Are They Really Oil Wars?

Are They Really Oil Wars?

Ismael Hossein-zadeh

[This article was published in The OPEC Story, edited by the Institute of Chartered Financial Analysts of India (ICFAI University Press, India 2008)].

A most widely-cited factor behind the recent U.S. wars of choice is said to be oil. “No Blood for Oil” has been a rallying cry for most of the opponents of the war. While some of these opponents argue that the war is driven by the U.S. desire for cheap oil, others claim that it is prompted by big oil’s wish for high oil prices and profits. Interestingly, most antiwar forces use both claims interchangeably without paying attention to the fact that they are diametrically-opposed assertions.

Not only do the two arguments contradict each other, but each argument is also wanting and unconvincing on its own grounds; not because the U.S. does not wish for cheap oil, or because Big Oil does not desire higher oil prices, but because war is no longer the way to control or gain access to energy resources. Colonial-type occupation or direct control of energy resources is no longer efficient or economical and has, therefore, been abandoned for more than four decades.

The view that recent U.S. military adventures in the Middle East and the broader Central Asia are driven by energy considerations is further reinforced by the dubious theory of Peak Oil, which maintains that world production of conventional oil will soon reach—if it has not already reached—a maximum, or peak, and decline thereafter. It follows that, therefore, war power and military strength are key to access or control of the stagnant, shrinking, or soon-to-be-shrinking oil.

In this study I will first argue that while, prima facie, Peak Oil sounds like a reasonable thesis, it is dubious on both theoretical and empirical grounds. I will then show that war and military force are no longer the necessary or appropriate means to gain access to sources of energy, and that resorting to military measures can, indeed, lead to costly, not cheap, oil. Next, I will demonstrate that, despite the lucrative spoils of war resulting from high oil prices and profits, Big Oil prefers peace and stability, not war and geopolitical turbulence, in global energy markets. Finally, I will argue a case that behind the drive to war and military adventures in the Middle East lie some powerful special interests (vested in war, militarism, and geopolitical concerns of Israel) that use oil as an issue of “national interest”—as a façade or pretext—in order to justify military adventures to derive high dividends, both economic and geopolitical, from war.

 

Has Oil Really Peaked, or Is Peaking—and Running Out?

The Peak Oil theory maintains that world production of conventional oil will soon reach a maximum, or peak, and decline thereafter, with grave socio-economic consequences. Some proponents of the theory argue that world oil production has already peaked, and is now in a terminal decline [1].

Although, on the face of it, this sounds like a fairly reasonable proposition, it has been challenged on both theoretical and empirical grounds. While some critics have called it a myth, others have branded it as a money-making scam promoted by the business interests that are vested in the fossil fuel industry, in the business of war and militarism, and in the Wall Street financial giants that are engaged in manipulative oil speculation.

Regardless of its validity (or lack thereof), the fact is that Peak Oil has had significant policy and political implications. It has also generated considerable reactions among various interest groups and political activists.

While environmental and similar activists have used Peak Oil to promote more vigorous conservation and more energetic pursuit of alternative fuels, the oil industry and its representatives in and out of the government have taken advantage of Peak Oil to argue in support of unrestrained extraction of oil and expanded drilling in the offshore or wildlife regions.

Because of its simple logic and facile appeal, Peak Oil has also led many ordinary citizens, burdened by high fuel bills during periods of energy crisis, to support unrestrained or expanded drilling. According to a recent Rasmussen poll, 57 percent of Americans favor more offshore drilling. Misled and misplaced popular perceptions, in turn, play into the hands of the oil industry and their representatives to lobby for the lifting of the Federal ban on oil production in hitherto restricted regions.

Citing voter anger over soaring energy prices, Senator John McCain of Arizona, the Republican presidential nominee, recently argued that opening vast stretches of the country’s coastline to oil exploration would help America eliminate the dependence on foreign oil. “We have untapped oil reserves of at least 21 billion barrels in the United States. But a broad federal moratorium stands in the way of energy exploration and production,” he said. “It is time for the federal government to lift these restrictions” [2].

