once again it was a bit like the early days of fixed royalty payments, when owner countries had been cut out of marketplace profits.
This is when a second round of oil industry nationalisations began, and by this time, the heavyweight countries had a) a far greater established global market share, b) the formal OPEC framework, and c) the inclination and excuses to introduce global politics explicitly into the global oil market, where it has remained ever since.
The 1973 oil embargo
The trigger for the 1973 oil shock was the Yom Kippur War, but the true causes were the underlying supply-and-demand imbalance and marketplace over-reaction. By the early seventies, the OPEC nations wanted a bigger piece of the high marketplace price action.
Libya’s new socialist leader Khaddafi gave everyone big ideas by demanding, and receiving from the companies his oil fields hosted, major improvements in his contracts (20 percent increase in fixed royalties and a ’55-45′ profit share arrangement). Other OPEC countries followed suit, and some began formally nationalising their industries, forcing agreements for gradual transfer of Western assets.
Then, as OPEC nations began to recognise their power as ‘swing-up’ producers in a tightening oil market – those who alone could expand production in response to global demand – some members began to urge it be exercised. For the first time, Saudi Arabia, the OPEC leader and key producer, traditionally US-friendly, grudgingly agreed to mix politics and oil.
When Nixon announced a big military aid package supporting Israel at the 1973 war’s outbreak, a lot of simmering tensions came to a head. Routine negotiations with companies over posted price broke down, and OPEC assumed unilateral control of it; in late 1973, OPEC lifted posted price from about $3.00 to $11.65. Production cuts followed , direct embargoes were imposed on Israel-friendly countries, inflation ballooned, and the world went into a deep recession.
This last point is the real one. The fierceness of the recession had less to do with the crisis aspects of the oil shock – the embargoes, the production cuts, and arguably even the unilateral price hikes in themselves – and more to do with the underlying oil market imbalance and the tight oil market, giving rise to gross over-reaction on the part of a charging, oil-fuelled world economy that had come to take the ever-flowing provision of more oil for granted.
It was the global economic heart attack that resulted not from ill-health, but more from a huge fright. There was an imbalance, yes, but no real, sudden ‘oil shortage crisis’ in terms of underlying supply-and-demand. What really happened in 1973 is that the OPEC nations unilaterally ‘took back the profit slack’ from the oil companies, scaring the daylights out of the cosy Western oil market, inspiring domestic economic policy desperation tactics, and sending investment running.
The newly oil-fuelled world economy demonstrated for the first time that if the global swing producers sneeze, everyone gets the flu even if there’s no bug actually going around. Including the swing producers themselves, as OPEC soon discovered.
The Iranian Revolution and the Iran-Iraq war
Between 1974 and 1979, oil price was relatively stable at around $13-$15 a barrel, as OPEC and non-OPEC countries nervously eyed each other off. OPEC had frozen posted price and lifted embargos quickly in early 1974, doubtless a bit alarmed by the power they suddenly realised they had over the world economy, and also recognising that prolonged global recession would hit them as much as anyone else.
What did happen as a result of 1973 was that non-OPEC countries began channelling big money into non-Middle East oil exploration and development. The IAE was formed as a defensive de-facto cartel. Populations in OPEC countries realised just how crucial was their oil, too, and began examining the relationships between companies and their own mostly corrupt rulers and musing over why shared national assets hadn’t translated into better lives for all. The Iranian Revolution of 1979 was an early, and to date, unique result.
The Shah’s Iran had, since 1953, been a reliable and West-friendly producer, and was by this time the world’s second-largest exporter. During the OPEC production cuts of the 1973 crisis, it actually increased production – nominally in protest against OPEC’s failure to take even stronger anti-Israel measures, but in effect easing the impact of production cuts.
But in 1979, Iranian students and clerics, following the lead of striking oil workers, kicked out the thoroughly disgusting Shah’s regal regime. The US embargoed Iranian oil in response to the hostage crisis; Iran responded by banning exports to any American company.
Soon after, secular Iraq invaded newly-theocratic Iran – just as alarmed by the Ayatollah as the US – and Iraqi production soon dropped radically, too. The net result was about 15 percent of the global supply being removed from the global equation. Posted OPEC price rises were even larger than in 1973 – opportunistically this time, that is, member countries taking advantage of these marketplace price-spooking events.
Saudi Arabia tried to hold the formal OPEC posted price down but other countries just kept lifting individual posted prices to cream dough from a scared global marketplace, so OPEC did too, eventually. The marketplace was paranoid enough to cop it sweet for a while; between 1979 and 1981, OPEC price was hiked to $34, and individual OPEC producers kept adding to that, selling their oil to companies for as much as $46 dollars a barrel.
By this time, though, new non-OPEC production was coming online – the North Sea, Alaska – so the ‘shock’, while far larger in price terms, was less damaging to the global economy, at least for the developed countries.
By late 1981, global (total) production power began to dominate OPEC’s posted price and the marketplace price fell; OPEC responded by cutting their production in an attempt to keep that price high. There was a global recession, but it was less dramatic, because the non-OPEC oil industry was ready for the second oil shock.
The major effect on the global oil market was to dramatically erode OPEC market share; as the marketplace dragged prices down determinedly, OPEC, rather than dropping posted price, just kept cutting production, in a futile attempt to defend their high posted price. They dropped from 27 million bpd in 1980 to 13.7 million bpd by 1985.
