Bill Totten's Weblog

Tuesday, January 30, 2007

Blood and oil

How the West will profit from Iraq's most precious commodity

The 'IoS' today reveals a draft for a new law that would give Western oil companies a massive share in the third largest reserves in the world. To the victors, the oil? That is how some experts view this unprecedented arrangement with a major Middle East oil producer that guarantees investors huge profits for the next thirty years.

The Independent & The Independent on Sunday (January 07 2007)

So was this what the Iraq war was fought for, after all? As the number of US soldiers killed since the invasion rises past the 3,000 mark, and President George Bush gambles on sending in up to 30,000 more troops, The Independent on Sunday has learnt that the Iraqi government is about to push through a law giving Western oil companies the right to exploit the country's massive oil reserves.

And Iraq's oil reserves, the third largest in the world, with an estimated 115 billion barrels waiting to be extracted, are a prize worth having. As Vice-President Dick Cheney noted in 1999, when he was still running Halliburton, an oil services company, the Middle East is the key to preventing the world running out of oil.

Now, unnoticed by most amid the furore over civil war in Iraq and the hanging of Saddam Hussein, the new oil law has quietly been going through several drafts, and is now on the point of being presented to the cabinet and then the parliament in Baghdad. Its provisions are a radical departure from the norm for developing countries: under a system known as "production-sharing agreements", or PSAs, oil majors such as BP and Shell in Britain, and Exxon and Chevron in the US, would be able to sign deals of up to thirty years to extract Iraq's oil.

PSAs allow a country to retain legal ownership of its oil, but gives a share of profits to the international companies that invest in infrastructure and operation of the wells, pipelines and refineries. Their introduction would be a first for a major Middle Eastern oil producer. Saudi Arabia and Iran, the world's number one and two oil exporters, both tightly control their industries through state-owned companies with no appreciable foreign collaboration, as do most members of the Organisation of Petroleum Exporting Countries, Opec.

Critics fear that given Iraq's weak bargaining position, it could get locked in now to deals on bad terms for decades to come. "Iraq would end up with the worst possible outcome", said Greg Muttitt of Platform, a human rights and environmental group that monitors the oil industry. He said the new legislation was drafted with the assistance of BearingPoint, an American consultancy firm hired by the US government, which had a representative working in the American embassy in Baghdad for several months.

"Three outside groups have had far more opportunity to scrutinise this legislation than most Iraqis", said Mr Muttitt. "The draft went to the US government and major oil companies in July, and to the International Monetary Fund in September. Last month I met a group of twenty Iraqi MPs in Jordan, and I asked them how many had seen the legislation. Only one had."

Britain and the US have always hotly denied that the war was fought for oil. On 18 March 2003, with the invasion imminent, Tony Blair proposed the House of Commons motion to back the war. "The oil revenues, which people falsely claim that we want to seize, should be put in a trust fund for the Iraqi people administered through the UN", he said.

"The United Kingdom should seek a new Security Council Resolution that would affirm ... the use of all oil revenues for the benefit of the Iraqi people".

That suggestion came to nothing. In May 2003, just after President Bush declared major combat operations at an end, under a banner boasting "Mission Accomplished", Britain co-sponsored a resolution in the Security Council which gave the US and UK control over Iraq's oil revenues. Far from "all oil revenues" being used for the Iraqi people, Resolution 1483 continued to make deductions from Iraq's oil earnings to pay compensation for the invasion of Kuwait in 1990.

That exception aside, however, the often-stated aim of the US and Britain was that Iraq's oil money would be used to pay for reconstruction. In July 2003, for example, Colin Powell, then Secretary of State, insisted: "We have not taken one drop of Iraqi oil for US purposes, or for coalition purposes. Quite the contrary ... It cost a great deal of money to prosecute this war. But the oil of the Iraqi people belongs to the Iraqi people; it is their wealth, it will be used for their benefit. So we did not do it for oil."

Paul Wolfowitz, Deputy Defense Secretary at the time of the war and now head of the World Bank, told Congress: "We're dealing with a country that can really finance its own reconstruction, and relatively soon".

But this optimism has proved unjustified. Since the invasion, Iraqi oil production has dropped off dramatically. The country is now producing about two million barrels per day. That is down from a pre-war peak of 3.5 million barrels. Not only is Iraq's whole oil infrastructure creaking under the effects of years of sanctions, insurgents have constantly attacked pipelines, so that the only steady flow of exports is through the Shia-dominated south of the country.

Worsening sectarian violence and gangsterism have driven most of the educated e'lite out of the country for safety, depriving the oil industry of the Iraqi experts and administrators it desperately needs.

And even the present stunted operation is rife with corruption and smuggling. The Oil Ministry's inspector-general recently reported that a tanker driver who paid $500 in bribes to police patrols to take oil over the western or northern border would still make a profit on the shipment of $8,400.

"In the present state, it would be crazy to pump in more money, just to be stolen", said Greg Muttitt. "It's another reason not to bring in $20 billion of foreign money now".

Before the war, Mr Bush endorsed claims that Iraq's oil would pay for reconstruction. But the shortage of revenues afterwards has silenced him on this point. More recently he has argued that oil should be used as a means to unify the country, "so the people have faith in central government", as he put it last summer.

But in a country more dependent than almost any other on oil - it accounts for seventy per cent of the economy - control of the assets has proved a recipe for endless wrangling. Most of the oil reserves are in areas controlled by the Kurds and Shias, heightening the fears of the Sunnis that their loss of power with the fall of Saddam is about to be compounded by economic deprivation.

The Kurds in particular have been eager to press ahead, and even signed some small PSA deals on their own last year, setting off a struggle with Baghdad. These issues now appear to have been resolved, however: a revenue-sharing agreement based on population was reached some months ago, and sources have told the IoS that regional oil companies will be set up to handle the PSA deals envisaged by the new law.

The Independent on Sunday has obtained a copy of an early draft which was circulated to oil companies in July. It is understood there have been no significant changes made in the final draft. The terms outlined to govern future PSAs are generous: according to the draft, they could be fixed for at least thirty years. The revelation will raise Iraqi fears that oil companies will be able to exploit its weak state by securing favourable terms that cannot be changed in future.

Iraq's sovereign right to manage its own natural resources could also be threatened by the provision in the draft that any disputes with a foreign company must ultimately be settled by international, rather than Iraqi, arbitration.

In the July draft obtained by The Independent on Sunday, legislators recognise the controversy over this, annotating the relevant paragraph with the note, "Some countries do not accept arbitration between a commercial enterprise and themselves on the basis of sovereignty of the state".

It is not clear whether this clause has been retained in the final draft.

Under the chapter entitled "Fiscal Regime", the draft spells out that foreign companies have no restrictions on taking their profits out of the country, and are not subject to any tax when doing this.

"A Foreign Person may repatriate its exports proceeds [in accordance with the foreign exchange regulations in force at the time]". Shares in oil projects can also be sold to other foreign companies: "It may freely transfer shares pertaining to any non-Iraqi partners". The final draft outlines general terms for production sharing agreements, including a standard 12.5 per cent royalty tax for companies.

It is also understood that once companies have recouped their costs from developing the oil field, they are allowed to keep twenty per cent of the profits, with the rest going to the government. According to analysts and oil company executives, this is because Iraq is so dangerous, but Dr Muhammad-Ali Zainy, a senior economist at the Centre for Global Energy Studies, said: "Twenty per cent of the profits in a production sharing agreement, once all the costs have been recouped, is a large amount". In more stable countries, ten per cent would be the norm.

While the costs are being recovered, companies will be able to recoup sixty to seventy per cent of revenue; forty per cent is more usual. David Horgan, managing director of Petrel Resources, an Aim-listed oil company focused on Iraq, said: "They are reasonable rates of return, and take account of the bad security situation in Iraq. The government needs people, technology and capital to develop its oil reserves. It has got to come up with terms which are good enough to attract companies. The major companies tend to be conservative."

Dr Zainy, an Iraqi who has recently visited the country, said: "It's very dangerous ... although the security situation is far better in the north". Even taking that into account, however, he believed that "for a company to take twenty per cent of the profits in a production sharing agreement once all the costs have been recouped is large".

He pointed to the example of Total, which agreed terms with Saddam Hussein before the second Iraq war to develop a huge field. Although the contract was never signed, the French company would only have kept ten per cent of the profits once the company had recovered its costs.

And while the company was recovering its costs, it is understood it agreed to take only forty per cent of the profits, the Iraqi government receiving the rest.

Production sharing agreements of more than thirty years are unusual, and more commonly used for challenging regions like the Amazon where it can take up to a decade to start production. Iraq, in contrast, is one of the cheapest and easiest places in the world to drill for and produce oil. Many fields have already been discovered, and are waiting to be developed.

Analysts estimate that despite the size of Iraq's reserves - the third largest in the world - only 2,300 wells have been drilled in total, fewer than in the North Sea.

Confirmation of the generous terms - widely feared by international non government organisations and Iraqis alike - have prompted some to draw parallels with the production-sharing agreements Russia signed in the 1990s, when it was bankrupt and in chaos.