 

Perhaps the financial giants of New York and London have benefited the most from the misleading implications of Peak Oil. Wall Street financial monsters that created the Third World debt crisis in the late 1970s and early 1980s, the tech bubble in the 1990s, and the housing bubble in the 2000s are now hard at work creating the oil bubble. These powerful market manipulators tend to blame the artificial oil shortages they create (through speculative hoarding) and the resulting oil price hikes on Peak Oil.

 

Just as Peak Oil plays into the hands of manipulative speculators and beneficiaries of fossil fuel, so too can it be used by the champions of unilateral wars and military adventures, as it implies that war power and military strength are key to access or control of the “shrinking” or “soon-to-be-shrinking” oil. It thus provides fodder for the cannons of war profiteering militarists who are constantly on the look out to invent new enemies and find new pretexts for continued war and escalation of military spending—that is, for the looting of the national treasury, or public money.

 

By the same token that Peak Oil can serve as a pretext for war and military adventures, it can also serve as a disarming or pacifying factor for many citizens who accept the Peak Oil thesis and, therefore, internalize responsibility for U.S. foreign policy every time they fill their gas tank. In a vicarious way, they may feel that they own the war!

 

Thus, Peak Oil serves as a powerful trap and a clever manipulation that lets the real forces of war and militarism (the military-industrial complex and the pro-Israel lobby), and the main culprits behind the soaring energy prices (the Wall Street financial giants engaged in manipulative commodity speculation) “off the hook; it is a fabulous redirection. All evils are blamed on a commodity upon which we are all utterly dependent” [3].

 

The fact, however, is that there is no hard evidence that world oil production has peaked, or will be picking anytime soon, or that the current skyrocketing price of oil is due to a supply shortage. (As shown below, there is actually an oil surplus, not shortage.)

 

Not only millions of lay-citizens, but also many scholars and academics have taken the bait and fallen right into this trap by arguing that recent U.S. wars of choice are driven primarily by oil and other “scarce” resources. More broadly, they argue that most wars of the future, like the recent and/or present ones, will be driven by conflicts over natural resources, especially energy and water—hence, for example, the title of Michael T. Klare’s popular book,Resource Wars [4].

 

As a number of critics have pointed out, this is reminiscent of Thomas R. Malthus’s theory of “scarcity” and “overpopulation.” Malthus (1766-1834), a self-styled British economist, argued that the woes and vagaries of capitalism such as poverty, inequality and unemployment are largely to be blamed on the poor and the unemployed, since they produce too many mouths to be fed, or too many hands to be employed.

 

In a similar fashion, Peak Oil implies that current crisis in energy (and other commodities) markets is to be blamed, at least in part, on less-developed or relatively poorer nations such as India and China for growing “too fast” and creating “too much” demand on “scarce” resources.

 

Peak Oil theory is not altogether new. M. King Hubbert, a well-known geologist, provided a dramatic discussion of the theory in 1956. A year later, Admiral Rickover discussed the end of the fossil fuel era even more emphatically—at the time, he gave oil about fifty more years to run out. Thirty years ago, the Club of Rome predicted an end of oil long before the present day.

 

Indeed, there is evidence that projections of oil peaking, then declining and running out, have been floated around ever since oil was discovered in the second half of 19th century. For example, the chief geologist of Pennsylvania predicted in 1874 that we would run out of oil in four years—just using it for kerosene [5].

 

While Peak Oil theory has been around for a long time, it has usually been dormant during “normal” economic times, or “reasonable” oil prices, but has gained heightened currency during periods of energy crisis and high oil prices. For example, Peak Oil became quite popular during (and immediately after) all of the three recent oil crises: the early 1970s crisis, the late 1970s and early 1980s crisis, and the early 1990s crisis.

 

The obvious reason for the rise in the Peak Oil popularity in the context of those periods of energy crisis was the perception that oil shortage must have played a major role in the respective oil price hikes. It is not surprising, then, that as recent geopolitical convulsions in the Middle East have triggered a new round of oil price hikes, Peak Oil theory has once again become fashionable.