By the time the Saudis convinced everyone to cut OPEC’s posted price, it was too late; the world was awash in non-OPEC oil, global demand had fallen (The Greens, fuel-efficient cars, and natural gas were ‘in’), and nobody was buying theirs.
By 1985, Saudi production was as low as 2 million bpd – they’d agreed to act as ‘swing producer’ inside OPEC during this new price-control experiment by adjusting to meet agreed OPEC total production output. Still the global market price fell, and OPEC belatedly recognised that global production diversification made production control useless in what was effectively now a real supply-and-demand glut – a situation not helped by some OPEC producers also cheating on their agreed quotas.
With oil revenues low, and even non-OPEC producers dropping posted prices to chase the market, Saudi Arabia summarily linked to marketplace spot price, and increased production markedly to grab a share of (falling) global oil revenues huffily threatening a price war. The spot price duly plunged to about $10 a barrel.
It was clear that the oil market was now effectively fully globalised, and from then OPEC essentially became the world’s swing producer. Western car designers, bored with Jap midget cars and wussy engine size, doubtless began musing about SUVs way back then.
Where the second oil shock was really felt was in the poor developing countries. During the post-embargo seventies, the OPEC nations were awash with cash from the new high prices, and much of this was injected, via the international banks, as investment into the undeveloped Third World. These economies planned to expand domestic industry with the aim of paying back loans via subsequently-enhanced export capacity, as the developed economies had developed through the fifties and sixties, but part of the kindly developed world economy’s response to the second oil shock was towering interest rates. This plunged these fragile new domestic oil-economies smack into the disastrous Debt Crisis of the eighties.
Many countries like Mexico, which had effectively accepted the West’s invitation to join the oil-fuelled global economy, saw their early gains evaporate and their citizens temporarily-improved standards of living plunge. (Again, this is a key to grasping the importance of control of the oil marketplace to the future, and what might perhaps lie ahead for all these newly ‘globalising’ US-friendly Eastern Europeans, too. ‘Globalisation’ is just a nice word; it can’t control where hard-nosed global investors invest, how deeply, and at what price. Democracy, freedom and stability must come before commerce.)
An uneasy truce
Since the two shocks of the seventies, there has been an uneasy truce in the oil market wars. Direct price setting as a cartel tool is a thing of the past; now it is production control alone that gives OPEC whatever power it does or doesn’t have over the global marketplace price. Although OPEC has had neither the will nor the co-ordination to fully exploit this control so far, that the marketplace price remains as sensitive as ever to what goes on in its swing supply regions is a clear indication that the power is there.
During the first Gulf War, marketplace price spiked from $15 to nearly $40 dollars before Saudi Arabia’s decision to increase production by a 3 million bpd helped calm it quickly back below $20. More recently, an ill-judged OPEC quota increase in 1997 (2.5 million bpd) just after the Asian economic collapses, along with Iraq’s modest production return (initially under 1 million bpd) via the oil-for-food program, and two warm winters added to a glut, and the drastic fall in the global marketplace price (dropping it briefly under $10 by 1999).
In response to that, OPEC production cuts through 1998 (total 4.3 million bpd), helped marketplace price rise sharply to up to $30 by 2000 again. President Clinton releases 30 million barrels of oil from the SPR in 2000; in 2001, marketplace price falls radically again, supposedly due to a US recession and OPEC overproduction. The price dropped to $15 after the S11 attacks due to fears of a global economic downturn, and has now risen above $30, thanks at least partly to OPEC and OPEC-Plus production cuts in early 2002.
All prices above are nominal (dollars-of-the-day), so it’s hard to get a real handle on the last thirty years of fun, but the wacky and symbiotic relationship between oil price and inflation is part of the point. Deciphering how much oil really ‘costs’ an oil-growth economy at any given moment in a deregulated, oil-fuelled global-growth marketplace is profoundly meaningless. You pay whatever the highly unstable marketplace price says at any given moment, and everything else adjusts to that, and so we bounce along; that marketplace price instability is not remotely matched by underlying supply-and-demand instability, although the industry will invariably try to pretend it is.
Rather, it is a reflection of the inherently artificial price of oil as a tradable product, of its all-encompassing economic role as a ‘development commodity’, of marketplace corporate memories of the roller-coaster ride of the past, and of a nervous recognition on the part of the oil-using world that one day our mighty con trick on the people who really own the oil we all exploit is going to be thoroughly rumbled.
OPEC SWING PRODUCTION POWER – THE OIL MARKETPLACE BIG STICK
Since the 1970s non-OPEC producers and some OPEC ones have pumped oil at more or less maximum capacity. By this I mean that short-term flexibility has been limited. Over time and changing marketplace price and thus investment conditions, new fields can be found and opened, inefficient or uneconomic ones shut down, but there is little fat that can be used in an economic swing capacity outside of the Middle East. In fact, since what affects the globalised spot price is (perceptions of) net changes in global production, there is none, since Middle East production flexibility dwarfs all others and Saudi Arabian flexibility dwarfs OPEC.
OPEC quotas
Twice a year, and often more, OPEC meets to decide how much oil they are going to officially produce based on the prevailing marketplace spot prices. Their stated aim is basket price stability in a band $22 – $28; each country is allocated a quota designed to ensure a total OPEC output that will achieve the best on-going balance between market share and oil revenue.
OPEC has become more sophisticated since the 80s, but there are still price hawks and doves within OPEC; generally the smaller producers, especially those with large populations to feed (Nigeria, Venezuela) prefer high prices, while the bigger producers with small populations (Saudi, Kuwait) prefer lower prices, since this ensures a more stable market share in the longer term.
