Bill Totten's Weblog

Tuesday, March 29, 2005

Oil and the War in Iraq

Speech made at the Commonwealth Club of San Francisco

by Tefel Hall (June 02 2003)

In 1999, OPEC demonstrated unprecedented solidarity, forcing the price of oil to triple in less than a year. Could this resurgence in OPEC's power be related to the current conflict in Iraq? Author and speaker Tefel Hall explains the relationship between OPEC and American militancy.

Did everyone get a handout?

Hi everybody, my name is Tefel Hall, and today, I'm going to be talking to you about oil. My own interest in this subject began just last year, when I went to my first antiwar rally, and there I saw people carrying signs which said, "No blood for oil". And I thought to myself, that's a very clever slogan, but I wonder if it's true?

Not long after that, I had a chance to pick my own topic for a college research paper, so I decided to investigate the link between oil and war that was brewing in Iraq. And today very I'm glad to have this opportunity to share with you a bit of what I learned.

Let me start by giving you some background.

Seventy-five years ago, oil was discovered in Iraq. Back then, Iraq was still a colony of the British empire, and soon, Western oil companies were making astronomical profits, while paying the puppet king of Iraq only pennies per barrel of oil. Then, in the 1950s and 1960s, we have a series of coups, and Iraq starts drawing closer to the Soviet Union. And finally, in 1972, Iraq nationalized its oil industry, seizing concessions valued at over one billion dollars.

At that time, Saddam Hussein was the vice-president of the Revolutionary Command Council, and he held a big news conference. The room was packed with reporters, photographers were flashing away, and Saddam announced:

"We are confiscating the assets of the Americans, the British, and the Dutch - but not the French. The French will be allowed to stay in the country, because the French have always shown a just policy toward the Palestinians."

I think this event is important for three reasons:

First, this was an affront to many Americans. Even today, there are powerful people in the oil industry who feel like, "Hey, Saddam stole a billion dollars of our money". And for that, they have never forgiven him.

Second, US oil companies never succeeded in getting back into Iraq. For the last thirty years, the US has been shut out, while France and Russia have invested heavily in Iraq's oil industry.

And third, Saddam always portrayed himself as a champion of the Palestinian cause. And for this reason, we shouldn't be too surprised that there are many people in the Arab world who feel that Saddam is a lesser evil than the United States.

Anyway, today President Bush is saying that the war and the US occupation of Iraq have nothing to do with oil. But it's hard not to notice that Iraq possesses the second largest oil reserves in the world, and the US is probably the most oil-dependent country in the world.

Analyst David Fleming has pointed out that the US economy is built around the assumption of cheap, long distance transport, and therefore any disruption in our oil supply could shut our economy down "within days".

Yet most of us don't appreciate how dependent we are on oil. This might help. This comes from an article by Richard Heinberg, who writes:

"The industrial revolution, still continuing, is all about replacing human and animal labor with the work of machines running directly or indirectly on fossil energy. Each day, the energy from oil used by people around the world equals the work of some 180 billion humans. It's as if the average global man, woman, or child had thirty slaves toiling around the clock. But those petroleum 'ghost slaves' are not evenly distributed. Each of us in the US has, on average, more than 120 of them. This is the energetic basis of our American Way of Life."

Wow! Think about that. Each and every one of you has 120 slaves, thanks to oil. These are the slaves that push your car, heat your home, plough your fields, harvest your crops, and bring your food to market. And God help all of us if we were ever forced to do all that work ourselves.

So where do all these oil-slaves come from? Globally, about forty percent of them come from OPEC, the Organization of Petroleum Exporting Countries. So let me introduce you to some of the major players.

1) Saudi Arabia
2) Kuwait
3) Iraq
4) Iran
5) Venezuela

These are the five original members of OPEC. Today, the cartel has grown to include eleven different countries, but these five are still the five most powerful. So, for the sake of simplicity, today I'm just going to let these five countries represent the entire organization.

Can anyone tell me which of these countries is the most powerful member of the OPEC?

That's right, Saudi Arabia. Because generally speaking, the power of any OPEC country is roughly proportional to the amount of oil that it produces, and Saudi Arabia produces about twice as much as oil as any other these other countries. So Saudi Arabia is the undisputed kingpin.