At the time Shell was able to sign very favourable terms to develop oil and gas reserves off the coast of Sakhalin island in the far east of Russia. But at the end of last year, after months of thinly veiled threats from the environment regulator, the Anglo-Dutch company was forced to give Russian state-owned gas giant Gazprom a share in the project.

Although most other oil experts endorsed the view that PSAs would be needed to kick-start exports from Iraq, Mr Muttitt disagreed. "The most commonly mentioned target has been for Iraq to increase production to six million barrels a day by 2015 or so", he said. "Iraq has estimated that it would need $20 billion to $25 billion of investment over the next five or six years, roughly $4 billion to $5 billion a year. But even last year, according to reports, the Oil Ministry had between $3 billion and $4 billion it couldn't invest. The shortfall is around $1 billion a year, and that could easily be made up if the security situation improved.

"PSAs have a cost in sovereignty and future revenues. It is not true at all that this is the only way to do it." Technical services agreements, of the type common in countries which have a state-run oil corporation, would be all that was necessary.

James Paul of Global Policy Forum, another advocacy group, said: "The US and the UK have been pressing hard on this. It's pretty clear that this is one of their main goals in Iraq." The Iraqi authorities, he said, were "a government under occupation, and it is highly influenced by that. The US has a lot of leverage ... Iraq is in no condition right now to go ahead and do this."

Mr Paul added: "It is relatively easy to get the oil in Iraq. It is nowhere near as complicated as the North Sea. There are super giant fields that are completely mapped, [and] there is absolutely no exploration cost and no risk. So the argument that these agreements are needed to hedge risk is specious."

One point on which all agree, however, is that only small, maverick oil companies are likely to risk any activity in Iraq in the foreseeable future. "Production over the next year in Iraq is probably going to fall rather than go up", said Kevin Norrish, an oil analyst from Barclays. "The whole thing is held together by a shoestring; it's desperate".

An oil industry executive agreed, saying: "All the majors will be in Iraq, but they won't start work for years. Even Lukoil [of Russia], the Chinese and Total [of France] are not in a rush to endanger themselves. It's now very hard for US and allied companies because of the disastrous war."

Mr Muttitt echoed warnings that unfavourable deals done now could unravel a few years down the line, just when Iraq might become peaceful enough for development of its oil resources to become attractive. The seeds could be sown for a future struggle over natural resources which has led to decades of suspicion of Western motives in countries such as Iran.

Iraqi trade union leaders who met recently in Jordan suggested that the legislation would cause uproar once its terms became known among ordinary Iraqis.

"The Iraqi people refuse to allow the future of their oil to be decided behind closed doors", their statement said. "The occupier seeks and wishes to secure ... energy resources at a time when the Iraqi people are seeking to determine their own future, while still under conditions of occupation".

The resentment implied in their words is ominous, and not only for oil company executives in London or Houston. The perception that Iraq's wealth is being carved up among foreigners can only add further fuel to the flames of the insurgency, defeating the purpose of sending more American troops to a country already described in a US intelligence report as a cause ce'le`bre for terrorism.

America protects its fuel supplies - and contracts

Despite US and British denials that oil was a war aim, American troops were detailed to secure oil facilities as they fought their way to Baghdad in 2003. And while former defence secretary Donald Rumsfeld shrugged off the orgy of looting after the fall of Saddam's statue in Baghdad, the Oil Ministry - alone of all the seats of power in the Iraqi capital - was under American guard.

Halliburton, the firm that Dick Cheney used to run, was among US-based multinationals that won most of the reconstruction deals - one of its workers is pictured, tackling an oil fire. British firms won some contracts, mainly in security. But constant violence has crippled rebuilding operations. Bechtel, another US giant, has pulled out, saying it could not make a profit on work in Iraq.

In just forty pages, Iraq is locked into sharing its oil with foreign investors for the next thirty years

A forty-page document leaked to the 'IoS' sets out the legal framework for the Iraqi government to sign production- sharing agreement contracts with foreign companies to develop its vast oil reserves.

The paper lays the groundwork for profit-sharing partnerships between the Iraqi government and international oil companies. It also lays out the basis for co-operation between Iraq's federal government and its regional authorities to develop oil fields.

The document adds that oil companies will enjoy contracts to extract Iraqi oil for up to thirty years, and stresses that Iraq needs foreign investment for the "quick and substantial funding of reconstruction and modernisation projects".

It concludes that the proposed hydrocarbon law is of "great importance to the whole nation as well as to all investors in the sector" and that the proceeds from foreign investment in Iraq's oilfields would, in the long term, decrease dependence on oil and gas revenues.

The role of oil in Iraq's fortunes

Iraq has 115 billion barrels of known oil reserves - ten per cent of the world total. There are 71 discovered oilfields, of which only 24 have been developed. Oil accounts for seventy per cent of Iraq's GDP and 95 per cent of government revenue. Iraq's oil would be recovered under a production sharing agreement (PSA) with the private sector. These are used in only twelve per cent of world oil reserves and apply in none of the other major Middle Eastern oil-producing countries. In some countries such as Russia, where they were signed at a time of political upheaval, politicians are now regretting them.

The $50 billion bonanza for US companies piecing a broken Iraq together

The task of rebuilding a shattered Iraq has gone mainly to US companies.

As well as contractors to restore the infrastructure, such as its water, electricity and gas networks, a huge number of companies have found lucrative work supporting the ongoing coalition military presence in the country. Other companies have won contracts to restore Iraq's media; its schools and hospitals; its financial services industry; and, of course, its oil industry.

In May 2003, the Coalition Provisional Authority (CPA), part of the US Department of Defence, created the Project Management Office in Baghdad to oversee Iraq's reconstruction.

In June 2004 the CPA was dissolved and the Iraqi interim government took power. But the US maintained its grip on allocating contracts to private companies. The management of reconstruction projects was transferred to the Iraq Reconstruction and Management Office, a division of the US Department of State, and the Project and Contracting Office, in the Department of Defence.

The largest beneficiary of reconstruction work in Iraq has been KBR (Kellogg, Brown & Root), a division of US giant Halliburton, which to date has secured contracts in Iraq worth $13 billion (GBP 7 billion), including an uncontested $7 billion contract to rebuild Iraq's oil infrastructure. Other companies benefiting from Iraq contracts include Bechtel, the giant US conglomerate, BearingPoint, the consultant group that advised on the drawing up of Iraq's new oil legislation, and General Electric. According to the US-based Centre for Public Integrity, 150-plus US companies have won contracts in Iraq worth over $50 billion.


30,000 Number of Kellogg, Brown and Root employees in Iraq.

36 The number of interrogators employed by Caci, a US company, that have worked in the Abu Ghraib prison since August 2003.

$12.1 billion UN's estimate of the cost of rebuilding Iraq's electricity network.

$2 trillion Estimated cost of the Iraq war to the US, according to the Nobel prize-winning economist Joseph Stiglitz.


"Oil revenues, which people falsely claim that we want to seize, should be put in a trust fund for the Iraqi people"

-- Tony Blair; Moving motion for war with Iraq, 18 March 2003

"Oil belongs to the Iraqi people; the government has ... to be good stewards of that valuable asset"

-- George Bush; Press conference, 14 June 2006

"The oil of the Iraqi people ... is their wealth. We did not [invade Iraq] for oil."

-- Colin Powell; Press briefing, 10 July 2003

"Oil revenues of Iraq could bring between $50 billion and $100 billion in two or three years ... [Iraq] can finance its reconstruction"

-- Paul Wolfowitz; Deputy Defense Secretary, March 2003

"By 2010 we will need [a further] fifty million barrels a day. The Middle East, with two-thirds of the oil and the lowest cost, is still where the prize lies"

-- Dick Cheney; US Vice-President, 1999

Copyright (c) 2006 Independent News and Media Limited

Bill Totten

Monday, January 29, 2007

Global Warming: The vicious circle

by Steve Connor, Science Editor

The Independent & The Independent on Sunday Online Edition (January 29 2007)

The effects of man-made emissions of carbon dioxide are being felt on every inhabited continent in the world with very different parts of the climate now visibly responding to human activity.

These are among the main findings of the most intensive study of climate change by 2,000 of the world's leading climate scientists. They conclude that there is now little doubt that human activity is changing the face of the planet.

In addition to rising surface temperatures around the world, scientists have now linked man-made emissions of greenhouse gases to significant increases in ocean temperatures, rises in sea levels and the dramatic melting of Arctic sea ice over the past 35 years.

A draft copy of the fourth report of the Intergovernmental Panel on Climate Change (IPCC) says that global temperature rises this century of between two and 4.5 degrees Celsius are almost inevitable. Ominously, however, it also says that much higher increases of six degrees Celsius "or more" cannot be ruled out.

The final version of the IPCC's latest report is to be published on Friday but a draft copy, seen by The Independent, makes it clear that climate change could be far worse than previously thought because of potentially disastrous "positive" feedbacks which could accelerate rising temperatures.

A warmer world is increasing evaporation from the oceans causing atmospheric concentrations of water vapour, a powerful greenhouse agent, to have increased by four per cent over the sea since 1970. Water vapour in the atmosphere exacerbates the greenhouse effect. This is the largest positive feedback identified in the report, which details for the first time the IPCC's concern over the uncertainties - and dangers - of feedback cycles that may quickly accelerate climate change.