OPEC is far from united; bickering, stand-offs, and especially cheating by the smaller producers, is rife. Cheating – a cartel member selling more oil than it has agreed to to snaffle extra revenue – is strategically good for the non-OPEC producers though, since it erodes collective cartel power. (Quota cheating is why Saddam invaded Kuwait. Iraq, a big producer broke after the ten year war with Iran and desperately needing oil revenue to rebuild its economy and pay war debts, had never-the-less toed the OPEC quota line to help it recapture long-term market share lost in the eighties. Next door, however, Kuwait was grossly and provocatively exceeding its quotas, helping keep marketplace price down, which hit Iraq’s revenues further. Saddam complained repeatedly to OPEC and threatened invasion unless Kuwait ceased. They didn’t, and so he did. Saddam, as hateful as he is, is not, or at least was not then, an irrational leader. The Iran invasion was a serious misjudgement – although the US didn’t think so at the time – but the Kuwait invasion was a rational act, even arguably justified. Put it this way: If you regard America’s coming invasion of Iraq as a justified, rational act, then you should regard Saddam’s of Kuwait in the same light, since both will have been done for essentially the same underlying economic reason – protection of oil price control power. On issues like human rights and democracy there was little difference between Iraq and the dictatorial Kuwait that America so nobly rescued. And Iraq certainly has more historical claim to disputed, oil-rich Iraq-Kuwait border territory than America has to Kirkuk.)
Since the second oil shock, the non-OPEC crowd has naturally pushed for marketplace hegemony – long live the ‘free’ global market – except that this has now inevitably bought them up against their fundamental problem: They ultimately don’t have much natural market power. That is, they don’t have much bloody oil. Oops.
Current OPEC quotas: Algeria – 1.2 million bpd; Indonesia – 800, 000 bpd; Iran – 3.5 million bpd; Iraq – no quota (currently producing 2 million bpd under UN supervision); Kuwait – 2 million bpd; Libya – 1.3 million bpd; Nigeria – 2 million bpd; Qatar – 600, 000 bpd; Saudi Arabia – 8.5 million bpd; UAE – 2.1 million bpd; Venezuela – 2.8 million bpd. Total – 25.2 million bpd.
Saudi Arabia can probably produce up to 10-11 million bpd right now. Of the other significant countries, Nigeria and Venezuela are effectively ‘maximum’ producers. Iran and Iraq are chronically under-developed and investment-starved; they alone are the two countries with any potential to match Saudi’s production capacity and range, and probably only Iraq ever can.
Right now, only Saudi Arabia has the capacity to dramatically reduce global production as a matter of policy. Right now, they are the world’s singular swing producer. Right now, the oil marketplace is tight, and in a tight market the swing producer has enormous power. Of course, oil revenue, global politics, market-share and field health matters affect production policy. It’s not simply a matter of ‘turning off a tap’.
But since September 11, even their best friends – the American oil industry – have taken to calling Saudi Arabia the ‘Kernel of Evil’. It doesn’t take an Einstein to recognise why Iraq is suddenly so important. A unilateral Saudi cut of even a few million barrels a day now – or the total overthrow of the government by extremist Muslim students and clerics, a revolution of the kind many current Bushies experienced up close in the friendly oil pump of Iran back in 1979 – would be globally, economically catastrophic.
Oil industry analysts always underestimate non-economic factors. That mantra – whoever’s in power, the oil will flow – is an article of faith. They never explicitly predict strikes, wars, terrorism, revolutions or political upheavals. Many industry studies have been written on ‘resource wars’ and ‘supply dislocations and disruptions’, and what strikes you about them all is their deep, almost childlike, optimism that the oil will always flow.
It’s mostly because they can’t afford to think otherwise publicly, lest they send the marketplace price soaring. But everyone knows, and has known for a long time, that Saudi Arabia is a ticking time bomb. Unemployment is now high; for all its natural wealth, the domestic economy is a mess. The young men, of which there are very many, are angry, idle, deeply anti-Western and in awe of Osama bin Laden. The powerful Wahabbi clerics who control the country socially are all uncheerfully beserk. Some of the Saudi Royals, of which there are now 8,000 (nearly all of whom are suavely-repellent thugs), are also secret admirers of bin Laden, and active financial backers of Al-Qaeda.
The Saudi oil princes have lately been trying, and mostly failing, to attract private investment back into their regal oil franchise. That no-one in the West has wanted to go there is a shrewd market indication that the Big Oil men have been holding off, knowing that even mightier – and commercially safe – oil contracts await in Iraq. What sane Western investor would put money into Saudi infrastructure, when he’s known for nearly ten years that Iraq’s oil industry, so ripe for expansion, will need a whole lot of investment very soon, and that it will all be safe-guarded by American military might?
This global oil market production power showdown was always going to come. American oil industry leaders – George W. Bush’s dad especially – have spent lifetimes cultivating the increasingly-vulnerable Saudi Arabian Royals. American Oil has bribed them, flattered them, divided-and-ruled them, ‘educated’ them in the attractive ways of the West, threatened them, grown rich from and with them, protected them and lately, tolerated them.
As in any mutually-beneficial but fundamentally-dishonest commercial relationship that has long past its use-by date, American Oil and Saudi Arabian Royalty now thoroughly hate each others’ guts. Since September 11, all the past tactics have at last been ditched. When George W. Bush talks about military action as the ‘last resort’ in the struggle for disarmament he’s not talking about Iraq’s WMD, he’s talking about the Saudi Arabian oil market weapon.