The purpose of OPEC, as I'm sure you know, is to keep oil prices high by limiting the supply. So when we when we talk about OPEC, we often talk about Price Doves and Price Hawks. And the doves, obviously, are those countries that want to keep the price of oil affordable, while hawks are those that believe that the world can afford to pay a lot more.

But these terms also have another layer of meaning, because when we say that OPEC is dovish, sometimes what we really mean is that OPEC is weak, because these countries are quarreling and competing amongst themselves. And when we say that OPEC is hawkish, sometimes what we really mean is that OPEC is strong, because these countries are united and cooperating closely.

Back in 1960, when OPEC was first formed, OPEC was extremely weak, and that's why I've lined these countries up on the left side of the room, under doves. And really, for most of the last thirty years, OPEC has been a notoriously weak and ineffectual organization.

The problem is that, at heart, these countries are all competitors, so they're very wary of entering any agreement that might give someone else an advantage. Even when they do agree, they're all notorious cheaters. For example, they'll all get together in Geneva or some place, and they'll agree to raise the price of oil, and they'll make an agreement which stipulates exactly how much oil each of these countries is going to produce, and they all make a solemn pledge not to pump any more oil than the agreement allows ... but then they get back home, and the cheat. They overproduce their quotas. It's like, each of these countries wants everyone else to limit the amount of oil that they sell, but none are willing to curb their own production. So what happens? Well, when all these countries are trying to sell as much oil as possible, pretty soon they flood the market, and the price of oil falls back down.

And that, historically, has been OPEC's greatest weakness. These countries are simply too divided, divided by competition. But every once in a while, these countries cooperate, and when they do, OPEC is extremely powerful. And whenever OPEC does turn hawkish, the US gets extremely worried, as we're going to see.

I know this is all very simple stuff, if you follow the oil news regularly, but not all of us own oil stocks, so let me give you one more analogy:

Imagine that you are America, and you're driving down the road in your car, and you need to fill up the gas tank, so you stop at the corner, and there you have King Fahd's gas station, and Saddam Hussein's Iraqi gas station, and Kuwait, Iran and Venezuela.

As the consumer, you are happiest when there is vigorous competition between these stations. You love it when they're trying to undercut each other's prices. You absolutely love OPEC price wars.

But if these stations were to ever get together and fix the price of gas - you'd be screwed. Because it's not like you can just drive across town and buy your gas someplace else. Uh-uh. All over town gas stations are going out of business. So you have to buy gas from these five stations, and if they're not competing against each other, you're in deep trouble.

Okay, now that we all know how OPEC works, it's time for a statement of US policy. And this statement comes straight from a secret pentagon report that was leaked to the New York Times. And according to this report:

"Our objective in the Gulf ... is to prevent an alignment of powers from dominating the region".

Now, I think we can be even more specific. I mean, let's just tell it like is. Our objective is to prevent these countries from banding together and fixing the price of oil. That's it; that's our policy. Or, in the words of the eminent economist M A Adelman, "Our minimum objective should always be: Do nothing to help the cartel".

Okay, now I think we're ready to play the OPEC game. That's right - today we're going to play a game, sort of. Actually, I'm going to have to limit your participation, so if I ask you a question, it's just rhetorical, please don't raise your hand. But I just want you to play along with me, and I want you to pretend that you are the president of the United States, and the object of the game is to prevent these five countries from aligning themselves on the opposite side of the room.

Because if these countries ever form a truly effective monopoly - America would be finished. Well, maybe not finished, but we certainly wouldn't be a superpower anymore. Instead, we'll be OPEC's puppet, OPEC's cash machine - and it's all going to be your fault, because you are the president of the United States.

Okay, let's play.

I want you to imagine that the year is 1973, and you are president Nixon. And you get a news flash: "Mr President, Egypt and Syria have just attacked Israel, and OPEC says that if you help Israel, it's going to cut off America's supply of oil. What are you going to do?"

Actually, we know that President Nixon ignored the threat, and he sent the Israelis some $2 billion in military aid anyway. And then OPEC retaliated by slowly closing its taps, and over the next few months the price of oil quadrupled.

[move Saudi Arabia and Kuwait]

For the audio tape let me just say that we have now moved Saudi Arabia and Kuwait to the hawkish side of the room.

This is not good. Fortunately, OPEC did not show complete solidarity, and Iraq, Iran, and Venezuela continued to export as much oil as they could, because they wanted to take advantage of the higher prices. Nonetheless, there was a lot of panic buying, and this caused the price of oil to stay high, so now we have a lot of angry Americans who are demanding to know why gas is so expensive - not to mention all those questions about Watergate.