 

It turns out, however, that oil price shocks of all the previous periods of energy crisis were precipitated not by oil shortages, or any real prospects of oil “peaking and running out,” but by international political convulsions, revolutions and wars: the Arab-Israeli war of 1973, the 1979 Revolution in Iran, and the 1990-91 invasion of Kuwait by Saddam Hussein’s armed forces. Each time, as the turbulent period of war or revolutionary atmosphere ended, higher oil prices of the respective crisis situation subsided accordingly [6].

 

The current oil price hike too is precipitated not by an oil shortage, as popularly perceived, but by manipulative speculation in energy futures markets—which are, in turn, prompted largely by the unstable atmosphere of war and geopolitical turbulence in the Middle East.

 

Evidence is therefore unambiguous that, so far, almost all oil price shocks can be explained not by geology, or the so-called Peak Oil, but by geopolitics.

Peak oil theory is based on a number of assumptions and omissions that make it less than reliable.

 

To begin with, it discounts or disregards the fact that energy-saving technologies have drastically improved (and will continue to further improve) not only the efficiency of oil production but also of oil consumption. Evidence shows that, for example, “over a period of five years (1994-99), U.S. GDP expanded over 20 percent while oil usage rose by only nine percent. Before the 1973 oil shock, the ratio was about one to one” [7].

 

Cars, airplanes and other means of transportation have become more fuel-efficient than ever before—though not as much as they could, or could. Both businesses and consumers are also doing a better job of trimming their energy costs. Obviously, this means that our demand for energy does not grow as fast as the growth of our economy. For example, According to the Energy Information Administration, in 1981 the United States devoted nearly 14 percent of its overall gross domestic product to energy; by 2006 that number had fallen to about 9 percent.

 

Second, Peak Oil theory pays scant attention to the drastically enabling new technologies that have made (and will continue to make) possible discovery and extraction of oil reserves that were inaccessible only a short time ago. One of the results of the more efficient means of research and development has been a far higher success rate in finding new oil fields. The success rate has risen in twenty years from less than 70 percent to over 80 percent. Computers have helped to reduce the number of dry holes. Horizontal drilling has boosted extraction. Another important development has been deep-water offshore drilling, which the new technologies now permit. Good examples are the North Sea, the Gulf of Mexico, and more recently, the promising offshore oil fields of West Africa [8].

 

Thanks to technological advances, the U.S. Geological Survey (USGS), in its 2000 World Petroleum Assessment, “increased by 20 percent its estimate of undiscovered, technically recoverable oil. USGS noted that, since oil became a major energy source about 100 years ago, 539 billion barrels of oil have been produced outside the United States. USGS estimates there are 649 billion barrels of undiscovered, technically recoverable oil outside the United States. But, importantly, USGS also estimates that there will be an additional 612 billion barrels from reserve growth—nearly equaling the undiscovered resources. Reserve growth results from a variety of sources, including technological advancement in exploration and production, increases over initially conservative estimates of reserves, and economic changes” [9].

 

Third, Peak Oil is also subject to criticism because it pays insufficient attention to substitutes or alternative sources of energy, both actual and potential. These include solar, wind, non-food bio-fuel, and nuclear energies. They also include natural gas. Natural gas is now about 25 percent of energy demand worldwide. It is estimated that by 2050 it will be the main source of energy in the world. A number of American, European, and Japanese firms have and are investing heavily in developing fuel cells for cars and other vehicles that would significantly reduce gasoline consumption [10].

 

Peak Oil theory also pays short shrift to what is sometimes called “non-conventional” oil. These include Tar Sands, Heavy Oils, and Oil Shale. Canada’s Athabasca Tar Sands is the best known example of this kind of unconventional reserve—estimated at 1.8 trillion barrels. Although this was originally considered cost inefficient, experts working in this area now claim that they have brought down the cost from over $20 a barrel to $8 per barrel. Similar developments are taking place in Venezuela. It is thanks to developments like these that since 1970, world oil reserves have more than doubled, despite the extraction of hundreds of millions of barrels [11].

 

Except for natural gas and nuclear energy, most of these alternative sources of energy are still highly costly, and are therefore used in only insignificant quantities. But, considering the ever evolving newer and more efficient technologies, they are bound to rise in significance. This means that the prospects of reaching a day in our search for energy sources when conventional oil is no longer the world’s dominant source of energy are quite realistic. Humans did not invent motor vehicles because they ran out of horses or horse-driven carriages; nor did they invent electricity because they ran out of candles.