All the climate models used by the IPCC also found that rising global temperatures will erode the planet's natural ability to absorb man-made carbon dioxide. This could lead to carbon dioxide concentrations in the atmosphere rising by a further 44 per cent, causing global average temperatures to increase by an additional 1.2 Celsius by 2100.

The IPCC's Fourth Assessment Report will go further than any of its three previous reports in linking the clear signs of global climate change with increases in man-made emissions of carbon dioxide and other greenhouse gases since the start of the Industrial Revolution.

"Confidence in the assessment of the human contributions to recent climate change has increased considerably since the Third Assessment Report", says the draft report. This is due to the stronger signs of climate change emerging from longer and more detailed records and scientific observations, it says.

The "anthropogenic signal" - the visible signs of human influence on the climate - has now emerged not just in global average surface temperatures, but in global ocean temperatures and ocean heat content, temperature extremes on the land and the rapidly diminishing Arctic sea ice. "Anthropogenic warming of the climate system is widespread and can be detected in temperature observations taken at the surface, in the free atmosphere and in the oceans", the draft report says. "It is highly likely [greater than 95 per cent probability] that the warming observed during the past half century cannot be explained without external forcing [human activity]."

The report adds that global warming over the past fifty years would have been worse had it not been for the counterbalancing influence of man-made emissions of aerosol pollutants, tiny airborne particles that reflect sunlight to cause atmospheric cooling. "Without the cooling effect of atmospheric aerosols, it is likely that greenhouse gases alone would have caused more global mean temperature rise than that observed during the last fifty years", the draft report says.

"The hypothetical removal from the atmosphere of the entire current burden of anthropogenic sulphate aerosol particles would produce a rapid increase of about 0.8 degrees Celsius within a decade or two in the globally averaged temperature."

The IPCC says that over the coming century we are likely to see big changes to the Earth's climate system. These include:

* Heat waves, such as the one that affected southern Europe in summer 2003, are expected to be more intense, longer-lasting and more frequent.

* Tropical storms and hurricanes are likely to be stronger, with increased rainfall and higher storm surges flooding coastlines.

* The Arctic is likely to become ice free in the summer, and there will be continued melting of mountain glaciers, ice caps and ice sheets.

* Sea levels will rise significantly even if levels of carbon dioxide are stabilised. By 2100 sea levels could be 0.43 metres higher on average than present, and by 2300 they could be up to 0.8 metres higher.

The IPCC also finally nails the canard of the climate sceptics who argue that global warming is a myth or the result of natural climate variability; natural factors alone cannot account for the observed warming, the IPCC says. "These changes took place at a time when non-anthropogenic forcing factors (that is, the sum of solar and volcanic forcing) would be expected to have produced cooling, not warming.

"There is increased confidence that natural internal variability cannot account for the observed changes, due in part to improved studies demonstrating that the warming occurred in both oceans and atmosphere, together with observed ice mass losses".

The report, the first draft of which was formulated last year, will be made public on Friday in Paris.

Key findings of the IPCC's fourth assessment report

* Global temperatures continue to rise with eleven of the twelve warmest years since 1850 occurring since 1995. Computer models suggest a further rise of about three degrees Celsius by 2100, with a six degrees Celsius rise a distant possibility

* It is virtually certain (there is more than a 99 per cent probability) that carbon dioxide levels and global warming is far above the range of natural variability over the past 650,000 years

* It is virtually certain that human activity has played the dominant role in causing the increase of greenhouse gases over the past 250 years

* Man-made emissions of atmospheric aerosol pollutants have tended to counteract global warming, which otherwise would have been significantly worse

* The net effect of human activities over the past 250 years has very likely exerted a warming influence on the climate

* It is likely that human activity is also responsible for other observed changes to the Earth's climate system, such as ocean warming and the melting of the Arctic sea ice

* Sea levels will continue to rise in the 21st Century because of the thermal expansion of the oceans and loss of land ice

* The projected warming of the climate due to increases in carbon dioxide during the 21st Century is likely to cause the total melting of the Greenland ice sheet during the next 1,000 years, according to some computer forecasting models

* The warm Gulf Stream of the North Atlantic is likely to slow down during the 21st Century because of global warming and the melting of the freshwater locked up in the Greenland ice sheet. But no models predict the collapse of that warm current by 2100.

Also in this section

* Where have all the birds gone?
* Shark! The great white fight and the creature from the deep
* Ice island the size of London threatens rigs
* Chic & cheerful (but not so great for the environment)
* Girl, 12, is fined for failing to recycle cardboard box

(c) 2006 Independent News and Media Limited

Bill Totten

Future of Iraq: The spoils of war

How the West will make a killing on Iraqi oil riches

by Danny Fortson, Andrew Murray-Watson and Tim Webb

The Independent (January 07 2006)

Iraq's massive oil reserves, the third-largest in the world, are about to be thrown open for large-scale exploitation by Western oil companies under a controversial law which is expected to come before the Iraqi parliament within days.

The US government has been involved in drawing up the law, a draft of which has been seen by The Independent on Sunday. It would give big oil companies such as BP, Shell and Exxon thirty-year contracts to extract Iraqi crude and allow the first large-scale operation of foreign oil interests in the country since the industry was nationalised in 1972.

The huge potential prizes for Western firms will give ammunition to critics who say the Iraq war was fought for oil. They point to statements such as one from Vice-President Dick Cheney, who said in 1999, while he was still chief executive of the oil services company Halliburton, that the world would need an additional fifty million barrels of oil a day by 2010. "So where is the oil going to come from? ... The Middle East, with two-thirds of the world's oil and the lowest cost, is still where the prize ultimately lies", he said.

Oil industry executives and analysts say the law, which would permit Western companies to pocket up to three-quarters of profits in the early years, is the only way to get Iraq's oil industry back on its feet after years of sanctions, war and loss of expertise. But it will operate through "production-sharing agreements" (or PSAs) which are highly unusual in the Middle East, where the oil industry in Saudi Arabia and Iran, the world's two largest producers, is state controlled.

Opponents say Iraq, where oil accounts for 95 per cent of the economy, is being forced to surrender an unacceptable degree of sovereignty.

Proposing the parliamentary motion for war in 2003, Tony Blair denied the "false claim" that "we want to seize" Iraq's oil revenues. He said the money should be put into a trust fund, run by the UN, for the Iraqis, but the idea came to nothing. The same year Colin Powell, then Secretary of State, said: "It cost a great deal of money to prosecute this war. But the oil of the Iraqi people belongs to the Iraqi people; it is their wealth, it will be used for their benefit. So we did not do it for oil."

Supporters say the provision allowing oil companies to take up to 75 per cent of the profits will last until they have recouped initial drilling costs. After that, they would collect about twenty per cent of all profits, according to industry sources in Iraq. But that is twice the industry average for such deals.

Greg Muttitt, a researcher for Platform, a human rights and environmental group which monitors the oil industry, said Iraq was being asked to pay an enormous price over the next thirty years for its present instability. "They would lose out massively", he said, "because they don't have the capacity at the moment to strike a good deal".

Iraq's Deputy Prime Minister, Barham Salih, who chairs the country's oil committee, is expected to unveil the legislation as early as today. "It is a redrawing of the whole Iraqi oil industry [to] a modern standard", said Khaled Salih, spokesman for the Kurdish Regional Government, a party to the negotiations. The Iraqi government hopes to have the law on the books by March.

Several major oil companies are said to have sent teams into the country in recent months to lobby for deals ahead of the law, though the big names are considered unlikely to invest until the violence in Iraq abates.

James Paul, executive director at the Global Policy Forum, the international government watchdog, said: "It is not an exaggeration to say that the overwhelming majority of the population would be opposed to this. To do it anyway, with minimal discussion within the [Iraqi] parliament is really just pouring more oil on the fire."

Vince Cable, the Liberal Democrat Treasury spokesman and a former chief economist at Shell, said it was crucial that any deal would guarantee funds for rebuilding Iraq. "It is absolutely vital that the revenue from the oil industry goes into Iraqi development and is seen to do so", he said. "Although it does make sense to collaborate with foreign investors, it is very important the terms are seen to be fair".

Bill Totten

Sunday, January 28, 2007

The oil rush

The Independent (January 07 2007)

"The oil can is mightier than the sword", said the 19th-century US Senator Everett Dirksen. Nowhere does this seem more true than in contemporary Iraq where, despite widespread despair about the war's costs in terms of blood and treasure, US corporations look set to be some of the conflict's few winners. The announcement that the Iraqi government is planning to change its constitution to allow foreign extraction of oil will give Western companies access to the world's third largest oil reserves. Production sharing agreements (PSAs), lasting for up to thirty years, will divert up to 75 per cent of Iraqi oil revenues to Western drilling companies until their initial investment costs have been recouped. The importance of this cannot be overstated for a shattered country still reliant on oil for 95 per cent of its income.