HOW DID WE GET OURSELVES INTO THIS MESS?
It is impossible to assess the real, the underlying state of the oil supply-and-demand balance at any given time. Figures are notoriously slippery. OPEC producers cheat on their official output quotas and fib about production totals. Non-OPEC producers and users also blur their numbers. Drilling companies trumpet high new field production rates and downgrade them in a mumble later. Governments obfuscate national demand statistics for security and political reasons. Commercial suppliers constantly balance transport costs and stocks storage costs and refinery costs against spot price changes; drawn-down stocks can reflect not just (or even) higher underlying ‘demand’, but also (or simply) a desire to on-sell last yesterday’s cheaply-purchased oil at today’s higher prices. The industry tells lies about why prices are high as a matter of course. US commercial stocks are currently drawn way down! There’s a bad winter! The Venezuelan strikes! Middle Eastern tension! The underlying market is ‘tight’! Demand is ‘high’!
But is it really? Are you using more petrol? Can a winter be so unexpectedly bad? Of course not. And there’s still supposedly eight billion barrels of oil floating around the planet somewhere, and probably more. Even an instant production cut of 10 million bpd is not going to grind the world’s engines to a catastrophic halt; just the world’s thoroughly-artificial ‘oil-economy’. This is the nub of it; though consumers always pay the price, it’s not you and I who rush to fill our swimming pools with petrol every time OPEC looks like sneezing, not you and I who risk giving the global economy triple pneumonia – it’s the oil marketplace. It’s been paranoid since 1973, and who knows, maybe the paranoia is justified this time.
Meanwhile, the real oil market insiders – industry leaders, financiers, Oil Ministers, some Heads of State, diplomats, dictators, assorted oil mercenaries – who do know what is going on play very close hands. Industry annual reports, new market growth rates, oilfield analyses, data collations and hard-eyed studies cost thousands of dollars. The last thing the oil industry wants is for politicians and punters to get at the inside numbers in real time. So how much oil do we daily use, or need, or globally, economically depend upon? How sensitive to those piddly supply hiccups should price really be? Is it the West’s fault for using ‘too much oil’? Is it the Yanks’, with their big guzzling SUVs? The answer to the last three questions are: not very sensitive at all; not really (not yet), and not at all.
Global Demand Big Picture
Oil demand 2002: According to the IEA, global oil use in 2002 averaged 76.4 million barrels per day (bpd).
Projected demand 2003: This is projected to rise to 77.6 million bpd in 2003. Projected major single country user will be the US, at 20.2 million bpd.
Projected long-term demand: The IEA forecasts global oil use to rise to 94.8 million bpd by 2010, and 111.5 million bpd by 2020. Most growth will be in developing economies: China, the sub-continent, Asia, Eastern Europe. If the West gets its way, maybe in reverse.
Major net importers: The US is still overwhelmingly the largest net single importer of oil in the world, importing twice as much as the next largest importer (Japan) in the first quarter of last year. Major import supply regions for the US in 2002 were (approx): Middle East (25%), Central and South America (22%), Canada (15%), Mexico (12.4%), Africa (14.4%). (NB: In 1995, US imports from the Middle East were about 17% of the total imports.) Other major net oil importers for Q1 2002 were Japan, Germany, Korea, France, Italy, Spain, China, India and the Netherlands.
Global Supply/Production Big Picture
Supply 2002
The top twelve producers in 2002 were (million bpd, 11-month average): Saudi Arabia (7.6), Russia (7.4), US (5.8), North Sea Offshore (5.7), Iran (3.4), China (3.4), Mexico (3.1), Norway (3), Venezuela (2.8), UK (2.3), Canada (2.1) and Nigeria (2.1). Under the food-for-oil program, Iraq produced 1.4-2.0 million bpd. Despite being the third largest producer for 2002, the US was still the highest net importer.
Puts those production output changes into perspective, doesn’t it. Given the amount of oil reserves and oil stocks the world retains, it’s absurd that ‘production’ is such a big stick. Blame the oil marketplace for its brain-dead stupidity. But then the ‘market’ is never wrong, is it. Just very jumpy, and this year, it has reasons to be especially so.
Supply 2003
Here’s some production factors to consider for 2003. Firstly, Venezuelan production dropped away to almost nothing in late 2002, and while Chavez’s government is now claiming that production is up to over 2 million bpd again, the main oil strike is still in fact in progress and the key oil union leader has said that true production is closer to 1 million bpd. Most agree that production won’t be fully restored (to around 3 million bpd) for four or five months.
Secondly, the Iraq invasion will likely shut down all production in Iraq again, quite possibly for years if Saddam goes apocalyptic, in which case he might even take down other Middle East production capacity, too.
Thirdly, there is also a sensitive oil strike situation simmering away in Nigeria.
Fourth, in 2001 the Trans-Alaska pipeline (1 million bpd flow) was shut down for over two days by a single bullet-hole, which doubtless will have given terrorists ideas if they hadn’t already had them.
Finally, there are many Muslim regions important to global oil supply which may respond disastrously to the Iraq invasion, including Aceh, North Africa, Chechnya and other Caspian Sea Basin areas.