 

Finally, and perhaps more importantly, claims of “peaked and dwindling” oil are refuted by the available facts and figures on global oil supply. Statistical evidence shows that there is absolutely no supply-demand imbalance in global oil markets. Contrary to the claims of the proponents of Peak Oil and champions of war and militarism, the current oil price shocks are a direct consequence of the destabilizing wars and geopolitical insecurity in the Middle East, not oil shortages. These include not only the raging wars in Iraq and Afghanistan, but also the threat of a looming war against Iran. The record of soaring oil prices shows that anytime there is a renewed U.S. military threat against Iran, fuel prices move up several notches.

 

The war also contributes to the escalation of fuel prices in indirect ways—for example, by plunging the U.S. ever deeper into debt and depreciating the dollar, or by creating favorable grounds for speculation. As oil is priced largely in U.S. dollars, oil exporting countries ask for more dollars per barrel of oil as the dollar loses value. Perhaps more importantly, an atmosphere of war and geopolitical instability in global oil markets serves as an auspicious ground for hoarding and speculation in commodity markets, especially oil, which is heavily contributing to the recently soaring oil prices.

 

As much as 60% of today’s crude oil price is pure speculation driven by large trader banks and hedge funds. It has nothing to do with the convenient myths of Peak Oil. It has to do with control of oil and its price. . . . Since the advent of oil futures trading and the two major London and New York oil futures contracts, control of oil prices has left OPEC and gone to Wall Street. It is a classic case of the ‘tail that wags the dog’ [12].

 

By purchasing large numbers of futures contracts, and thereby pushing up futures prices to even higher levels than current prices, speculators have provided a financial incentive for oil companies to buy even more oil and place it in storage. A refiner will purchase extra oil today, even if it costs $150 per barrel, if the futures price is even higher.

 

This has led to a steady rise in crude oil inventories over the last two years, “resulting in US crude oil inventories that are now higher than at any time in the previous eight years. The large influx of speculative investment into oil futures has led to a situation where we have both high supplies of crude oil and high crude oil prices. . . . In fact, during this period global supplies have exceeded demand, according to the US Department of Energy” [13].

 

The fact that the skyrocketing oil prices of late have been accompanied by a surplus in global oil markets was also brought to the attention of President George W. Bush by Saudi officials when he asked them during a recent trip to the kingdom to increase production in order to stem the rising prices. Saudi officials reminded the President that “there is plenty of oil on the market. Iran has put some 30 million barrels of oil that it can’t sell into floating storage. ‘If we produced more oil, it wouldn’t find buyers,’ says the Saudi source. It wouldn’t affect the price at all” [14].

 

And why producing more oil “wouldn’t affect the price at all”? Well, because what is driving the soaring oil prices is not shortage but speculation: “with so much investment money sloshing around in the commodities markets, the Saudis calculate they have no hope of controlling short-term price fluctuations. They blame the recent price run-ups on speculation and fear of shortages [not real shortages], factors they say are beyond their control” [15]

 

 

War for Cheap Oil?

 

The widely-shared view that the U.S. desire for access to abundant and cheap oil lurks behind the Bush administration’s drive to war in the Middle East rests on the implicit but dubious assumption that access to energy resources requires direct control of oil fields and/or oil producing countries. There are at least three problems with this postulation.

 

First, if control of or influence over oil producing countries in the Middle East is a requirement for access to cheap oil, the United States already enjoys significant influence over some of the major oil producers in the region—Saudi Arabia, Kuwait, and a number of other smaller producers. Why, then, would the U.S. want to bring about war and political turmoil in the region that might undermine that long and firmly-established influence?

 

Let us assume for a moment that the neoconservative militarists are sincere in their alleged desire to bring about democratic rule and representational government in the Middle East. Let us further assume that they succeed in realizing this purported objective. Would, then, the thus-emerging democratic governments, representing the wishes of the majority of their citizens, be as accommodating to U.S. economic and geopolitical objectives, including its oil needs, as are its currently friendly rulers in the region? Most probably not.