Of course, the Iraqi oil industry, starved through years of sanctions and now under constant insurgent attack, badly needs Western investment. Only a small proportion of Iraq's known oil fields have been developed, and production still languishes below pre-invasion levels. The neo-conservative dream - indulged in by Paul Wolfowitz and Dick Cheney prior to the conflict - that the invasion and reconstruction would be self-financed through a twist of the oil taps, dissipated long ago.

In a country where unemployment has hit seventy per cent, a policy that will quicken the pace of economic reconstruction should be universally welcomed. At face value, the measure is not being imposed by the fiat of a US general: it will be voted on in the Iraqi parliament and, if passed, enacted by a democratically elected government. And objections that foreign companies will steal Iraq's birthright seem faintly anachronistic in the global economy: specialist engineering is an international industry these days, and Iraq's command economy, isolated from the rest of the world, urgently requires liberalisation.

But it doesn't demand the fevered imaginings of a conspiracy theorist to think that this law, struck while the beleaguered Iraqi government is facing opposition from all quarters, protects the interests of oil wealth (which is so well represented in the White House) more than it does the Iraqi people. Production sharing agreements don't apply in most other major Middle Eastern oil producers because they are widely thought to grant greater control to companies than governments. With economies so heavily dependent on oil, it's hard to see how countries can truly be self-governing if they sign away influence over their almost exclusive source of wealth.

Legitimate questions must be asked. How did this decision come to be made? How much pressure was President Nouri al-Maliki placed under to bend to the American corporate interests? Conservative US thinktanks such as the Heritage Foundation have been plotting the wholesale privatisation of the Iraqi oil industry for years. Since 2003, the supposed reconstruction of Iraq by US companies has left a bitter taste with most Iraqis who see a symbiotic relationship between the US military and big business that would make a British district commissioner in imperial Africa blush.

From the immediate aftermath of the invasion, the ill-fated US proconsul, Paul Bremer, denied the Iraqi government the ability to give preference to Iraqis in the reconstruction effort. Instead, US companies were awarded contracts totalling more than $50 billion. And they have conspicuously failed to deliver. Despite billions spent, clean water, sanitation and electricity are below pre-war levels. The spectre of Americans scouting the country for oil at the same time as the death toll from the insurgency reaches new heights could shatter whatever residual faith is left among the Iraqis in the intentions of Western policy. Iraqis will reach the natural conclusion that, from the beginning, the Iraq adventure was an attempt to steal imperial spoils.

Before the war, to meet precisely these criticisms, Tony Blair promised that a development fund for Iraq was to be established to hold in trust the proceeds from oil sales under United Nations control. But, like so many of the concessions that the Prime Minister attempted to squeeze out of the President, this got lost somewhere in the Oval Office.

This is not the moment to rehearse the causes of the Iraq war, disputed as they are, but this newspaper has always been sceptical that it was "all about oil". Yet, at a time when the Americans and British are desperate to establish some sort of credit on the ground in Iraq, to make some claim on Iraqi hearts and minds, this arrangement looks terrible. What greater fuel could a conspiracy theorist want than the news of this oilman's bonanza? Was it mere coincidence that the war's most vociferous champions, such as Dick Cheney, were former oilmen? Policymakers would do well to remember that long and lucrative contracts handed to Western oil companies by the Shah of Iran during the 1960s led to a widespread feeling that the country was raped.

The Iranian revolution was the bitter harvest of a previous generation's oil greed in the Middle East. It would be to heap a further tragedy on Iraq if, in a country where the appearance of things can be as important as how they really are, the perception was to grow yet further that it was American greed that took the country to war. The importance of reflecting honourable intentions towards the Iraqi people is all the more important in a week when, in the teeth of a new Democrat-controlled Congress, President Bush is expected to announce a "surge" of 20,000 troops to "secure" Baghdad. After spending the Christmas break reflecting on Iraq policy, the President seems to have chosen what his obstinate character always suggested: to ignore the conventional wisdom and dig the hole in which Iraq policy is mired ever deeper.

After years of repeating his stay-the-course mantra, it was unlikely that, whatever the appalling evidence from Baghdad, George Bush would suffer the ignominy of admitting defeat. With ratings of his handling of the war at an all-time low, this is George Bush's final chance to avoid his presidency being branded as one of the worst in history. Like a gambler who has stacked up losses and hopes that one more lucky throw will rescue him, the President thinks that a modest additional deployment in Baghdad will see him vindicated by what he likes to call the "long march of history".

But, as General Wesley Clark writes today, the situation in Baghdad departed from the well-laid plans of Pentagon planners long ago. There have been attempts to retake Baghdad before by flooding it with troops stationed in the rest of the country - only to see the violence get worse. US troops are not in a position to stem the Sunni-Shia violence, and an overwhelming majority of Iraqis from across the ethnic divide now no longer believe that the troops are helping the situation.

With the death toll of US troops slipping over the 3,000 mark during the Christmas lull, there is a real risk that additional men and materiel in Iraq will merely provide more sitting targets for the insurgents to attack.

Bill Totten

Saturday, January 27, 2007

The Things We Do For Oil

by Justin Podur

ZNet Commentary (January 08 2007)

Review of Garry Leech, Crude Interventions: The United States, Oil and the New World Disorder (Zed Books, 2006).

Garry Leech's book is not a book about oil so much as what the United States does in the world in order to control it. Using oil as a window, Leech explores US foreign policy since 2001 in five regions: Iraq, Central Asia, West Africa, Colombia, and Venezuela. In doing so, Leech provides a useful basic primer on US military, economic, and corporate interventions in the world. His book, like his previous work, Killing Peace: Colombia's Conflict and the Failure of US Intervention (Information Network of Americas, 2002), and his online journal - - are clearly written and very useful in getting up to speed. He also provides detailed references and footnotes for those who want to pursue matters further.

On Iraq, Leech provides background necessary to understanding what is happening now, as the US presents an image of ancient hatreds tearing the place apart. He starts with the rise of Saddam, US support for him through the period of the Iran-Iraq war, the first destruction of Iraq in Gulf War I, through the sanctions and the re-destruction and ongoing occupation. Using oil as the unifying theme through the book leads Leech to emphasize some aspects of the Iraq occupation that are common to US interventions throughout the world: the neoliberal restructuring of Iraq's economy, the looting of Iraq's resources to provide profits for the US government's friends, the cynical use of propaganda, and the flouting of international law and human rights.

The emphasis on oil also makes elements of US foreign policy clearer. The seeming inconsistency, for example, between supporting Saddam against Iran in the 1980-1988 war, and destroying Iraq when Saddam invaded Kuwait in 1990, disappears when oil enters the picture: "In actuality, the United States did respond in much the same way it had when Iraq invaded Iran: it defended its oil interests. In 1990, Saudi Arabia was exporting 1.3 billion barrels of oil a day to the United States, almost three times as much as Iraq. As it had done a decade earlier, the United States sided with its most important oil supplier." (page 23)

On Central Asia, Leech provides useful background on a part of the world where the US has been moving very fast without much attention. The Central Asian republics, Leech reminds us, had their borders drawn at the behest of Stalin, who "created the five republics (Uzbekistan, Turkmenistan, Tajikistan, Kazakhstan, Kyrgyzstan) based on the demographics of different ethnic groups with the objective of making people self-identify with their particular ethnicity rather than as Muslims". (page 57) But in the 1990s, after the end of the USSR and as the republics became independent, control passed into the hands of authoritarian governments who repressed dissent, gave basing rights to the US military and resource rights to US corporations.

Leech tells the story of Kazakhstan, Azerbaijan, Turkmenistan and Uzbekistan. Uzbekistan's dictator, Karimov, is one of the world's worst human rights violators - and a valued ally in the US Terror War. Azerbaijan suffered a long civil war between the majority Azeri and minority Armenian community. Kazakhstan's officials gave oil contracts to US corporations, making personal fortunes that became bribery scandals, conducting IMF restructuring, and imposing poverty and deprivation on the population. In all three of these cases, the beneficiaries - of repression, civil war, and restructuring - are the US and its oil interests, who end up with the resources and the basing rights in spite of (or more aptly because of) these violations. Turkmenistan refused to open its economy, freezing the US out, which has led to slower economic decline - though political freedom fares no better than in US-allied states.

Leech visits another under-reported region in his chapter on West Africa. He tells the story of Shell and Chevron in Nigeria, and how that country's military has repressed minority communities like the Ogoni and the Ijaw in the service of the oil companies. He provides a succinct discussion of Angola's convoluted civil war and the even more convoluted role of foreign powers, including Cuba, South Africa, France, and the United States, in it. Here too, war and repression have facilitated lucrative contracts by the likes of ExxonMobil, ChevronTexaco, BP-Amoco, Shell and Total.

