by Lucy Komisar
American Reporter Correspondent
New York, N.Y.
July 18, 2002
Oil and War
OIL POLITICS UNDERLIE GLOBE'S 'PERMANENT WAR', EXECUTIVES SAY
DIVONNE, France -- The Middle East conflict, the Afghanistan war, the attempted coup in Venezuela - underneath all the talk about religion and ideology as causes, there's another factor that ties them together: that black viscous substance that has made countries go to war since its ability to power economies was discovered more than a century ago. Oil. The fight to get oil, to control its sources and transport, is behind major conflicts around the world today, according to oil executives meeting at a conference in France.
Oil's critical role in global hot spots is not usually acknowledged by governments. They prefer to speak about defending liberty, not economic interests. But it was a subject at a private gathering of American and European business people, diplomats, journalists and scholars in Divonne, France, this Spring.
There, at Forum 21, an annual event organized by two Americans, Paul and Abby Hirsch Weinstein, one could hear the subtexts of the disputes roiling the globe. Among them, the frank comments of two oilmen and a Kuwaiti policy analyst were trenchant and enlightening.
For example, a high level executive who had important oil investments in Central Asia and had been in the oil business for 50 years recalled his start in 1952, when his father sent him to Saudi Arabia to negotiate with two Saudi princes and King Abdul-Aziz, the founder of modern Saudi Arabia. He was 24 and did not understand much about how the world worked, or about the connection between business and politics.
A year later, he went to Venezuela to work in oil and banking. He became close to the minister of oil and, in 1956, when Venezuela held high-level negotiations to award the country's last oil concessions, he discovered, "It was clear that politics was the only power behind the oil business." For decades, the corrupt political powers in Venezuela lived off oil, siphoning funds for themselves while 80 percent of the population remained impoverished. One president, Carlos Andres Perez, went to jail.
The oil executive spoke with great candor, but not for attribution.
"Considering that my quotes are pretty unusual and contrary to normally accepted hypocrisy, they, of course, may be considered 'rude' and make me the target of unpleasant attacks," he explained.
He sees oil as the cause of a never-ending international war - sometimes a hot war, always a trade war. "In the Middle East, from the beginning of the 20th Century, the British applied their power to make sure they controlled the big sources of oil in Iraq and then Saudi Arabia."
Oil, he says, fueled World War I, with the British and the French, then the British and the Germans contesting control of Middle East supplies.
That war never really ended, he says. "The world is in a permanent war. A war is not only when you are shooting at some people. It's when you are fighting to get this share of the market, to get a better share in the steel market, the car market, the computer market. Every powerful country uses powerful weapons to fight the others and get a bigger share of world trade."
And that's where energy matters. "Our modern, high-tech, materialistic civilization is extremely vulnerable and will cease to exist without appropriate and secure supplies of oil and gas." It's not the price that matters as much as the supply. The West has coped with price increases several times in the past decades. The issue is having safe and plentiful sources. The goal of the West, he says, is "to secure great amounts of energy without cheating the rest of the world too much."
Securing energy means more than just having the money to buy it. "If you don't control the source of oil and you think you will buy oil on the Rotterdam market on spot, you make a very big mistake," The oil executive explains.
In the spot market, purchases are made "on the spot," at the price of the moment, not by advance contract. "Oil must be controlled at the well from the beginning and then the transport, the refining, everything," he says. "If you don't control the source of oil, you don't control anything. If I don't control oil, you will control oil. A nation which could corner the oil market would become the number one power in the world -- barring a nuclear attack from the U.S."
To secure its source of oil, the Americans made a decision to back the al-Saud family from the 1930's; the final official backing was given in 1945 under President Franklin D. Roosevelt. The oil executive considers that a good decision that assured more than 60 years of consistent energy policy and both economic and political stability in the Middle East.
But the economic imperative runs into the political one. Among the main oil providers are Saudi Arabia, Russia, Canada, Mexico, Venezuela, and Nigeria. The largest sources of oil are located in regions where human, religious and economic problems are acute -Central Asia, the Middle East, North and Central Africa. Oil-political power relations have been stirred by upheavals and conflicts in the Soviet bloc and the Middle East. Wrong decisions on those issues can haunt the big powers.
The oil executive noted that, "the U.S. decision to back the Shah of Iran was a mistake which came from a total absence of analysis of the internal situation in Iran." He said, "We had to pay very dearly, because Khomeini and the fundamentalists of Iran were a consequence of our mistake."