Clearly we have to do something - but what? I have an idea. How about if we threaten to go to war? And, in fact, that's exactly what we did. The US threatened to go to war if the embargo were not lifted, and we were quite prepared to follow through. Defense Secretary James Schlesinger has said, and I quote:

"I was prepared to seize Abu Dhabi. Something small, but nothing big. Militarily we could have seized one of the Arab states. I think the Arabs were quite worried about it after 1973."

My point is this: America has always demanded that these countries compete against each other. And when they don't, America tends to get militant.

Anyway, the threat of war may or may not have helped, but what ultimately ended the embargo is that these countries - Saudi Arabia and Kuwait - they realized that the embargo was not in their own best interest. The world had plunged into a deep recession; industries were using less oil; politicians were starting to worry about conservation; and people were looking for other sources of energy. And these trends are not good for the oil business.

Meanwhile, these other countries - Iraq, Iran, and Venezuela - they're making a killing. They're selling a lot more oil, at much higher prices, so they're getting rich at the expense of these price hawks. So how long do you think these hawks are going to let their ideology get in the way of their pocketbooks?

[move Saudi Arabia and Kuwait back to Doves]

The answer was about five months, and then these countries stopped cooperating, and once again there was vigorous competition.

Okay, now I want you to imagine that it's 1979, and you are President Carter. And you get a news flash: Mr President, the Shah of Iran has just been deposed, and now the country is being led by the Ayatollah Khomeini. What are you going to do?

[move Iran over to hawks]

The problem is that Khomeini is an outspoken price hawk. Before taking power, he said:

"... It is necessary for all oil-rich Islamic nations to use their oil ... as weapons against Israel and the imperialists, and cut off the sale of oil to these countries ..."

Gosh, this could be a problem, don't you think? What's even worse is that the Ayatollah is trying to unite the Islamic world against the West. He's actually getting on the radio and broadcasting his message across the border, inciting the Shiites in these other Muslim countries to rise up and overthrow their leaders.

What if these regimes were to fall as quickly and as suddenly as the Shah? What a disaster! We might then be facing a block of Islamic nations, all loyal to the Ayatollah, and the Ayatollah would then have the power to bring America to its knees!

Clearly, we have to do something. But what? We can't attack Iran directly, without risking an all-out confrontation with the Soviet Union. So what are we going to do?

Saddam has an idea. He says, "I'll attack Iran. I don't like the Ayatollah either." And there is some evidence that the Carter administration encouraged Saddam to attack Iran. In any case, Saddam did attack, and what was our response? Did we say, "Oh, no! Saddam has violated international borders!" No, of course not. We were mad as hell at Iranians; they were still holding our hostages. So when Saddam attacked Iran, we were like, "Yeah! Go Saddam! Teach those Iranians a lesson!"

And over the course of the next eight years, we helped Saddam build up his army, and we provided him with: anthrax, botulism, E. Coli, chemical warfare agents, the plans for a chemical warfare facility, equipment used to fill chemical warheads, special helicopters equipped for "crop dusting" - the same helicopters, in all likelihood, as the ones which later dumped chemical weapons on Halabja. And according to Bob Woodward of the Washington Post, the CIA even taught the Iraqis the most effective way to use mustard gas!

Gosh, do you think we might have been a little complicit in the use of chemical weapons?

My point here is this: Saddam's army was, in many ways, a proxy army for the United States. We were scared of the Ayatollah, and he was scared of the Ayatollah, so he fought the battles, and we rewarded him with billions of dollars in military and economic aid.

Can you see a pattern developing? In 1973, we threatened to go to war. And in 1980, we actually did go to war, albeit through Saddam Hussein. And in both cases, the reason for the war was "to prevent an alignment of powers from dominating the region".

Anyway, after eight years of war and 1.5 million dead, Saddam finally wins the war. And the borders haven't changed much, but Saddam has won some major battles, and the Ayatollah is forced to eat humble pie.

Let's give Saddam some credit. He has saved our gas-guzzling way of life, by preventing the Ayatollah Khomeini from dominating OPEC. Come on, everyone, let's give Saddam a great big round of applause ...

Well, that was less than enthusiastic. But you know, perhaps you're right. Because no sooner had the war ended, than Saddam began to do some very unsettling things. For example, he sent his oil minister over to Iran to discuss the price of oil.