 

Secondly, and more importantly, access to oil no longer requires control of oil fields or oil producers—as was the case in times past. For more than a century, that is, from the early days of oil extraction in the United States in the 1870s until the mid-1970s, the price of oil was determined administratively, that is, by independent producers operating in different parts of the world without having to compete with each other. Under those circumstances, colonial or imperial wars of conquest and occupation were crucial to the control of oil (and other) resources.

 

Beginning with the 1950s, however, that pattern of local, non-competitive price determination began to gradually change in favor of regional and/or international markets. By the mid 1970s, an internationally competitive oil market emerged that effectively ended the century-old pattern of local, administrative pricing. Today, oil prices (like most other commodity prices) are determined largely by the forces of supply and demand in competitive global energy markets; and any country or company can have as much oil as they wish if they pay the going market (or spot) price [16].

 

To the extent that competitive oil markets and/or prices are occasionally manipulated, such subversions of competitive market forces are often brought about not so much by OPEC or other oil producing countries as by manipulative speculations of financial giants in New York and London.  As was discussed earlier, gigantic Wall Street financial institutions have accomplished this feat through “innovative” financial instruments such as establishment of energy hedge funds and speculative oil futures markets in New York and London [17].

 

It is true that collective supply decisions of oil producing countries can, and sometimes does, affect the competitively determined market price. But a number of important issues need to be considered here.

 

To begin with, although such supply manipulations obviously affect or influence market-determined prices, they do not determine those prices. In other words, competitive international oil markets determine its price with or without oil producers’ supply manipulations. Such supply managements are, however, designed not to create volatility in energy markets, or chronic oil price hikes. Instead, they are designed to stabilize global oil prices because oil exporting countries prefer stability, predictability and long-term planning for their economic development and industrialization projects. Here is how Cyrus Bina and Minh Vo describe this relationship:

 

As a result, we conclude that the global oil market is the prime mover [i.e., prime determinant of oil price] and OPEC indeed follows its trajectory accordingly and consistently. . . . When market price (both spot and futures) is falling, OPEC decreases its output; when market price is rising, OPEC attempts to increase its output; and when market price is steady, OPEC keeps its output unchanged. . . . And, this is a kind of oil market we have experienced after the dust settled following the crisis of de-cartelization and globalization of oil industry in the 1970s [18].

 

Producers’ policy to sometimes curtail or limit the supply of oil, the so-called “limited flow” policy, is designed to raise the actual trading price above the market-determined price in order to keep high-cost U.S. producers in business while leaving low-cost Middle East producers with an above average, or “super,” profit. While for low-cost producers this limited flow policy is largely a matter of making more or less profits, for high-cost U.S. producers it is a matter of survival, of being able to stay in or go out of business—an important but rarely mentioned or acknowledged fact.

 

A hypothetical numerical example might be helpful here. Suppose that the market-determined, or free-flow, price of oil is $30 per barrel. Further, suppose this price entails an average rate of profit of 10 percent, or $3 per barrel. The word “average” in this context refers to average conditions of production, that is, producers who produce under average conditions of production in terms of productivity and cost of production. This means that producers who produce under better-than-average conditions, that is, low-cost, high productivity producers, will make a profit higher than $3 per barrel while high-cost, low efficiency producers will end up making less than $3 per barrel. This also means that some of the high-cost producers may end up going out of business altogether. Now, if the limited flow policy raises the actual trading price to $35 per barrel, it will raise the profits of all producers accordingly, thereby also keeping in business some high-cost producers that might otherwise have gone out of business.

 

Furthermore, supply manipulation (in pursuit of price manipulation) is not limited to the oil industry. In today’s economic environment of giant corporations and big businesses, many of the major industries try, and often succeed in controlling supply in order to control price. Take, for example, the automobile industry. Theoretically, automobile producers could flood the market with a huge supply of cars. But that would not be good business as it would lower prices and profits. So, they control supply, just as do oil producers, in order to manipulate price. During the past several decades, the price of automobiles, in real terms, has been going up every year, at least to the tune of inflation. During this period, the industry (and the economy in general) has enjoyed a many-fold increase in labor productivity. Increased labor productivity is supposed to translate into lower costs and, therefore, lower prices. Yet, that has not materialized in the case of this industry—as it has in the case of, for example, pocket calculators or computers.

