Iraq, oil and US world hegemony (III)


During the moments when the giant statue of the dictator Saddam Hussein was being torn down in Paradise Square, Baghdad, on the afternoon of the 9th of April, many of the US “elite” said that this event was just as important as the falling of the Berlin Wall. After the collapse of the Soviet Union, the United States was left as the world`s only superpower, but what can be the future significance of the US invasion of Iraq?

In order to give some views on this, we will in this last part of “Iraq, oil and US world hegemony” continue to describe facts that sharply contradicts the fog of lies presented by the US administration as the reasons of the war.

Firstly, what are the prospects about future energy demand and consumption
as the global capitalism develops?

Talking about the future size of oil imports and exports are more than uncertain. However if we search for the ones that have the ability to create large scale data bases on energy reserves, flow and consumption and then model them with credibility, we find at least three: The Organisation of Petroleum Exporting Countries (OPEC), the International Energy Agency (IEA), and the Energy Information Agency (EIA) of the US Department of
Energy. All three of them roughly agree in their Energy Outlooks about future trends and base their estimates on models and data that have proved roughly correct over more than a decade.

If we take the EIA, it indicates that the world demand for oil exports will continue to steadily increase in spite of increases in gas, renewables, other fuels, and energy efficiency. If the world economy is to keep growing a moderate average during the next two decades, the EIA projets that the total world petroleum export must increase by 67% to 2020. The Persian Gulf, with 65% of the world`s proven oil reserves, must alone have an increase in exports of 126%.

The United States, the more integrated European Union, and other industrialised nations will consume vital parts of the future increase. The US alone will need an increase of about 183% of direct oil imports from 2002 to 2020, as the domestic production declines. But, the most of the future growth will go to the developing countries. The International Energy Agency (IEA) estimates that in the coming decades as much as 60% of the
increased demand will come from developing countries, with China and India in the lead.

These facts show clearly that the imperialist struggle of today, also is a struggle for future resources. The ones who loose, will be controlled by the others.

Secondly, with a “new” Iraq in the oil marked, who will have the interests of lower oil prices?

Again if we look at the EIA documentation “Top Petroleum Net Importers, 2000”, we will see the largest importer was the United States. It imported 50% of its 19,5 millions barrels a day requirement. By contrast, Japan imported 5,5 out of 5,6 million barrels; Germany 2,7 out of 2,8; France 2,0 out of 2,1; Italy 1,8 out of 2,0 and Spain 1,5 out of 1,5.

The UK is a net oil exporter, thanks to the North Sea. But if we see at this dependence of oil imports of the various imperialist powers, we understand why the battle about the world`s oil resources is so important. The oil can and will be used, as a weapon to blackmail others by the power (s) that dictate the destination of oil.

Thirdly, what consequences will a lower price level have for the main oil exporters?

The main oil exporters want to have as high as possible demand of oil, but with as high as possible prices. They know if the prices are too high, the world`s leading economies that are importers will have a slow down, and by this the world demand of oil will decrease.

There are also different interests among the exporters about the correct price level. The OPEC has a target range of oil prices from $22 to $28 a barrel. In this range, Venezuela prefers the upper limit, while Saudi Arabia prefers the lower. The non- OPEC nation, Russia, the second largest oil exporter, prefers $25 a barrel. All these levels reflect costs of oil production and transport, which is generally higher outside the Persian
Gulf. The price levels also reflect domestic economy and needs for oil revenues.

The price level of oil decides the destiny of the nations. If we go back to 98/99, there was an overflow of oil on the market due to an economical crisis in Asia. The historical low price of $9 a barrel triggered a boost in the world economy, as the largest economies are oil importers. On the other hand, it made serious economic problems for the main exporters, especially Russia. It caused also serious problems for other oil exporters
and the OPEC countries which are: Saudi Arabia, Iraq, Iran, Libya, Algeria, Venezuela, Nigeria, Indonesia, Kuwait, United Arab Emirates and Qatar.

Fourthly, why is the Middle East so important for the imperialist powers?