[Move Iraq to hawks]

You see, Saddam is flat broke. In his own words, he can't even pay the war widows. So now he's pushing OPEC to raise the price of oil, and Iran has decided to cooperate. Saddam has just become a leading price hawk.

This is astounding. These two countries - Iraq and Iran - they hate each other. They're blood enemies. They've just fought a horrible eight-year war. Technically, they're still at war; they're still holding each other's POWs! Yet now, for the first time in ever, they're cooperating on oil prices, and both agree that it's time for OPEC to band together and demand a better price for oil.

Uh-oh, what's this? Now Saudi Arabia and Venezuela have decided to join them. [Move Saudi Arabia and Venezuela over to hawks]. Saudi Arabia, OPEC's biggest dove, has suddenly turned hawkish. This is momentous. America is quavering!

Thank God Kuwait is still pumping oil like crazy. Thanks to Kuwait, these countries don't yet have a complete monopoly. As long as Kuwait keeps ignoring its quotas, it's going to be very hard for these hawks to maintain their solidarity.

But then ... on July 25 1990, Saddam does something which is strategically brilliant. On the eve of a big OPEC meeting in Geneva, he moves 30,000 troops to the border of Kuwait. And at the meeting, his oil minister pounds on the table and says to Kuwait, "If you don't limit your oil production, we're going to limit it for you!"

And what's more, Saudi Arabia backs up Iraq! Saudi Arabia tells the Kuwaitis, "Look, if you don't stop cheating on your quotas, we're not going to protect you from Saddam".

[Move Kuwait to hawks]

Faced with this kind of pressure, Kuwait caved. And the emir, in a gesture of conciliation, fired his oil minister, and the new minister promised to cooperate with OPEC. And now, OPEC finally has the alliance it has always dreamed of - the kind of alliance that's been out of its grasp for the last thirty years.

Believe me, this event did not go unnoticed in the Western press. Here, for example, is an article from the following day. This is from the New York Times, and the reporter is reporting from the OPEC meeting in Geneva.

"Iraq appeared today to have won a political victory, forcing Kuwait ... to reduce oil production and pushing OPEC to raise oil prices ... Mehdi Varzi, an oil analyst ... said the talks ... may turn out to be 'a historic turning point' ... That is so, Mr Varzi said, because Iraq has used military might to show that it 'is now the OPEC policeman' ... Several Arab OPEC officials here also conceded that, among other things, Iraq's status in the Arab world has reached new heights as Baghdad has cast itself as the main arbiter of oil prices within OPEC. 'Iraq has picked the right fight at the right time', [said] Nordine Laoussine, a former senior Algerian OPEC official. 'This meeting may turn out to be a landmark in the history of OPEC in as far as observing production discipline and setting oil prices on an upward curve in the long run is concerned'."

You know, I could go on and on, reading you quotes like that one.. In another article, an oil minister is quoted as saying, it's "a whole new ballgame". And in the Wall Street Journal, another oil minister is quoted as saying, "This is a turning point for OPEC. The credibility of OPEC is on the threshold of being restored." And in another article, an oil expert is quoted as saying, this is "the most important development for the oil industry since the 1979 Iranian revolution". And another oil analyst says "It's a sea change. Higher prices were always within OPEC's grasp if they adhered to discipline. This time discipline is guaranteed by a principal player which carries a loaded gun."

Clearly, this is a major victory for OPEC, and everyone is giving the credit to Saddam Hussein. And even in the West, Saddam is getting some sympathy. For example, this is from an interview on the MacNeil Lehrer NewsHour. And the host, Jim Lehrer, is interviewing Charles Maxwell, an energy strategist for Morgan Grenfell.

And Lehrer says: "So no matter what anybody thinks of Hussein, the fact is that he is right on this issue. Is he right?"

And Maxwell responds: "Well, he is right on his merits. If you were paying for oil at the pump, you might have a different view. But I think that on his own system and OPEC's system, he is correc ... You know, in cartels there is always a need to allocate the market ... We need somebody to come along and knock heads".

So overnight, Saddam Hussein has become an OPEC hero. With only 30,000 troops, camped along the border of Kuwait, he has succeeded in uniting OPEC for the first time in history. And everyone is predicting that the price of oil is going to go up and up.