Leech's book is at its strongest in his final chapters on Colombia and Venezuela, places where he has extensive experience. Here he demonstrates his knowledge and skill in explaining Colombia's civil war and the US interest in it. Because he has already discussed Iraq, Central Asia, and West Africa in the context of oil, much of the fog preventing a sober understanding of the real logic of Colombia's war has already been dispelled by the time the discussion of Colombia arises. Colombia's war, like so many others Leech discusses, has the effect of displacing people from resource-rich territories and destroying social opposition to the seizure of the country's resources by multinational corporations. The drug war, the terror war, function as cover stories for this basic logic: "In order to secure the flow of Colombian oil to the United States, Washington has used the wars on drugs and terror to justify providing vast amounts of aid to a military apparatus closely linked to right-wing paramilitaries on the State Department's foreign terrorist list". (page 166)

Venezuela, meanwhile, provides an alternative to the oil-fueled nightmares suffered by the populations of the regions Leech has discussed in previous chapters. Here, a democratic regime uses revenues from oil to fund social programs and a foreign policy of international solidarity. As with the other regions, Leech provides necessary background and recent political history: with Venezuela, a history of events leading up to the election of Venezuela's current president Hugo Chavez, the repeated attempts by US-backed opposition movements to oust him from power, and the popular redistributive policies Chavez's government has been able to pass in recent years.

Leech's clear and succinct style could have been brought to bear on a number of other, important, and oil-related conflicts and regions where the US is involved and that badly need some clear explanation. Iran, the Sudan, Egypt, North Africa, the Arabian peninsula, and Southeast Asia all come to mind. Also interesting are questions of oil policy in the North itself: Alberta, Texas, and Norway all come to mind. Leech's global approach starts to tempt the reader to make global connections and see oil in the big picture, but leaves so many connections for the reader to follow up. While he alludes to climate change in his conclusion (noting on page 220 that "continued burning of fossil fuels is proving increasingly devastating to the environment"), more discussion of the consequences, and potential consequences, of US oil policy for the people of the planet would have been highly appropriate in a book on this subject coming at this time. Still, one can always fault the author of a short book for leaving the reader wanting more. In truth the important task Leech takes on, he does well: opens the door to seeing one of the world's most urgent issues in context, and from the point of view of some of those who suffer the most.


Justin Podur is a Toronto based writer. He can be reached at


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Bill Totten

Friday, January 26, 2007

Clusterfuck Nation Chronicles

Comment on current events

by Jim Kunstler

author of The Long Emergency (Atlantic Monthly Press, 2005)

The Cheap Oil Mirage (January 15 2007)

The American public is understandably happy to see the bottom fall out of the oil futures market. But temporary circumstances are only sending them another false signal that everything is perfectly okay on the oil scene. And it only reinforces the foolish belief that when prices go up it is solely because corporate finaglers tweak them up on purpose. In fact, these days it's the other way around: often prices go down because corporate finaglers are tweaking the markets, dumping positions, playing shorts rather than acting like real oil users bidding on real contracts for delivery for real purposes like making gasoline. When oil goes up, as it certainly will again, it is primarily because of geology - what's left in the ground - and secondarily because of geopolitics - where it's left in the ground (and what's happening there).

The supernaturally warm winter temperatures have also played a part, keeping inventories high while the home furnaces idle. (Last week it was seventy degrees in Albany, New York.) There is surely some demand destruction in the background. Third World nations are increasingly dropping out of the bidding (meaning their generators quit making electricity and their trucks stop running). And a contracting US economy may also play a part. But even these circumstances may not overcome the supply problems in the real oil world. Here's what's going on:

As a baseline, it helps to understand that the four largest super-giant oil fields of the world are now in decline. They have been responsible for producing fourteen percent of the world's oil supply. They are now old and tired (thirty years is old in the oil world) and they are in depletion. These are The Cantarell field of Mexico, the Burgan field of Kuwait, the Daqing field of China, and the granddaddy of them all, the Ghawar field of Saudi Arabia.

The Cantarell field is a horror story. Pemex, the Mexican national oil company, tried to conceal the dire developments, because Cantarell alone is practically the whole Mexican oil industry. But it is now self-evident that Cantarell is crashing, with a forty percent annual decline rate projected ahead, meaning a couple of years and it's out. Mexico is America's second largest source of oil imports (after Number One Canada and before Number Three Saudi Arabia). When Cantarell crashes, the Mexican oil industry will crash and the US will be out a major source of imported oil. The US will also be out of imports that were so conveniently close they could be shipped by pipeline rather than tanker ships. For its part, Mexico will be out of a major source of export hard currency revenue and as its economy crashes will probably become even more politically unstable - meaning more Mexican citizens desperately seeking to get out. Guess where.

Burgan is is in decline. The Kuwaitis announced it themselves last year. Daqing has been the major source of China's domestic oil, which is otherwise paltry, meaning Daqing's decline will only make China more desperate for imports. Ghawar remains shrouded in mystery, since Saudi Aramco does not welcome outside audits. But at fifty years old it is well past the mean age of peak production for oil fields and that alone probably tells the story. Beyond that, we know that Ghawar is producing with a (best case) 35 percent "water cut" (and perhaps much higher). They have to pump seawater into the field (a standard practice) to keep the oil coming out under pressure. The trouble is that they are getting this substantial water cut after redeploying their equipment for horizontal drilling - an ominous sign. Saudi Arabia declared last year that it would increase production to twelve million barrels a day by 2009. By close of 2006, it appeared to have trouble producing nine million, with prospects for a four percent annual decline rate in the years just ahead.

Elsewhere, Iran is not only past peak, but its domestic demand is so high that it cannot maintain its export levels. The North Sea, which saved the West's ass through the 1990s, is now crapping out at a steep decline rate. Iraq is on track to Palookaville, despite substantial reserves, and even if, by some miracle, its tired old oil infrastructure survives the war, the US may lose access to future production for geopolitical reasons that should be obvious.

Venezuela is past peak for conventional liquid crude and hurting badly for technical expertise to work its oil fields since Hugo Chavez purged the state oil company's management. Last year, Venezuela had to import Russian oil to avoid defaulting on contracts. Whatever the true condition of Venezuela's industry, Chavez is not disposed favorably toward the US - he hosted Iran's president Ahmadinejad last week to signal that both of them were on the same page where the US was concerned.

The situation in US production is grim. We peaked in 1970. East Texas is near total depletion, with a 99 percent water cut (it produces "oil-stained water). Prudhoe Bay in Alaska now has a 75 percent water cut. We're on track to produce under five million barrels a day in 2007 (down from a 1970 high of about ten million), and heading relentlessly further down year-on-year. We burn through more than twenty million barrels a day. Do the math and see above (re: potential imports) for our prospects.

So, for now the US public (here in the East, anyway) is enjoying both a winter-of-no-winter and a season of comfortably lower oil prices. The financial markets are doing a triumphal dance in expectation of soaring equity values. And the news media is lumbering along with its head up its ass.

Last week, however, the US Senate Committee on Energy and Natural Resources, in an extraordinary session, heard testimony that the nation is in grave danger of a permanent oil crisis. Some of these senators affected to be shocked and surprised. What planet have they been living on? What is the nation getting for the hundreds of million of dollars paid to their staffers? Outgoing Republican chair, Senator Pete Domenici (Republican, New Mexico), said to the witnesses that "what you told us today is absolutely startling with reference to the future". Is it too early for a dumbfuck of the year award?

Perhaps the most valuable message the committee got came from Dr Flynt Leverett from the New America Foundation, who said: "... there is no economically plausible scenario for a strategically meaningful reduction in the dependence of the United States and its allies on imported hydrocarbons during the next quarter century". That's the straight dope and we'd better stop pretending otherwise.

We'd also better stop pretending that alternate fuels such as ethanol, bio-diesel, coal liquids, or hydrogen will allow us to keep up the happy motoring. We have to make other arrangements for daily life. We don't have a moment to lose. Our "to do" list is very long. If we waste our time in recrimination or hand wringing we are going to lose the things we value most, including an orderly society. So, don't be fooled by the temporary fall in oil prices. We're in the zone of the long emergency.

Bill Totten

Thursday, January 25, 2007

The New Friends of the Earth?

The superstores are suddenly competing to be green.
Can we trust them?

by George Monbiot

Published in the Guardian (January 23 2007)

You batter your head against the door until you begin to wonder whether it is a door at all. Suddenly it opens, and you find yourself flying through space. The superstores' green conversion is astonishing, wonderful, disorienting. If Tesco and Walmart have become friends of the earth, are any enemies left?

These were the most arrogant of the behemoths. They have trampled their suppliers, their competitors and even their regulators. They have smashed local economies, broken the backs of the farmers, forced their contractors to drive down wages, shrugged off complaints with a superciliousness born of the knowledge that they were unchallengeable. For them, it seemed, there was no law beyond the market, no place too precious to be destroyed, no cost they could not pass to someone else.

We environmentalists developed a picture of the world which seemed to be repeatedly confirmed by experience. Big corporations destroy the environment. They are the enemies of society. The bigger they become, the less they can be constrained by either democracy or consumer power. The politics of scale permit them to bully governments, tear up standards, reshape the world to suit themselves.

We also recognised that this was a dialectical process. As businesses began to operate globally, so could the campaigns against them. By improving global communications and ensuring that we could all speak their language, they helped us to confront them more effectively.

But hardly anyone believed that change could happen so fast. Through the 1980s and 1990s, they brushed us off like dust. Then, as a result of powerful campaigns against sweatshops in the US and Europe, some of the big clothing and sports retailers broke ranks. Soon after that, the energy companies started announcing big investments in renewable technologies (though not, unfortunately, any corresponding disinvestments in fossil fuel). But the supermarkets have shifted faster than anyone else. Environmental campaigners are partly responsible (listen to how the superstore bosses keep name-checking the green pressure groups); even so, their sudden conversion leaves us reeling.

