The new oil order: built on sand?

• Author: Aarts, Paul

Put quite simply, what the american people learned from the Gulf War is that it's a helluva lot easier and a helluva lot more fun to "kick ass" in the Middle East (to quote those at the highest levels of government) than it is to make any sacrifices to limit America's dependency on imported crude. (James Schlesinger, former U.S. Secretary of Energy in Petroleum Intelligence Weekly, 28 September 1992).

The second gulf war has unmistakably contributed to the establishment of a "new oil order", with the American-Saudi connection as its linchpin. The shape of that new order has been visible for quite a while, but the outcome of the war, so successful for the West, has given a fresh impetus to the realization of radically different relations in the oil market. After "Operation Desert Storm", politicians and spokespersons for oil companies, with increasing frequency, can be caught speaking unashamedly of the "internationalization" of Arab oil wells. It looks as if we are living a rerun of the "golden" Fifties and Sixties, way back when the Western oil companies dictated the oil market. Hard-pressed for money, many oil-exporting countries today find themselves compelled to appeal to the very same oil companies for financial and technical aid. True to the motto "We pay, we control", they have regained access to the oil resources they had not been allowed to touch for twenty years. "This is just about as close to denationalization as you can get", one of them noted.(1) It is highly doubtful, however, that this "recolonization" of Arab oil will last very long. There are just too many uncertain (f)actors at play.

OIL AND OIL REVENUES

It is not only its opponents who claimed that the war was mainly about "oil". But is it really all that clear-cut? Just as in any other war, several motives played a part on both sides in the Second Gulf War. Simplistic sloganeering such as "no blood for oil" only touch on part of the truth, however important that part. The war's multicausal character can hardly be cast into doubt: Political, economical, strategic and moral dimensions each contributed their bit. That is not to say that each factor carried the same weight. At different points in time and place, different sets of interests took the upper hand. Sometimes it was not quite possible to disentangle politico-economic and politico-strategic dimensions. Still, the "oil factor" arguably played a singular part for both Iraq, Kuwait and the United States, and therefore merits a singular analysis.(2) This is not to imply that, say, from an American perspective the Second Gulf War can simply be portrayed as a "war for resources". On the other hand, this should not lead us astray - as Cyrus Bina did in a recent contribution to Arab Studies Quarterly, where he asked us to believe that "the need for oil is a sideshow. . . . Why should the U.S. government be worried about the lack of access to 'cheap' Middle Eastern oil, knowing well that the globalization of oil has already diminished the regional boundaries and, regardless of who owns or controls the oil fields, the omnipotent rules of the transnational market will have the final say?", he misleadingly argued.(3)

Strictly speaking the American government had little reason to worry about short-run oil supplies. Before the Iraqi invasion and the subsequent economic boycott, Kuwait and Iraq supplied less than 7% of world oil demand. Their exports covered under 4% of American oil consumption. As it turned out, other OPEC countries managed to make up for lost Iraqi and Kuwaiti output very rapidly. In that respect, everything seemed to go quite well. In other words: There was hardly any need to transfer some 500,000 soldiers to the Saudi desert. All the more true since Washington was aware that the oil market obeys different laws, which govern Saddam Hussein as well. Should the Iraqi leader have succeeded in annexing Kuwait, which would have put him in control of 20% of the world's oil reserves, oil supplies would still not really have been imperiled. Iraq was deeply indebted after the Iran-Iraq war, and what would have been more obvious than increasing oil production?

Even if the Iraqis had considered producing less with a view to forcing up the oil price, that would have only given them short-term relief. In that case, reactions to earlier price hikes would most likely have been repeated: energy conservation and increased oil production in (more expensive) non-OPEC quarters.(4) Moreover, a higher oil price is not necessarily unfavorable to the United States. It does mean a higher import bill, but on the other hand, domestic oil production would receive a shot in the arm. The low oil prices of the past few years have compelled one American oil field after another to close down, so a price rise of a couple of dollars would find great acclaim by the American oil industry.(5)

In brief, it is improbable that President Bush only drew his "line in the sand" for fear of a direct threat to American oil supplies. Too little was at stake to justify that assumption. Matters were naturally different for Western Europe and Japan, who were much more dependent on oil imports from the Middle East compared to the U.S.(6)

If we look into the more distant future, the cards are stacked quite differently. Not only Western Europe and Japan, but the U.S.A. in particular is expected to become increasingly dependent on Middle East oil. If the current trend persists - and all the signs confirm this - the United States' dependence on oil imports will reach 65% of its needs by 1995 (in 1990 that figure was already close to 50%). An ever increasing share of that rate will originate from the Cuff region, since two-thirds of the world reserves are located there. The United States itself only contains 3.4% of world oil deposits.(7) Reliable suppliers are obviously vital in that situation. If we go by the adage "foresight is the essence of government", American intervention can be explained (in part) from that perspective.

There is much to be said against this reasoning, though, and so it cannot explain the American intervention in the Gulf by itself. For, viewed from a strictly economic, rational-actor vantage point, it does not matter all that much who is in control of 20% (or more) of world oil reserves. "Whoever owns the oil must sell it at the world-market price," Robert Brenner argues.(8) It should be clear, however, that not everyone, and not a great number of American politicians at any rate, has a rock-solid faith in this "logic of the market". They would rather be on the safe side and give America-friendly regimes the advantage.(9)

However important, the guaranteed access to cheap Arab crude is not the be-all and end-all of American foreign policy. Although oil as an energy resource is the mainstay of growth and prosperity in the industrialized world, there is more to the story. For, oil revenue in turn represents economic value to Western firms, especially American and British banking institutions. Secrecy is the rule in this world of financial wheeling and dealing and the scarce figures available are widely divergent. Highest estimates (before the Gulf crisis) put investment by Gulf states in the United States at some $1 trillion(!)(10) Although this figure may be overstated, it is clear enough that ascertaining the "political welfare" of the ruling oil monarchs in the Gulf States is a top priority in London and Washington.(11)

A NEW PARADIGM

Let us now focus on recent developments in the oil industry itself. In addition to what has been described above, a...