Now I want you to imagine that you are President George Bush Senior. And for one whole week, you've been staring at these cards, aligned as they are on the wrong side of the room, and you've been racking your brain wondering what you can do to save America from OPEC.

Then you get a knock on the door, the door of your oval office. And I come in, and I'm one of your foreign policy advisors. And I say to you, "Mr President, I have some good news and some bad news".

So of course you're going to say, "Give me the bad news first".

"The bad news, Mr President, is that Saddam Hussein has just invaded Kuwait. That means that he now controls just as much oil as Saudi Arabia. And given the fact that his army is much larger, it is now almost certain that Saddam will become the dominant force within OPEC".

So you say, "Gosh, that's terrible! Quick, tell me the good news!"

"The good news, Mr President, is that now we have the perfect excuse to intervene militarily".

Of course, there's way no to know if that conversation ever really happened. But there is overwhelming evidence that the purpose of the first Gulf War was to weaken OPEC and prevent Saddam from becoming the head of the cartel. And later, if we have the time, I'd be glad to elaborate on some of this evidence. But for right now, I'd just like to read you one quote, which I think kind of sums it up. This is from an interview on Frontline, after the war, with National Security Advisor Brent Scowcroft. And the interviewer asks:

"Did you think the invasion of Kuwait mattered? If so, why?"

And Scowcroft replies: "Yes, I thought it mattered, a lot. Principally because there was a struggle and had been a struggle going on within OPEC over, if you will, control of OPEC and it was a struggle basically between Saudi Arabia and the radicals, over keeping production flowing and keeping prices reasonable or trying to squeeze, if you will, the industrialized world. And the notion of Iraq, which was an oil powerhouse in itself, acquiring the Kuwaiti resources and thus perhaps of being able to dominate OPEC was a tremendous danger to the United States and to the industrialized world. I thought it made a lot of difference, aside from the issue of flat naked aggression in and of itself."

Then the interviewer asks: "So ... at the heart of this ... was oil?"

And Scowcroft replies: "No, at the heart was naked aggression against an unoffending country, that was our firm and legal position, but what gave enormous urgency to it was the issue of oil. Yes that transformed it."

So there you have it, straight from the mouth of the National Security Advisor. The legal justification for the first Gulf War was the invasion of Kuwait. But the underlying reason was to stop OPEC from squeezing the industrialized world.

In other words:

We killed 200,000 people, in order to keep the price of oil low. And that's not to mention the half-million children who died because of the sanctions.

You know, I think this is terribly important, because sometimes we tend to believe our own propaganda. For example, just before this latest war, I was watching Charlie Rose on TV, and he was interviewing the UN ambassador from Iran. And Charlie Rose asks - perfectly serious? - Mr Ambassador, why is it that the Arab nations are so ungrateful to the United States? After all, in 1991, we sacrificed American lives in order to defend them from Saddam, yet now they won't even support us."

And the UN ambassador was very diplomatic, but I think an honest answer would have been:

"Charlie, I'm sure the Kuwaiti Royal family is very grateful for what you did. But the rest of the Arab world knows that you fought the Gulf war for your own self purposes - and to prevent the region from becoming as powerful as the United States. So stop expecting the Arab world to be grateful."

Are you starting to see the pattern?

In 1973, we threatened to go to war, unless the embargo were lifted.

And during the Iran-Iraq war, we helped Saddam use chemical weapons, in order to prevent the Ayatollah Khomeini from fomenting revolutions and taking control of OPEC.

And then in 1991, we went to war with Saddam, in order to prevent him from taking control of OPEC.

Can you see how this policy works? We have always done our best "to prevent an alignment of powers from dominating the region".

And that brings us to the current conflict.

But first let me backtrack. By winning the first Gulf War, the US effectively took Saddam out of the picture.

[remove Iraq]

And these countries were happy to have Saddam's market share, so they went back to being doves and pumping oil just as fast as they possibly could.

[move all to doves]

And by the way, who else benefits from sanctions? US oil companies, that's who. Because US companies are invested in Saudi Arabia, whereas French, Russian, and Chinese companies are invested in Iraq. So the sanctions helped US companies by hurting their foreign competitors.

But then, as the decade progresses, a new problem arises. Oil Scarcity. All over the world, old oil fields are drying up faster than new ones are being discovered, and this gives OPEC tremendous leverage, because OPEC has some of the youngest fields in the world.

Then, in 1998, Hugo Chavez gets elected president of Venezuela, and Chavez is a super-hawk whose mission in life is to raise the price of oil.