Embarrassingly, for those of us who have scorned the idea of corporate social responsibility, some of these companies now claim to be setting higher standards than any government would dare to impose on them. Marks and Spencer, for example, has promised to become carbon neutral and to cease sending waste to landfill by 2012, and to stop stocking any fish, wood or paper which has not been sustainably sourced {1}. Tesco promises to attach a carbon label to all its goods {2}. Walmart now says it will run its US stores entirely on renewable energy {3}.

These standards, moreover, are rather higher than those the British government sets for itself. Marks and Spencer has pledged to use carbon offsets (paying other people to make cuts on its behalf) only as (a last resort) {4}. The government uses them as a first resort {5}. Could it be true, as the neoliberals insist, that markets can do more to change the world than governments?

If so, it reflects democratic failure as much as market success. Held back by forces both real and imagined, politicians have failed to confront the environmental crisis, just as they have failed to tackle inequality, or to challenge the power of the White House, the media barons, the corporations and the banks. The choice between two rival brands of margarine appears to have become more meaningful than the choice between Labour and the Conservatives.

It is also true to say that the Walmart Effect is a real one. When a huge company changes course, the impacts are felt all over the world. One positive decision by the leviathan rumbles more widely than a thousand decisions by its smaller competitors.

But those of us who have fought for the environment and against big business have not yet become redundant. There is plenty to celebrate in the recent announcements and plenty to suspect. Tesco, for example, has made some bold commitments, to which it might eventually be held. At the moment they are weeviled with contradictions and evasions.

In his speech on Thursday, the company's chief executive, Sir Terry Leahy, spoke of the sophisticated new refrigeration techniques Tesco will use, which will allow the chain to reduce its consumption of climate changing gases called hydrofluorocarbons {6}. But at no point did he mention an environmental technology called the door. How can you claim your stores are sustainable if the fridges and freezers don't have doors?

Tesco's press officer was unable to tell me whether the energy savings the company has promised (fifty per cent per square metre by 2010) will be independently audited {7}. If not, the promise is worthless - a company can make any claim it likes if there is no outside body to hold it to account.

Leahy announced that he would respond to one of the biggest complaints of the green groups by cutting the distance that Tesco's products travel, especially by air. He would also switch some of Tesco's road freight (he did not say how much) to rail. But he said nothing about reducing the journeys made by his customers. Shopping accounts for twenty per cent of car journeys in the UK, and twelve per cent of the distance covered {8}. By closing their out-of-town stores and replacing them with warehouses and deliveries, the supermarket chains could both reduce the energy costs of their buildings and (according to government figures) cut the traffic caused by shopping by seventy per cent {9}.

Today the Competition Commission will publish the initial results of its inquiry into the market dominance of the superstores. One of the issues it is investigating is the (land bank) accumulated by Tesco - a huge portfolio of sites on which the company appears to be sitting until it can obtain planning permission. Many of them are out of town. If Tesco develops them, it will drag even more cars onto the road. Out-of-town shopping is incompatible with sustainability.

So, perhaps, is the sheer scale of the business. Walmart and Tesco can change the world at the stroke of a pen, but one decision they will not make voluntarily is to relax their grip on local economies. It will always be harder for small businesses to work with a global behemoth than with the local baker or butcher; Tesco's economy will continue to favour the big, distant supplier over the man down the road. And what of the sense of community independent small shops help to foster, which encourages people to make their friends close to home? If love miles are the most intractable cause of climate change, we need to start cultivating as much community spirit as we can.

But there is a bigger contradiction than this, which has been overlooked by both the supermarkets and many of their critics. (The green movement,) Terry Leahy tells us, (must become a mass movement in green consumption.) {10} But what about consuming less? Less is the one thing the superstores cannot sell us. As further efficiencies become harder to extract, their growth will eventually outstrip all their reductions in the use of energy. This is not Tesco's problem alone: the green movement's economic alternatives still lack force.

The big retailers are competing to convince us that they are greener than their rivals, and this should make us glad. But we still need governments, and we still need campaigners.


1. Marks and Spencer,15th January 2007. Plan A.

2. Sir Terry Leahy, 18th January 2007. Green Grocer? Tesco, Carbon and the Consumer. Text of speech sent to me by Tesco.

3. Jonathan Birchell, 22nd January 2007. Sun Rises over Wal-Mart's Power Policy. Financial Times.

4. Marks & Spencer, 15th January 2007. Marks & Spencer launches (Plan A)- GBP 200 million 'eco-plan'.

5. See Department of Trade and Industry, July 2006. The Energy Challenge - Energy Review, pages 13 & 51.

6. Sir Terry Leahy, ibid.

7. Trevor Datson, 19th January 2007.

8. Department for Transport, 2005. Transport Statistics Bulletin, Section 7, Table 7.2.

9. S Cairns et al, 2004. Home shopping. Chapter in Transport for Quality of Life, p324. Report to the Department for Transport. The Robert Gordon University and Eco-Logica London, UK.

10. Sir Terry Leahy, ibid.

Bill Totten

Wednesday, January 24, 2007

Clusterfuck Nation Chronicles

Comment on current events

by Jim Kunstler

author of The Long Emergency (Atlantic Monthly Press, 2005)

The Warming (January 08 2007)

Everyone was walking around upstate New York delirious in their shirtsleeves on Saturday as the thermometer soared into the sixties (an all-time record for January here). The resource cornucopians were beside themselves with glee as the price of crude oil nose dived down to the mid-$50 range, proving what ninnies we peak oil alarmists are. The mustard greens we planted last July are still growing in the garden. The cat caught a garter snake. And later that evening those fluffy things in the headlights were moths, not snowflakes.

It was hard not to enjoy the end of the world. But despite all the high spirits and the roller-bladers and the kids hoisting their Ben-and-Jerry's cones, one was provoked to wonder about all the deer ticks out there enjoying an extra breeding cycle, not to mention the deer themselves, fattening up on prematurely swelling buds, and the pine bark beetles we've been hearing about up the road in the Adirondacks.

And for the really farsighted, there is the contemplation of what summer might be like. After all, if it is 67 in January, might it be 107 in July? And maybe that won't be so groovy. The electric grid is much more stressed out when all the air-conditioners are humming across the land. I'm not looking forward to Lyme disease, West Nile virus, or maybe even Dengue fever, either.

While it seems morally upright to inveigh against global warming Al Gore style, personally I don't believe there is anything we will do about it, or can do about now. The feedback loops are in motion. Something ominous is underway far greater than our measly powers can correct. Even if we started it with about two hundred years of our fossil fuel fires, there is no evidence that can just stop burning coal, oil, and methane gas on the grand scale, or that the warming would stop if we did.

The response of our political leaders is laughable. The most "progressive" among them will demand rapid conversion of the US automobile fleet to hybrid engines. I am confident that this would do absolutely nothing to put the brakes on global warming.

As usual, I am much more interested in how events are likely to turn out than in how we wish them to turn out. My guess is that the weird weather we are getting will increasingly affect crop yields. With populations growing, and weather anomalies increasing, grain surpluses worldwide are now at their lowest point in decades. All the major grain-growing regions have suffered either significant drought (US, Australia, Ukraine, China, Argentina) or flooding (East Africa, India) in recent years. {1}

The poorer, "undeveloped" nations are feeling the pain first, as usual, and this pain is translating into political breakdown, violence, starvation, and genocide. At the same time, these poorer places are leaving the oil age behind. they have dropped out of the bidding as oil made its move above the $50-a-barrel mark. In these countries, there will no longer be fuel for electric generators or motor transport, and the primary manifestation of all that will be a breakdown of public health. Between the political death squads and the hospitals with no running water, tremendous forces for attrition are underway.

Oil priced beyond the means of Third Worlders means more for America, for the moment, and indeed the public here is glorying in still-affordable gasoline. Judging by the evidence in the supermarket aisles, there have been no noticeable Cheez Doodle shortages. There are certain Third World countries, however, that also happen to be major oil producers. Nigeria, for instance. It is already a very chaotic state. The oil there is extracted mainly by multinational corporations who pay substantial royalties and licensing fees to the Nigerian government. The people of Nigeria mostly do without. Increasingly, they are tapping into pipelines illegally and siphoning off oil. Meanwhile, a quasi Civil War has provoked assaults and kidnappings against the oil infrastructure and foreign workers. Sooner or later, Nigeria will become too chaotic and its oil supply will go off-line, so to speak, perhaps permanently. When that happens, the happy motorists in Atlanta and the San Fernando Valley may start to notice that something is happening.

Global warming will not get our attention this winter. It's too pleasurable here in the northeast US, where so many decisions are made. The new Democratic congress may blather about it, but there will be no policies or protocols, just as there will be none about the other "elephant in the room" - overpopulation. There's not a damn thing we're going to do about it. You can deplore it, but then what?