Supply projections mid-term
Mid-term and beyond it’s a bit more meaningful to talk about production in actual supply-and-demand terms. The North Sea and US capacities will soon decline sharply, and new non-Middle East field expansion remains a very expensive proposition. And while the Saudis greatly increased short-term production (+ 3 million bpd) during the first Gulf War to settle down the marketplace price and have recently declared they will lift production by up to 1.5 million bpd this time if necessary, it is foolish, given the post-S11 climate and the unambiguous challenge to their oil market power that this Iraq invasion and occupation represents to expect lasting generosity in the future. If the US invasion runs into disaster – say the Iraqi oilfields are torched – why should they keep oil prices low solely to help a deadly-serious, future marketplace challenger become economically viable? Skyrocketing global oil prices during a chaotic, prolonged and militarily-unstable US-Iraqi economic reconstruction effort would be crippling.
True, OPEC has very recently raised production as a response to the Venezuelan problem, but this is as much to take advantage of the high prices they know will be sustained until the Iraq crisis is resolved as any attempt to bring the price down. The Saudis are playing very close cards now, and it’s simply daft to assume co-operation in the event of the Iraq operation going badly wrong in the longer term.
Some analysts are suggesting a possible glut (and fast-falling prices) later this year and next year, with the invasion going swimmingly and Iraq coming back online, Chavez and the Venezuelan masses kissing and making up, and Saudi Arabia reprising Gulf One, blah blah blah. One has to say: ‘Well, they would pretend that, wouldn’t they?’
The real oil market truth is that the world is entering a period of unprecedented production instability and everyone is secretly shitting bricks. Big Oil is now in fact alarmed, realising that the nuttier ‘Manifest Destiny’ Bushies they helped put in the White House are actually going to do this. Be careful, as they say, what what you casually wish for.
Supply projections long-term
Here we enter the realm of fantasy, hype, wishful-thinking, guesswork and, for the non-Middle Eastern countries, harsh, ugly reality. An IEA broad projection in 1996 predicted that the total world supply capacity would develop thus (mbpd): 1996 (62.7), 2010 (79), then a drop by 2020 (72.2). The break-up they suggested is more relevant: Middle East OPEC producers – 1996 (17.2), 2010 (40.9), 2020 (45.2), while for the Rest of the World (which includes OPEC producers Venezuela, Nigeria, Mexico, Libya, Algeria, and Indonesia and major non-OPEC producers America, Canada, Russia, the FSU and the North Sea) – 1996 (45.5), 2010 (38), 2020 (27). The relative picture is crystal-clear: Everyone knows, and has known for decades, that the Gulf is where tomorrow’s oil market power will lie.
If you can’t control directly or influence with rock-solid reliability a significant wedge of Gulf production, you’re at the mercy of those who can. September 11 – perhaps more precisely, the Bushies’ superheated rhetoric since – effectively ensured that only a strong physical presence in the Gulf could in future guarantee this for the West.
WHO OWNS THE WORLD’S OIL AGAIN?
Short-term or long-term, it all comes down, as it always should have, to where god buried all those dead dinosaurs in the first place. It wasn’t in our back yard, it wasn’t in the North Sea, it wasn’t in Alaska, and it wasn’t in the fine state of Texas. It wasn’t even really in the sunken treasure chests of the Caspian Sea Basin, as Dicks Cheney, Armitage, Perle and their sundry oily friends discovered over the wilderness Clintonian years, a frustrating decade spent making grand oily plans with the various ex-Politburo thugs who now run the former Soviet Republics, generally with brutal iron fists that make Saddam’s look soft.
Listening to Cheney speak so nobly of democracy and human rights for Iraq lately, his old Azerbaijan mate Heydar Aliyev must be laughing fit to bust. Perle’s stern calls for the West to smash states that sponsor Islamic terrorism must make the Chechnyan rebels he once called on the West to back (against ‘Russian neo-Imperialism’), smile wryly. And hearing George W. Bush wax unlyrical about Iraq’s puny WMD will doubtless raise an oily smirk from whoever in the former Soviet Union is sitting on the large number of Soviet nukes that no-one can quite account for.
Nope, god put all the serious oil in the Persian Gulf. That’s why the West is setting out to steal some real estate there, at last.
Proven reserves – oil that has been located and hasn’t been sucked up yet
There are endless nuances – possibles, probables, shades of recoverability – which tend to bounce these numbers around a bit. Exploration innovations, improved drilling techniques and investment climates do too (you can extract a barrel of oil from most places if you spend enough money to do so).
The whole world has about one trillion barrels of proven reserves. This estimate has been stable since the eighties; what we’ve extracted has been roughly matched by amended proved estimates and new discoveries. The following numbers are not a bad break-down:
Main OPEC: Saudi Arabia (260 billion barrels), Iraq (112 billion), Kuwait (95 billion), United Arab Emirates (95 billion), Iran (92 billion), Venezuela (66 billion).
Of note, again, about Saudi Arabia, Iraq and to a lesser degree Iran is that all three have potential for further discoveries. Exploration in Iran and Iraq has been neglected for nearly two decades, hampered by war and Western sanction. Most industry analysts don’t reject Iraqi claims that at least another 100-200 billion barrels exist in the undeveloped Western Deserts of the country. Saudi Arabia might have as much as a trillion barrels of reserves in its own right, but Iraq might have even more than that. The other factors are that Gulf crude is by far the cheapest to extract ($1-2 a barrel), and generally of high quality.