[Move Venezuela to hawks]

And then in March of 1999, OPEC holds a historic meeting in Vienna ...

[move all back to hawks]

... and at this meeting, all these countries agree to raise the price of oil.

Now, there's nothing historic about OPEC agreeing to raise the price of oil. That's what they do. But what's different is that this time, they all stick to their agreement. No one cheats. Simultaneously, they all tighten their taps, and within a year, the price of oil has tripled!

By this time, of course, the price of oil has become a major campaign issue, and conservatives are blaming Clinton and Gore, saying it's their fault that oil prices are so high, because they are the ones who failed to check OPEC's growing power.

But what could Clinton do? He tried begging. Clinton practically fell on his knees, begging OPEC to lower the price of oil. At that time, Hugo Chavez was the president of OPEC, and do you know how he responded? He said:

"Aw ... Wouldn't it be nice if the West also lowered the price of the things that it sells us - like cars, computers, medicine and the interest on foreign debt".

Obviously, OPEC is in no mood to do America any favors. So what can we do?

Presidential candidate Steve Forbes had an idea. He said we should indict OPEC on price fixing charges and freeze their assets. I don't know how far that idea went, but I suspect it didn't go too far.

Congressman Gilman of New York had an idea. He said we should retaliate against OPEC by stopping all foreign aid to these countries. There's only one problem. We don't give these countries a lot of money to begin with. So that idea fell by the wayside too.

Hey, I have an idea! How about if we instigate a coup in Venezuela? Oh, I forgot, we tried that in April 2002 and it backfired. But I'm getting ahead of myself. We're still back in the year 2000, and oil prices are killing us. What are we going to do?

Saddam has an idea. He says, "Why don't you lift the sanctions? I'll pump oil like crazy, and that will increase the supply, and the price will come back down."

Is that a good idea? Some people thought it was a very good idea, so let's study it a bit more closely.

So if you'll take out the handout I gave you, on the side which says "Two Solutions to Rising Oil Prices", on the left, you'll see that if we lift the sanctions, this might prove beneficial, because,

Allowing Iraq to develop its resources would tend to make the market more competitive.

However, there are some disadvantages too. Namely,

Saddam would still be in charge of his own production. And can we really trust Saddam to pump as much oil as he can? Given his history, it's far more likely that he'll join the hawks, and limit the supply of oil.

Furthermore, French, Russian, and Chinese companies are going to have an advantage, because Saddam will invite them into Iraq, to develop his oil resources. It's very hard to imagine that he's going to invite US companies in, considering that we're the ones who crushed him militarily then strangled him with ten years of sanctions.

In short, if we lift sanction, we'll still be at the mercy of OPEC, and foreign oil companies will have a long-term advantage.

Well, about this time, some influential neo-conservatives proposed an alternate solution. [Move Iraq back to doves]. They said that we should oust Saddam militarily, and install a pro-American regime in Bagdad. And the advantages of this plan are obvious:

Oil supplies would increase.

And a pro-American regime could be trusted to pump as much oil as it could, thereby undermining the power of OPEC,

and reducing our dependence on Saudi Arabia.

And a pro-American regime would be sure to invite US companies in, while foreign companies would probably be excluded.

And this would be a great chance to expand our military presence in the region - a region which is destined to become even more important, in the coming decades.

Of course, this plan has some drawbacks too:

The Iraqi people may not want a pro-American regime.

And OPEC leaders are sure to object, because they're going to see right through this. They're going to know that this is a plan to undermine their power.

And France, Russia, and China are sure to object, because they're going to know that we're trying to take away those lucrative oil contracts that they've been so busy lining up.

And the American people may not support an oil war.

Nonetheless, in 2000 and 2001, a growing chorus of voices is pushing for this solution.

And these voices come from congress, the pentagon, and White House advisors.

And they're coming from influential magazines like Insight, Commentary, Forbes, National Review, and the Weekly Standard.

They're also coming from think tanks such as the Heritage Foundation, the Center for Defense Information, US-Defense-American Victory, Project for a New American Century; the James Baker Institute; the Council on Foreign Relations, the Washington Institute for Near East Policy, and the US Army War College.

As well as countless newspapers and oil journals.

And many of these voices are unapologetic. They are brazenly saying that the best way to undermine OPEC is to oust Saddam Hussein.