Of course, I maintain that there is a broad range of actions we could take in the US that would constitute an intelligent response to this Long Emergency of climate change and oil depletion. The most important thing we could do at the moment is to stop debating about all the different "innovative" ways to run our cars, and come to grips with the fact that we have to leave the happy motoring era behind us, period. I don't see Nancy Pelosi taking the lead on this one. She'll just bring a new kindergarten veneer to the same old politics of denial. The mid-winter cherry blossoms will only make the denial seem more festive.


{1} See "Crop Prospects and Food Situation" from the Food and Agriculture Organization of the United Nations at

Bill Totten

Tuesday, January 23, 2007

Closing the 'Collapse Gap'

The USSR was better prepared for peak oil than the US

by Dmitry Orlov

Energy Bulletin (December 04 2006)

Good evening, ladies and gentlemen. I am not an expert or a scholar or an activist. I am more of an eye-witness. I watched the Soviet Union collapse, and I have tried to put my observations into a concise message. I will leave it up to you to decide just how urgent a message it is.

My talk tonight is about the lack of collapse-preparedness here in the United States. I will compare it with the situation in the Soviet Union, prior to its collapse. The rhetorical device I am going to use is the "Collapse Gap" - to go along with the Nuclear Gap, and the Space Gap, and various other superpower gaps that were fashionable during the Cold War.

The subject of economic collapse is generally a sad one. But I am an optimistic, cheerful sort of person, and I believe that, with a bit of preparation, such events can be taken in stride. As you can probably surmise, I am actually rather keen on observing economic collapses. Perhaps when I am really old, all collapses will start looking the same to me, but I am not at that point yet.

And this next one certainly has me intrigued. From what I've seen and read, it seems that there is a fair chance that the US economy will collapse sometime within the foreseeable future. It also would seem that we won't be particularly well-prepared for it. As things stand, the US economy is poised to perform something like a disappearing act. And so I am eager to put my observations of the Soviet collapse to good use.

I anticipate that some people will react rather badly to having their country compared to the USSR. I would like to assure you that the Soviet people would have reacted similarly, had the United States collapsed first. Feelings aside, here are two 20th century superpowers, who wanted more or less the same things - things like technological progress, economic growth, full employment, and world domination - but they disagreed about the methods. And they obtained similar results - each had a good run, intimidated the whole planet, and kept the other scared. Each eventually went bankrupt.

The USA and the USSR were evenly matched in many categories, but let me just mention four.

The Soviet manned space program is alive and well under Russian management, and now offers first-ever space charters. The Americans have been hitching rides on the Soyuz while their remaining spaceships sit in the shop.

The arms race has not produced a clear winner, and that is excellent news, because Mutual Assured Destruction remains in effect. Russia still has more nuclear warheads than the US, and has supersonic cruise missile technology that can penetrate any missile shield, especially a nonexistent one.

The Jails Race once showed the Soviets with a decisive lead, thanks to their innovative GULAG program. But they gradually fell behind, and in the end the Jails Race has been won by the Americans, with the highest percentage of people in jail ever.

The Hated Evil Empire Race is also finally being won by the Americans. It's easy now that they don't have anyone to compete against.

Continuing with our list of superpower similarities, many of the problems that sunk the Soviet Union are now endangering the United States as well. Such as a huge, well-equipped, very expensive military, with no clear mission, bogged down in fighting Muslim insurgents. Such as energy shortfalls linked to peaking oil production. Such as a persistently unfavorable trade balance, resulting in runaway foreign debt. Add to that a delusional self-image, an inflexible ideology, and an unresponsive political system.

An economic collapse is amazing to observe, and very interesting if described accurately and in detail. A general description tends to fall short of the mark, but let me try. An economic arrangement can continue for quite some time after it becomes untenable, through sheer inertia. But at some point a tide of broken promises and invalidated assumptions sweeps it all out to sea. One such untenable arrangement rests on the notion that it is possible to perpetually borrow more and more money from abroad, to pay for more and more energy imports, while the price of these imports continues to double every few years. Free money with which to buy energy equals free energy, and free energy does not occur in nature. This must therefore be a transient condition. When the flow of energy snaps back toward equilibrium, much of the US economy will be forced to shut down.

I've described what happened to Russia in some detail in one of my articles, which is available on I don't see why what happens to the United States should be entirely dissimilar, at least in general terms. The specifics will be different, and we will get to them in a moment. We should certainly expect shortages of fuel, food, medicine, and countless consumer items, outages of electricity, gas, and water, breakdowns in transportation systems and other infrastructure, hyperinflation, widespread shutdowns and mass layoffs, along with a lot of despair, confusion, violence, and lawlessness. We definitely should not expect any grand rescue plans, innovative technology programs, or miracles of social cohesion.

When faced with such developments, some people are quick to realize what it is they have to do to survive, and start doing these things, generally without anyone's permission. A sort of economy emerges, completely informal, and often semi-criminal. It revolves around liquidating, and recycling, the remains of the old economy. It is based on direct access to resources, and the threat of force, rather than ownership or legal authority. People who have a problem with this way of doing things, quickly find themselves out of the game.

These are the generalities. Now let's look at some specifics.

One important element of collapse-preparedness is making sure that you don't need a functioning economy to keep a roof over your head. In the Soviet Union, all housing belonged to the government, which made it available directly to the people. Since all housing was also built by the government, it was only built in places that the government could service using public transportation. After the collapse, almost everyone managed to keep their place.

In the United States, very few people own their place of residence free and clear, and even they need an income to pay real estate taxes. People without an income face homelessness. When the economy collapses, very few people will continue to have an income, so homelessness will become rampant. Add to that the car-dependent nature of most suburbs, and what you will get is mass migrations of homeless people toward city centers.

Soviet public transportation was more or less all there was, but there was plenty of it. There were also a few private cars, but so few that gasoline rationing and shortages were mostly inconsequential. All of this public infrastructure was designed to be almost infinitely maintainable, and continued to run even as the rest of the economy collapsed.

The population of the United States is almost entirely car-dependent, and relies on markets that control oil import, refining, and distribution. They also rely on continuous public investment in road construction and repair. The cars themselves require a steady stream of imported parts, and are not designed to last very long. When these intricately interconnected systems stop functioning, much of the population will find itself stranded.

Economic collapse affects public sector employment almost as much as private sector employment, eventually. Because government bureaucracies tend to be slow to act, they collapse more slowly. Also, because state-owned enterprises tend to be inefficient, and stockpile inventory, there is plenty of it left over, for the employees to take home, and use in barter. Most Soviet employment was in the public sector, and this gave people some time to think of what to do next.

Private enterprises tend to be much more efficient at many things. Such laying off their people, shutting their doors, and liquidating their assets. Since most employment in the United States is in the private sector, we should expect the transition to permanent unemployment to be quite abrupt for most people.

When confronting hardship, people usually fall back on their families for support. The Soviet Union experienced chronic housing shortages, which often resulted in three generations living together under one roof. This didn't make them happy, but at least they were used to each other. The usual expectation was that they would stick it out together, come what may.

In the United States, families tend to be atomized, spread out over several states. They sometimes have trouble tolerating each other when they come together for Thanksgiving, or Christmas, even during the best of times. They might find it difficult to get along, in bad times. There is already too much loneliness in this country, and I doubt that economic collapse will cure it.

To keep evil at bay, Americans require money. In an economic collapse, there is usually hyperinflation, which wipes out savings. There is also rampant unemployment, which wipes out incomes. The result is a population that is largely penniless.

In the Soviet Union, very little could be obtained for money. It was treated as tokens rather than as wealth, and was shared among friends. Many things - housing and transportation among them - were either free or almost free.

Soviet consumer products were always an object of derision - refrigerators that kept the house warm - and the food, and so on. You'd be lucky if you got one at all, and it would be up to you to make it work once you got it home. But once you got it to work, it would become a priceless family heirloom, handed down from generation to generation, sturdy, and almost infinitely maintainable.

In the United States, you often hear that something "is not worth fixing". This is enough to make a Russian see red. I once heard of an elderly Russian who became irate when a hardware store in Boston wouldn't sell him replacement bedsprings: "People are throwing away perfectly good mattresses, how am I supposed to fix them?"

Economic collapse tends to shut down both local production and imports, and so it is vitally important that anything you own wears out slowly, and that you can fix it yourself if it breaks. Soviet-made stuff generally wore incredibly hard. The Chinese-made stuff you can get around here - much less so.

The Soviet agricultural sector was notoriously inefficient. Many people grew and gathered their own food even in relatively prosperous times. There were food warehouses in every city, stocked according to a government allocation scheme. There were very few restaurants, and most families cooked and ate at home. Shopping was rather labor-intensive, and involved carrying heavy loads. Sometimes it resembled hunting - stalking that elusive piece of meat lurking behind some store counter. So the people were well-prepared for what came next.

In the United States, most people get their food from a supermarket, which is supplied from far away using refrigerated diesel trucks. Many people don't even bother to shop and just eat fast food. When people do cook, they rarely cook from scratch. This is all very unhealthy, and the effect on the nation's girth, is visible, clear across the parking lot. A lot of the people, who just waddle to and from their cars, seem unprepared for what comes next. If they suddenly had to start living like the Russians, they would blow out their knees.