In the last decade, the breakup of the Soviet empire put up for grabs the Caspian Sea Basin oil of Kazakhstan, Azerbaijan and Turkmenistan. Oil companies from different countries are competing to get Caspian oil to Western markets. One route is via Turkey. A second moves through Georgia, the Black Sea and the Bosphorus, which is difficult and more expensive. A third goes through Iran, which the Americans have blackballed. A fourth traverses Afghanistan. The fifth is the Russian pipeline.
Some routes are more expensive than others; some are more difficult because they require dealing with two, three or four countries, more or less reliable and demanding kickbacks. The oil executive says, "Provided their governments don't prevent them, oil companies will use a route that is less expensive and will negotiate with all authorities."
The way to the pipelines will be greased with political money. Perry W. Woofter has been in the oil business for 40 years as an executive in several mid-size energy companies, including Tesoro Petroleum, an American refining and marketing company. Before that, he was chief of staff of U.S. Senator Robert Byrd of Virginia, for years the powerful Democratic majority leader. He understands oil pipeline politics.
Oil companies want to use Afghanistan's old 3600-mile Silk Road which provides a ready route over which to run equipment. "There are some meetings in Pakistan to talk about putting in a pipe," Woofter said.
"The politics of that is that at present, Azerbaijan and Turkmenistan do not have great political and diplomatic relations with Afghanistan and Pakistan. Pakistan will be calling a lot of the diplomatic shots with Afghanistan, since the American government is now looking to its ally Pakistan for a lot of help and aid, and Pakistan is looking to the Americans to reward Pakistan by giving it a lot of the construction and other building opportunities."
So the issue now is the distribution of that largesse. The world's big construction companies will be calling in their political chits to get their governments' support for megabuck contracts.
"About $9 billion will go into Pakistan and Afghanistan for new building," Woofter says.
"The Saudis have the advantage politically, because they have the largest construction companies in Pakistan. [The largest is owned by the family of Osama bin Laden.] They have all the equipment. Politically, the Saudis are in great shape with the president of Pakistan. They have been allies. Some Saudi companies will get to team with Pakistani and American companies," he said.
"The U.S. will probably put a condition into spending some of that $9 billion that you must team with an American company. Hill and Co., of New Jersey and Chicago, already has three contracts. All the large construction companies including Bechtel will get a lot of this," he said.
It helps to be politically well connected. The Bechtel Group, whose board includes Ronald Reagan's Secretary of State George Shultz, in 2000 alone got $1.8 billion in American contracts.
If the word's superpower announces its interest is having a pipeline, other countries must adapt. Dr. Sami Al-Faraj is president of the Kuwait Center for Strategic Studies, a four-year-old private institute which gets support from business and from government contracts. As a consultant on strategic planning, he prepared the crisis management paper for the Kuwait government-in-exile in Saudi Arabia during the invasion, took part in planning special operations in the war, and was wounded.
"Kuwait, with 10 percent of the world's oil reserves, discovered that it could survive in the international system by being of use to greater powers," Dr Al-Faraj says. That means supporting American pipeline interests.
"For us, if there's an economic interest, then we understand American policy," he says candidly. "When Americans don't speak in this language, when they talk about human rights, women's liberation, we don't understand them. When they talk business, oil, we know. We know the liberation of Kuwait had to happen, because you're talking about amalgamation of interests. Iraq sought to double the percentage of its oil reserves. It would become the real factor in deciding global oil policy. That was not acceptable from a regime like Saddam Hussein's. When the Americans talk real politics like this, we understand them."
However, when American administrations beginning with the first President Bush (President George W. Bush's father), have raised issues of human rights and women's rights to get popular support for their policies, they were simply using those catchwords to mask their economic interests.
The Bushes' crocodile tears about the oppression of women by the Taliban rings especially false in light of their own anti-women policies. Al-Faraj would do well simply to ignore those public relations devices and get to the real economic interests that drive American strategy.
He appears to know that. He explained, "We understand we need to pacify Afghanistan for pipelines to western China. If you look at the map, you find oil in the Gulf from Oman through Iraq and Iran. Then you reach Afghanistan: a mountainous region with no oil. But through Afghanistan is western China, and there is oil."
And that brings a political requirement. Al-Faraj says, "If you say you have to stabilize Afghanistan, we as oil producers understand that. If this line goes through Afghanistan and though Turkey to the West, we understand you have to stabilize Chechnya. And it will make us as Muslim nations take a stand. We will try to pacify these two Muslim nations, Chechnya and Afghanistan, because the instability of these two regions threatens any pipelines."