Main non-OPEC: Caspian Basin (60-‘200’ billion barrels), Russia (49 – 90? billion), Mexico (27 billion), China (24? billion), America (23 billion), Kazakhstan (14+ billion), Norway (10 billion).
Many of these non-Middle East fields are expensive (off-shore oil costs $13-$20 a barrel to extract), and/or poor quality, and/or in politically unstable areas, and/or above all else, running down fast. Other fields – in Asia, Africa and Latin America, the Arctic Circle, the West African deepwater reserves – can show all the promise they like, but future oil market power keeps coming back to size, efficiency of production, and potential for cheap expansion.
There’s simply no way around it: In a matter of years, no non-Gulf producer can hope to compete with whoever controls production in the five major Gulf producers, and especially in Saudi Arabia, Iran and Iraq, where the biggest growth of all awaits. (See http://www.eia.doe.gov/pub/oil-gas/petroleum/analysis-publications/oil-market-basics/Sup-image-Reserves.htm.)
SUMMARY – THE STRATEGIC STAKES ARE HIGH
Why does Iraq’s oil matter so much to tomorrow’s global economy? And if it does, why don’t the Americans simply do oil deals with Saddam? Why risk radical disruption to the global supply equation now, in the post-S11 terrorist climate, of all times?
The answers are:
a) It shouldn’t, but that’s the way the oil market has set itself up. Because it’s always been a protected global marketplace, short-term production changes – marketplace supply-and-demand perceptions – count. Iraq and Iran have the only potential to match future Saudi Arabian production scale and flexibility, and successful invasion and occupation of Iran is unthinkable, un-doable, and un-sellable (for now).
b) Access to another country’s oil reserves means nothing in a globalised marketplace; effective control of significant production is what matters, because that means at least some continued artificial control over price, and that in turn means control over the world’s future globalisation patterns – where the big investment bucks go, what political disposition and strategic stance that economic development fosters, who becomes friends with whom. (Look at the US-Turkey fancy-dancing going on at the moment, for God’s sake.)
Russia is trying hard to get its relationships with the Former Soviet Union Republics stabilised; Pakistan is globalising; above all else, China is stirring industrially. These countries are far better naturally placed to develop effective, sustainable global oil market relationships with the Gulf producers in the future. Not just for geographical reasons – Eurasia is the future centre-of-gravity of the world – but also because most Middle East populations are increasingly estranged from what they see as the fat, greedy, exploiting and globally peripheral West.
c) This unique strategic window of opportunity in the Persian Gulf won’t stay open forever. Saddam opened it ten years ago by invading Kuwait, but Osama bin Laden has now almost closed it.
What price controil of our childrens’ tomorrow?
The heart-breaking tragedy is that it would be far easier, far more moral, and above all else far less doomed to failure for the West to secure our oil-market relationships with the Gulf in an altogether different, more controllable way. What we are probably about to do is deal ourselves out of the globalisation future, not retain our place in the gentle lead.
My objection to this invasion and occupation is based not simply on the obvious fact that it is all about oil; rather, that it is all about oil in the worst possible way – violent, self-defeating conquest – and in the hands of the worst possible leaders.
An essential truth: Crude oil is now the ultimate price-controlled and controlling product. Its market ubiquity and worth is based entirely on refined (and indeed non-oil) products, and yet all the big industry profits lie at the production end, which, once your field is yielding, is laughably cheap and easy in comparison to distilling petrol or designing and producing a big, sexy SUV.
Of itself, crude oil is almost useless; you can theoretically burn it for warmth and light – the Egyptians did – but its true saleability lies in the ubiquity and thirst of the downstream applications. What’s more both supply and demand are effectively limitless until we run out of oil. You can just keep drilling wells, if you’ve got the oil to begin with. (OPEC reckons they can produce at current rates for another 80 years.) Crude oil use itself generates increased crude oil use, and most agreeably for the lucky crude oil producers, there is no limit to how much that use can increase. Until we run out of oil.
The true product ultimately consumed is oil-energy – whether directly, or that oil-energy inherent in other products, which means everything that we in the developed economies now consume.
‘Consuming oil-energy’ doesn’t just mean driving a car, heating a home, using electricity or buying a plastic toy. We consume oil-energy when we read a book, go to school, debate democratically in Parliament, read Webdiary, argue over Iraq and lie naked in a grassy field protesting war.
It’s all time and human energy we’re not having to spend hunting, collecting or growing food, finding water or making shelters. In our era, all that spare time and human energy – that freedom – is created by oil-energy.
And while the resulting freedom has been almost all ours to burn in the West, the underlying oil-energy has itself been provided by someone else. We’ve enjoyed the freedom enormously, and good luck to us, but we just haven’t taken enough care to make sure those someone elses got some freedom in return, too. Spare time and human energy with which to develop, for their kids, the same levels of dignity and comfort that we can now give to ours.
This is the critical abstract concept to grasp, since the most important benefit of control of the oil marketplace is, always has been, and will remain, the capacity to control just how, and with whom, the spoils of the world’s always developing, ever-globalising oil-economy are shared around.
We can use our oil-energy freedom to design and market ourselves another electrically-warmed toilet seat, or we can use it help ensure that Saudi Arabian children get to read books other than religious ones which teach them to kill Jews and Christians.
We can design ourselves a spiffing new SUV, or we can build another 100 old-fashioned water purification plants in Nigeria.