As written, it is not only because of the present resources, it is in a very high degree about the future potentials. Iraq has the second largest and Saudi Arabia has the largest proven oil reserves. Drilling to unexplored fields might even show that Iraq have even larger oil reserves than Saudi Arabia. The importance of the Persian Gulf lies also with
another very important issue: The oil is of high quality, and is very cheap to explore, produce and transport.

We will illustrate this by looking at the development of the OPEC. OPEC strength lies not primarily in its marked share of oil production. This market share has decreased from 90 % in the 1970s to about 40% in 2002, but now the market share again will rise. What holds the cartel OPEC together is its ability to influence the world prices on oil through production quotas. When prices are low, the members cut their production to boost the
oil price, and in principle, if there are oil interruptions and high oil prices, they can increase production to bring prices down.

This ability to be “swing producers” by cutting and increasing production according to the needs is possible only due to the facts that the production and transport costs in OPEC countries, especially in the Persian Gulf, generally are inexpensive. Few capital assets are idled to shift production, and nationalisation of the oil industry in the majority of OPEC countries gives the governments control over production decisions. These costs are much higher in Russa with long distances of transport, in the North Sea, and in the Caspian Sea that in fact is not a sea, but a lake surrounded by land with long transport distances.

The OPEC mechanism is now put under serious pressure. In reality population growths inside the countries and a desperate need of revenues have made a tendency among its members to produce above quotas. This has reduced the spare production capacity in OPEC to a historical low level and by this undermined its ability to influence prices on the world market. Today, primarily Saudi Arabia, but also to some extent Kuwait and the United Arab Emirates, have this spare capacity.

When Iraq appears as a producer without UN sanctions, the US can`t only dominate an important producer and main oil reserve country, it will also have a “swing producer” that can influence the world prices of oil by rising or cutting production.

Finally

If we consider the Iraq war in the view of oil, it is easy to understand why the US elite is satisfied with the invasion. As wars have a tendency to create new conflicts within itself as a Pandora box, it can happen unexpected things, but at present times it looks like they have achieved what they have planned as a “quick victory”. So far there have only been minor disturbances of the main oil -fields.

The first task of the new Iraqi puppet Regime will be to modernise the oil production and infrastructure in order to be able to increase the production. The oil transactions will be switched from euros to US dollars. The next decision to be made is about the Iraqi membership in OPEC. Reuters reported in the beginning of April that talks between Iraqi experts and US officials agreed to recommend Baghdad to stay in OPEC, though without
limitations of production. If this becomes the official policy, it is a provocation that intends to break the dicipline in OPEC, as the quotas system is the central element in the cartel.

If we look at OPEC member countries, we see that most of them are blinking lights on the US geo-political highway. Venezuela suffered a coup attempt in April 2002 and actions of the opposition in late 2002. Iraq is now invaded, and Libya and Iran are put on the list of the “Axis of the Evil States”. Saudi Arabia is more and more considered as an unreliable partner, and “a hidden member” of the Axis of the Evil.

The US does not have to dump the oil prices to implemenet the next phase. A lower oil price level from todays $27 a barrel to a range from $15 to $20, will make serious problems for the oil exporters that will have to provide capital for modernisation and investments. By using diplomatic and military pressure, and by implementing free trade zones and investments, the US can get control of important exporters as Saudi Arabia.

The question is what will OPEC do if the US, through Iraq, tries to break the dicipline in the cartel: Will OPEC nations then withdraw petrodollar investments from the US? In April 2002 Javad Yarjani, Head of OPEC`s Petroleum Market Analysis Dept, gave a speech in Spain (Oviedo) where he said that the OPEC closely observes if the oil producer Britain implements the euro, and if Norway joins the EU and the eurozone. He said also that
the momentum for OPEC to consider switching to euro will grow with the enlargement of EU with 10 new member states in 2004.

In this, and other perspectives described in “Iraq, oil and US world hegemony” it is correct to say that the Gulf War II is “pre-emptive”. By controlling present and future oil resources, the price mechanism and the petrodollar investments, the US can continue its geo-political power play in order to maintain its world hegemony.


Oslo the 14th of April 2003
IWA-Secretariat.