But there is another new factor that stirs the region. At the period that the East bloc collapsed, opening up the oil in the Caspian Basin to the West, the situation in Saudi Arabia changed. The oil executive explained, "Until 1990, Saudi Arabia was a very rich country. They owned 25 percent of the oil reserves and were producing 8 million barrels a day, so they had very high revenue. Health care was free, education was free; no Saudi citizens were forced to work to live. The government took care of everything, so the government could easily control the population."
The Iraqi invasion of Kuwait and the U.S. invasion of Iraq occurred. Desert Storm - theAmericaninvasion -- had a high cost, around $70 billion. Of this, Saudi Arabia paid $60 billion. The executive says, "An invoice was presented to them, and they had to pay." That took almost all the Saudi reserves. Though the Saudi sheiks kept their palaces in Riyadh, London and the Riviera, there was no more free lunch for ordinary citizens, who had been used to the 6 million foreigners doing the work for a country of 18 million. Sixty percent of the population is very young, they lack training, and most are unemployed. They no longer get government allowances and they must pay for education and health care.
The result is a challenge to the legitimacy of the Saudi house. The oil executive said, "Now people start asking, 'What are these princes and kings doing for us? 'Nothing!' That is added to the Islamic-based opposition. He said, "So now there is something moving in Saudi Arabia; the situation is becoming more dangerous. The U.S. government and the oil companies know that. We have to find a way to deal with this very delicate situation. Saudi Arabia is the detonator in the Middle East. What Saudi Arabia does the whole Gulf does -- Kuwait, UAE, Qatar, Bahrain."
People in Washington and the oil business are considering several scenarios, among them one in which the Saud dynasty is kicked out. The oil executive says "This is the nightmare scenario because, for the present time, the only alternative to the Saudi dynasty would be a Taliban style government. And if we had a Taliban style government in Saudi Arabia, that would spread all around the Gulf. And that would mean big trouble for the security and price of oil. Supplies could not be guaranteed and the price would soar from $24 to $100 a barrel. And, for sure, we would have to face a huge increase in terrorism, worldwide."
But if the Taliban were and are a threat, why did governments support oil companies dealing with them to get pipeline rights? The oil executive explains that money trumps politics. Big American, British, French, Italian, and Chinese oil companies negotiated with the Taliban, its predecessors and now its successors on building a pipeline to Pakistan. And even governments they restrict their own companies, others rush in to fill the void. When theAmericansome years ago ordered an American oil company to stop negotiations with the Iranian government, it did - but it was replaced by European and Asian firms. Now, theAmericanembargo continues, but French, Italians, Japanese, and Chinese continue to make their deals.
The oil executive explained, "Small companies are still very 'national,' American or British, French or Italian. But the huge multinationals no longer have any nationality: they are multinationals. They do not care about the interests of such or such country; they care about their own interests. Their patria is money."
He says that the oil companies will continue to deal with whomever is in power, they deal with nations, not with persons. "When the oil companies were dealing with the Taliban, they were not dealing with the ministers of Mollah Omar, they were dealing with Afghanistan. Saddam Hussein, in the 80s, was a friend of the West. When he was waging war against Iran, all western powers backed him. Then, he changed his position and became an enemy of the West. Who will succeed Saddam? The oil companies know that persons, politicians, ministers come and go, but nations remain. They are interested in the oil wealth which lies in Iraq. If a powerful government says "stop", they stop. If the government does not interfere, they go where the money is."
Woofter agreed: "I think that in the oil business and the pipelines business, people will associate with almost anyone to make a deal for a new pipeline or new oil blocks -- leasing new oil blocks offshore and onshore." For American companies, he says, the diplomacy of the countries involved is not quite as important as getting contracts - as long as they have some protection from the American government. Woofter defines "oil politics" as "like a big department store where you want to keep your customers happy. You do many things for them. You give them all kinds of deals and freebees. The U.S. does the same with oil producing countries."
In about a decade there will be an important new player on the oil market. The oil executive says, "The consensus is that within ten to fifteen years, China will consume as much oil as the U.S. is consuming today. And about 75 percent of new oil production will be imported by China." The politics of oil has gotten another major player, an economic superpower challenger to agitate the political cauldron.
Lucy Komisar is a New York journalist who writes about foreign affairs. Forum 21 Web site at http://www.forum-21.com.
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