I can watch my cricketing heroes play in the World Cup on a snazzy, oil-energy-guzzling plasma TV, or I can choose to listen to the game on a cheap radio instead, so that maybe some young Pakistani hothead will get the chance to do the same. If that happens tomorrow, maybe I’ll enjoy the game more without having to listen to the drivel of the Channel Nine commentators anyway, while maybe he’ll be inspired enough by a Saeed Anwar century to put down his box-cutter and pick up a cricket bat instead.
It all depends on the global price of eggs. Sorry, oil. Rupert Murdoch reckons it should be about twenty bucks a barrel. Osama bin Laden, on the other hand, has said he’d like to see it soar to $144. Only time, and the way we choose to controil globalisation after this invasion and occupation of Iraq – which is all about oil – will tell.
***
Postscript – the Bushies, AKA Thatcher’s Ordinary Men
Oh yes. Our global oil-economy’s current glorious leadership. I nearly forgot.
The Yanks rediscovered oil in Pennsylvania in 1859. They first figured out how best to exploit it, first invented machines that used it, first put it to mass-production work, first started buying and selling it in meaningful quantities. So obviously they created the first domestic production and marketing environment, too.
And after 1911, when the Standard Oil monopoly was busted up, it wasn’t a bad one for an oilman with big ideas and loads of drive. The American domestic industry (biggest producer in the world and a net exporter for yonks) was competitive, diversified, tough, feisty, fertile, and for a fair while, a pretty level playing field.
It was also based on a genuine recognition of the landowner’s ongoing ownership of the oil in his patch of dirt. Unlike the early days of foreign production, that landowner was dealt into the market profit equation by way of a company oil lease, rather than being annually bought out of the market action via a concession. A large wad of cash upfront always looks attractive if you don’t know what sort of goldmine you’re actually sitting on, I s’pose. But even the most Beverly Hillbilly Yank – America uniquely being a nation nurtured on the brilliant triple-whammy of individual aspiration, market capitalism and democratic freedom – was too shrewd and free to be stiffed out of the untapped oil profits he was lucky enough to own.
Even today, when the bigger oil boys have long since clubbed together, there remains hundreds of thousands of individual stripper wells and well groups throughout America – small but still-going concerns pumping marginal quantities of oil which together account for up to 30% percent of US production. Their romantic histories often make them touchstone political issues in the oil-rich states, and they’re usually now heavily-subsidised in some way, eking out their profits when the global price of oil allows it, shutting down temporarily when the climate becomes impossible. They are the local corner shops of the multinational oil supermarket industry, and such creatures exist nowhere else in the world, nor should they still exist in America, either, because a truly free global oil market wouldn’t let them. Yet it was (and in certain ways still is) exactly this highly autonomous have a go domestic market fertility which fermented, sustained and provided the launch pad for the export of all the technical, theoretical, support-industry, capital-procurement and ‘visionary’ elan that has subsequently produced such a rigidly-controlled global market.
As is so often the case with exported American genius and vision, what’s good in practice for them at home is merely what’s good in theory for the rest of us abroad. A similar process is observable in the way the US computer/software industry began as a fast-and-frisky ‘merit product’ industry, and yet became the slothful Microsoft behemoth it now is in its global maturity.
Steel. Farming. Energy. Weapons. So many American industries are moribund, wasteful, cosseted, retrograde, taxpayer-sustained market slugs at home – and still dominate abroad by sheer size and global market power alone.
This year Congress will approve $15 billion to combat AIDS overseas, and probably $150+ billion to wage war there, effectively subsiding the artificially-sustained American arms industry still more. Is it any wonder globalisation isn’t working out very nicely, when the American – the Western – people have so little control over how our wealth and genius for innovation is directed? If Bush put that $150 billion into the hydrogen car, instead – in the way that JFK put serious money into reaching the moon – I reckon we’d have one in two years.
But this is the fundamental and unsustainable self-contradiction at the heart of ‘competitive’, ‘global’, ‘free’ market economics: Once healthy and fertile open competition has selected its early winners, those winners crush all future healthy and fertile open market competition.
The people of the world – we consumers – have shown recently that we just don’t want all that Western money invested in war, in weapons, in exported death. We as a ‘global market’ simply don’t ‘demand’ it. Nor, increasingly, does the Greening West ‘demand’ loads more dough be invested into the further expansion of the world’s oil-economy. (Invent a cheap hydrogen car, instead, Exxon – we’ll BUY IT, and so will the Chinese, too, in their billions.)
We only still use so much oil-energy in the West because we have no free market choice, and we have no choice because the Western-led oil market remains so ruthlessly self-protecting. The period of artificial competition’in the global oil market since the oil crises of the seventies, which created ‘competitive’ non-Middle East producers like Canada and the North Sea, is proof.
There is only one possible way to be a truly competitive producer in the global oil marketplace now, and that is to be Saudi Arabia, Iran, Iraq, perhaps Kuwait or the UAE. This invasion represents little more than the next ratcheting-up of the means of artificial protection by which open oil-energy market competition is crushed.
What America, inventor of the global oil market, is about to do to Iraq would be akin to Pennsylvania, driller of the first US oil well, summarily invading and occupying Texas. You can imagine how the Bushies would feel about that.
The oil and oil-energy men in Bush’s team are steeped in the history of the global oil market. George W. Bush and Dick Cheney and Condoleeza Rice and Clay Johnson and Don Evans and James Baker and Steve Ledbetter and Bill Gammel and Jack C. Vaughan Jnr and Ken Lay and Anthony J. Alexander and Tom Hicks and Steve Remp and A.R. ‘Tony’ Sanchez and Bob Holland Jnr and every one of the President’s oily backers would have grown up hearing their fathers and grandfathers bitching about Arab oil.