The Soviet government threw resources at immunization programs, infectious disease control, and basic care. It directly operated a system of state-owned clinics, hospitals, and sanatoriums. People with fatal ailments or chronic conditions often had reason to complain, and had to pay for private care - if they had the money.

In the United States, medicine is for profit. People seems to think nothing of this fact. There are really very few fields of endeavor to which Americans would deny the profit motive. The problem is, once the economy is removed, so is the profit, along with the services it once helped to motivate.

The Soviet education system was generally quite excellent. It produced an overwhelmingly literate population and many great specialists. The education was free at all levels, but higher education sometimes paid a stipend, and often provided room and board. The educational system held together quite well after the economy collapsed. The problem was that the graduates had no jobs to look forward to upon graduation. Many of them lost their way.

The higher education system in the United States is good at many things - government and industrial research, team sports, vocational training ... Primary and secondary education fails to achieve in twelve years what Soviet schools generally achieved in eight. The massive scale and expense of maintaining these institutions is likely to prove too much for the post-collapse environment. Illiteracy is already a problem in the United States, and we should expect it to get a lot worse.

The Soviet Union did not need to import energy. The production and distribution system faltered, but never collapsed. Price controls kept the lights on even as hyperinflation raged.

The term "market failure" seems to fit the energy situation in the United States. Free markets develop some pernicious characteristics when there are shortages of key commodities. During World War II, the United States government understood this, and successfully rationed many things, from gasoline to bicycle parts. But that was a long time ago. Since then, the inviolability of free markets has become an article of faith.

My conclusion is that the Soviet Union was much better-prepared for economic collapse than the United States is.

I have left out two important superpower asymmetries, because they don't have anything to do with collapse-preparedness. Some countries are simply luckier than others. But I will mention them, for the sake of completeness.

In terms of racial and ethnic composition, the United States resembles Yugoslavia more than it resembles Russia, so we shouldn't expect it to be as peaceful as Russia was, following the collapse. Ethnically mixed societies are fragile and have a tendency to explode.

In terms of religion, the Soviet Union was relatively free of apocalyptic doomsday cults. Very few people there wished for a planet-sized atomic fireball to herald the second coming of their savior. This was indeed a blessing.

One area in which I cannot discern any Collapse Gap is national politics. The ideologies may be different, but the blind adherence to them couldn't be more similar.

It is certainly more fun to watch two Capitalist parties go at each other than just having the one Communist party to vote for. The things they fight over in public are generally symbolic little tokens of social policy, chosen for ease of public posturing. The Communist party offered just one bitter pill. The two Capitalist parties offer a choice of two placebos. The latest innovation is the photo finish election, where each party buys fifty percent of the vote, and the result is pulled out of statistical noise, like a rabbit out of a hat.

The American way of dealing with dissent and with protest is certainly more advanced: why imprison dissidents when you can just let them shout into the wind to their heart's content?

The American approach to bookkeeping is more subtle and nuanced than the Soviet. Why make a state secret of some statistic, when you can just distort it, in obscure ways? Here's a simple example: inflation is "controlled" by substituting hamburger for steak, in order to minimize increases to Social Security payments.

Many people expend a lot of energy protesting against their irresponsible, unresponsive government. It seems like a terrible waste of time, considering how ineffectual their protests are. Is it enough of a consolation for them to be able to read about their efforts in the foreign press? I think that they would feel better if they tuned out the politicians, the way the politicians tune them out. It's as easy as turning off the television set. If they try it, they will probably observe that nothing about their lives has changed, nothing at all, except maybe their mood has improved. They might also find that they have more time and energy to devote to more important things.

I will now sketch out some approaches, realistic and otherwise, to closing the Collapse Gap. My little list of approaches might seem a bit glib, but keep in mind that this is a very difficult problem. In fact, it's important to keep in mind that not all problems have solutions. I can promise you that we will not solve this problem tonight. What I will try to do is to shed some light on it from several angles.

Many people rail against the unresponsiveness and irresponsibility of the government. They often say things like "What is needed is ..." plus the name of some big, successful government project from the glorious past - the Marshall Plan, the Manhattan Project, the Apollo program. But there is nothing in the history books about a government preparing for collapse. Gorbachev's "Perestroika" is an example of a government trying to avert or delay collapse. It probably helped speed it along.

There are some things that I would like the government to take care of in preparation for collapse. I am particularly concerned about all the radioactive and toxic installations, stockpiles, and dumps. Future generations are unlikely to able to control them, especially if global warming puts them underwater. There is enough of this muck sitting around to kill off most of us. I am also worried about soldiers getting stranded overseas - abandoning one's soldiers is among the most shameful things a country can do. Overseas military bases should be dismantled, and the troops repatriated. I'd like to see the huge prison population whittled away in a controlled manner, ahead of time, instead of in a chaotic general amnesty. Lastly, I think that this farce with debts that will never be repaid, has gone on long enough. Wiping the slate clean will give society time to readjust. So, you see, I am not asking for any miracles. Although, if any of these things do get done, I would consider it a miracle.

A private sector solution is not impossible; just very, very unlikely. Certain Soviet state enterprises were basically states within states. They controlled what amounted to an entire economic system, and could go on even without the larger economy. They kept to this arrangement even after they were privatized. They drove Western management consultants mad, with their endless kindergartens, retirement homes, laundries, and free clinics. These weren't part of their core competency, you see. They needed to divest and to streamline their operations. The Western management gurus overlooked the most important thing: the core competency of these enterprises lay in their ability to survive economic collapse. Maybe the young geniuses at Google can wrap their heads around this one, but I doubt that their stockholders will.

It's important to understand that the Soviet Union achieved collapse-preparedness inadvertently, and not because of the success of some crash program. Economic collapse has a way of turning economic negatives into positives. The last thing we want is a perfectly functioning, growing, prosperous economy that suddenly collapses one day, and leaves everybody in the lurch. It is not necessary for us to embrace the tenets of command economy and central planning to match the Soviet lackluster performance in this area. We have our own methods, that are working almost as well. I call them "boondoggles". They are solutions to problems that cause more problems than they solve.

Just look around you, and you will see boondoggles sprouting up everywhere, in every field of endeavor: we have military boondoggles like Iraq, financial boondoggles like the doomed retirement system, medical boondoggles like private health insurance, legal boondoggles like the intellectual property system. The combined weight of all these boondoggles is slowly but surely pushing us all down. If it pushes us down far enough, then economic collapse, when it arrives, will be like falling out of a ground floor window. We just have to help this process along, or at least not interfere with it. So if somebody comes to you and says "I want to make a boondoggle that runs on hydrogen" - by all means encourage him! It's not as good as a boondoggle that burns money directly, but it's a step in the right direction.

Certain types of mainstream economic behavior are not prudent on a personal level, and are also counterproductive to bridging the Collapse Gap. Any behavior that might result in continued economic growth and prosperity is counterproductive: the higher you jump, the harder you land. It is traumatic to go from having a big retirement fund to having no retirement fund because of a market crash. It is also traumatic to go from a high income to little or no income. If, on top of that, you have kept yourself incredibly busy, and suddenly have nothing to do, then you will really be in rough shape.

Economic collapse is about the worst possible time for someone to suffer a nervous breakdown, yet this is what often happens. The people who are most at risk psychologically are successful middle-aged men. When their career is suddenly over, their savings are gone, and their property worthless, much of their sense of self-worth is gone as well. They tend to drink themselves to death and commit suicide in disproportionate numbers. Since they tend to be the most experienced and capable people, this is a staggering loss to society.

If the economy, and your place within it, is really important to you, you will be really hurt when it goes away. You can cultivate an attitude of studied indifference, but it has to be more than just a conceit. You have to develop the lifestyle and the habits and the physical stamina to back it up. It takes a lot of creativity and effort to put together a fulfilling existence on the margins of society. After the collapse, these margins may turn out to be some of the best places to live.

I hope that I didn't make it sound as if the Soviet collapse was a walk in the park, because it was really quite awful in many ways. The point that I do want to stress is that when this economy collapses, it is bound to be much worse. Another point I would like to stress is that collapse here is likely to be permanent. The factors that allowed Russia and the other former Soviet republics to recover are not present here.

In spite of all this, I believe that in every age and circumstance, people can sometimes find not just a means and a reason to survive, but enlightenment, fulfillment, and freedom. If we can find them even after the economy collapses, then why not start looking for them now?

Thank you.


Editorial Notes

Energy Bulletin published an excerpt from this talk on December 03 2006, and Dmitry reported that his small webserver was overwhelmed with requests. Although it's good news that his writing has such a following, PLEASE don't access the document on his web server (Club Orlov). The same content is here, on Energy Bulletin's heavier duty webserver.

Orlov has many penetrating insights, couched in his dark humor. Particularly striking is the strong case he makes that the peoples of the USSR were actually better prepared for a collapse because

* they had learned to be more self-reliant

* many crucial functions (like housing and transportation) were taken care of by the state sector which was more stable than a private sector would have been.

Orlov's cynicism about the possibility of intelligent government action was probably justified in the case of the Soviet Union, but I think it would be a tragic mistake to abandon efforts to change the direction of the US. The Soviets had little chance to make democratic institutions work. We do have that chance.

Bill Totten