While others are a bit more circumspect, and all they're saying is, "Gee, if Saddam were to be replaced with a pro-American regime, wouldn't this be fantastic for America, because:

Oil supplies would increase,
the power of OPEC would be diminished,
we'd be less dependent on Saudi Arabia,
US oil companies could get into Iraq,
and we could boost our military presence in the region.

And then September 11 happened, and suddenly it became even more urgent to reduce our dependence on Saudi Arabia, because Osama Bin Laden has called for the overthrow of the Saudi monarchy, and Osama has said that he wants oil to be $144 dollars a barrel - and I'm not sure how he came up with that figure, but that's about six times what it's selling for now!

And September 11 did something else: It gave the current administration a plausible excuse for a full-scale invasion of Iraq.

The aftermath of the war has been entirely predictable. Iraq's oil industry is now being supervised by Philip Carroll, a former executive at Shell. Carroll has said that he is reviewing all the contracts that the former regime made with foreign oil companies, and that most of these contracts will probably be cancelled.

He has also said that he thinks Iraq will privatize much - if not all - of its oil industry. What does this mean? James Paul, who writes extensively about oil, has made an interesting rough calculation. He starts with the amount of oil that is estimated to lie beneath Iraq, and he assumes that only half this oil is actually recoverable. Then he values this recoverable oil at twenty-five dollars a barrel, subtracts the likely production costs, and in this way he estimates that there are some $3 trillion in profits to be made from Iraqi oil. If we assume that these profits are going to be split 50-50 between the oil companies and the new government of Iraq, and we further assume a production period of fifty years, then the oil companies that are lucky enough to get into Iraq will share some $30 billion in annual profits.

This is a huge sum of money, even by industry standards, so it's little wonder that oil companies are lining up at Philip Carroll's door - and Carroll has already said that countries that did not support the war will not be allowed to participate in Iraq's reconstruction. In other words, the lion's share of these new contracts is going to go to US and British companies.

And Haliburton, the company formerly run by Vice-president Cheney, has already been awarded some $70 million in oil-related contracts - and it didn't even have to bid for them!

As for OPEC, Carroll has said that he thinks Iraq will withdraw from OPEC. About ten days later, another US-appointed oil official contradicted him, and said, "No, no, that's not right". But most analysts agree that the point is moot, because even if Iraq stays within OPEC, it isn't likely to agree to any limits on its own production. Therefore, OPEC has been effectively crippled, although it may continue to play a minor role in stabilizing oil prices.

It is highly doubtful that we have reduced the risk from terrorism. But we have certainly succeeded in reducing the threat from high oil prices - at least as long as we can keep a firm grip on 24 million Arabs and Kurds.

And the only surprise is that the Iraqis are so "ungrateful" that we have finally lifted the sanctions and we're finally going to allow them to develop their own resources - as long as they do it in a way that benefits us.

Anyway, I'd like to go ahead and sum things up, so if you'll turn your sheet of paper over, you'll see that I've boiled this all down to one key point:

The US has always tried to keep oil prices low, by encouraging vigorous competition between oil producing states.

And now I want to leave you with five questions.

1) To what extent is this a legitimate goal? President Bush has argued quite credibly that low oil prices are good for the whole world, and the countries that benefit the most are the poor and underdeveloped countries. So on the face of it, this would seem to be a very noble goal.

2) Does the US cross a line when it uses its military to enforce competition?

3) By enforcing competition, isn't the US, in effect, asking oil-producing states to subsidize our gas-guzzling way of life? After all, we're asking them to limit the growth of their own economies, so that we can continue to benefit from relatively low oil prices.

4) If the US uses its military to enforce competition, isn't this the same as placing a hidden surcharge on the price of gas? We all pay for the US military. But do we all benefit equally from our aggressive foreign policy? Who benefits most from this surcharge? Is it you and me? Or is it the industries that depend most heavily on cheap oil - like the airline industry, and the SUV industry, and the big oil companies that have always profited from keeping us dependent on oil.

And the last question is perhaps the most important.

5) Is America trading blood for oil?

I think it's time that we all recognize that the answer is a definite, "Yes".

Thank you very much.

[Sources available upon request]

Bill Totten


  • Back then, Iraq was still a colony of the British empire, and soon, Western oil companies were making astronomical profits, while paying the puppet king of Iraq only pennies per barrel of oil.

    By Anonymous Health Blog, at 7:07 PM, February 24, 2011  

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