Their entire corporate lives have been one long exercise in seeking ways around America’s natural oil market inferiority; to observe them all so studiously avoiding the ‘o’ word in relation to Iraq – except in reactive, indignant passing – is not only comic, it is an insult to the intelligence. To hear them opportunistically braying pious words like ‘freedom’, ‘democracy’, ‘human rights’ and ‘global security’ instead is merely sickening.
But I recommend you read about such people for yourself and draw your own conclusions about their motivations, their past business dealings, and their desirability as leaders of the globalisation of our world. As I’ve said before, personal fortunes made and careers propelled don’t interest me as such. I say good luck to Dick Cheney for the millions he got from Halliburton yesterday, and the millions more he’ll probably receive in eventual retirement as thanks for all the Iraq infrastructure contracts that company will win. I congratulate Ken Lay on his personal financial acumen. I think that an oil tanker named Condoleeza is a charming concept. Good luck to them all. No doubt they’ll give generously to charity, as is the American way.
It’s the bigger picture that matters, the globalisation crunch-point this invasion represents. Oil, oil, and more oil is what feeds and directs that ravenous economic beast. To date, we in the West haven’t been paying a fair price to the poor peoples who own it, the peoples who rightfully should control it but never have.
It’s up to the rest of us now to change the way Iraq’s enormous oil wealth gets shared around, because ‘free market forces’ haven’t been fair to date, and neither will these men, in the post-Saddam future, unless we push them hard, hard, democratically hard. Nor will the dainty intellectual theorists and strategic visionaries who have championed these kinds of men so very far, sanitising their baser instincts with a sophisticated sheen, seeing economic ‘rules’ and ‘forces’ and ‘logic’ where there is really only human greed, thus propelling the rough likes of the Bushies to global prominence and power, and now the gentle, democratic West to the brink of aggressive Darwinian war.
You can find the oily thinkers – the ‘maddies’ – as easily as you can find the oily ‘fixers’. The Project for the New American Century. The Council on Foreign Relations. ‘The Grand Chessboard’. ‘The Threatening Storm’. ‘The Clash of Civilisations’. The American Enterprise Institute. The Heritage Foundation. The average, garden variety war-blogger. Just too many bored, clever, privileged Western men with too many late-night, brandy-fuelled delusions of grandeur.
But to call the rise and rise of the neo-conservative accord either a conspiracy or a three-decade revolution in intellectual thought is to flatter that ad-hoc but relentless erosion of the liberal tradition with an assigned cohesion and purpose that, for all the think-tanks and networking and strategic economic bombast, simply doesn’t exist.
There was no ‘Thatcherite revolution’, no ‘vast, right-wing conspiracy’, no visionary early leadership or generational second-wind. There was simply a collective tumble down the path-of-least-resistance to the grasping, grubby swamp in which we now flounder.
Opportunism, ambition, misplaced neo-idealism, post-Vietnam resentment and a general Revenge On The Sixties have all played their parts, but in the end, we are now slouching towards Bethlehem for no grander reason than that it simply turned out to be the least bothersome road for the straight men of the West to follow.
Just as John Howard became Prime Minister by default, it would have taken George W. Bush far more effort to avoid becoming President than to accidentally occupy the White House as he has, while Tony Blair’s well-meaning ‘Third Way’ is no more than sheer consensual laziness by a sniffier, Pommy name.
A deep fear festers in the ordinary hearts of such ordinary men, all these ordinary, natural-born followers who find themselves leading us from the rear, backwards into prehistoric history, backwards via polls and ‘public opinion’ and the deadening of language, onwards ever backwards through our very ordinary times.
It’s a fear that is now driving the West in historical reverse at accelerating speed and that fear is the fear of losing control of the world they have made. Losing control of who comes to live next door. Losing control of who comes to their country. Losing control of the global marketplace. Losing control of what someone writes in their newspaper, or says about them in public, or knows about their bank balance and their fat executive payout. Losing control of their children’s beliefs when their children are young and idealistic, losing control of what they might find on the internet, losing control of what drugs they might (or might not) be tempted to try. Ultimately, losing control of what their children will do with them, as they grow frail and old and powerless.
Always frightened by change unless they are the ones forcing frightening change upon others, these ordinary, Left-and-Right-and-Third Way neo-conservatives are now terrified, because the world they thought was finally under their control revealed itself, eighteen months ago, as wild, and brutal and still far beyond their reach, armed with all the world’s weapons though they now are.
They are like all deeply frightened men; cocooned in their certitudes, narrow in their outlook, profoundly anxious, aggressively bereft of humility lest we see how scared they really are. Our contemporary leaders are small human beings frozen in the spotlight of big history like rabbits, quivering yet rigid, cornered, ready to lash out, or bolt, or die of fright altogether at the first sign of movement beyond the light. Yet never once thinking to step boldly into the darkness, with a friendly, vulnerable and gentle call.
This invasion and occupation of Iraq is just another futile attempt to win, by brute force a supremacy over what might happen in the world tomorrow, a ‘full spectrum dominance’ that these men and their frightened, ‘pragmatic’ kind have never once managed to claim in the past.
This attempt will fail, too, and we will shed more bitter tears, because the men leading us into it are, as usual, ordinary cowards and small arrogant fools, while the future will always remain far, far beyond our control.