 

Another example of price control through supply manipulation is the case of U.S. grain producers. The so-called “set aside” policy that pays farmers not to cultivate part of their land in order to curtail supply and prop up price is not different—nay, it is worse— than OPEC’s policy of supply and/or price manipulation.

 

It is also necessary to keep in mind that OPEC’s desire to sometimes limit the supply of oil in order to shore up its price is limited by a number of factors. For one thing, the share, and hence the influence, of Middle Eastern oil producers as a percentage of world oil production has steadily declined over time, from almost 40 percent when OPEC was established to about 30 percent today [19]. For another, OPEC members are not unmindful of the fact that inordinately high oil prices can hurt their own long-term interests as this might prompt oil importers to economize on oil consumption and search for alternative sources of energy, thereby limiting producers’ export markets.

 

OPEC members also know that inordinately high oil prices could precipitate economic recessions in oil importing countries that would, once again, lower demand for their oil. In addition, high oil prices tend to raise the cost of oil producers’ imports of manufactured products as high energy costs are bound to affect production costs of those manufactured products.

 

 

War for Expensive Oil?

 

Now let us consider the widely-shared view that attributes the U.S. drive to war and military adventures in the oil-rich regions of the Middle East and central Asia to the influence of big oil companies in pursuit of higher oil prices and profits. As noted, this is obviously the opposite of the “war for cheap oil” argument, as it claims that Big Oil tends to instigate war and political tension in the Middle East in order to cause an oil price hike and increase its profits. Like the “war for cheap oil” theory, this claim is not supported by facts. Although the claim has an element of a prima facie reasonableness, that apparently facile credibility rests more on precedent and perception than reality. Part of the perception is due to the exaggerated notion that both President Bush and Vice President Cheney were “oil men” before coming to the White House. But the fact is that George W. Bush was never more than an unsuccessful petty oil prospector and Dick Cheney headed a company, the notorious Halliburton, that sold (and still sells) services to oil companies and the Pentagon.

 

The larger part of the perception, however, stems from the fact that oil companies do benefit from oil price hikes that result from war and political turbulence in the Middle East. Such benefits are, however, largely incidental. Surely, American oil companies would welcome the spoils of the war (that result from oil price hikes) in Iraq or anywhere else in the world. From the largely incidental oil price hikes that follow war and political convulsion, some observers automatically conclude that, therefore, Big Oil must have been behind the war [20]. But there is no evidence that, at least in the case of the current invasion of Iraq, oil companies pushed for or supported the war.

 

On the contrary, there is strong evidence that, in fact, oil companies did not welcome the war because they prefer stability and predictability to periodic oil spikes that follow war and political convulsion: “Looking back over the last 20 years, there is plenty of evidence showing the industry’s push for stability and cooperation with Middle Eastern countries and leaders, and the U.S. government’s drive for hegemony works against the oil industry” [21]. As Thierry Desmarest, Chairman and Chief Executive Officer of France’s giant oil company, TotalFinaElf, put it, “A few months of cash generation is not a big deal. Stable, not volatile, prices and a $25 price (per barrel) would be convenient for everyone” [22].

 

It is true that for a long time, from the beginning of Middle Eastern oil exploration and discovery in the early twentieth century until the mid-1970s, colonial and/or imperial powers controlled oil either directly or through control of oil producing countries—at times, even by military force. But that pattern of colonial or imperialist exploitation of global markets and resources has changed now. Most of the current theories of imperialism and hegemony that continue invoking that old pattern of Big Oil behavior tend to suffer from an ahistorical perspective. Today, as discussed earlier, even physically occupying and controlling another country’s oil fields will not necessarily be beneficial to oil interests. Not only will military adventures place the operations of current energy projects at jeopardy, but they will also make the future plans precarious and unpredictable. Big Oil interests, of course, know this; and that’s why they did not countenance the war on Iraq: “The big oil companies were not enthusiastic about the Iraqi war,” says Fareed Mohamedi of PFC Energy, an energy consultancy firm based in Washington D.C. that advises petroleum firms. “Corporations like Exxon-Mobil and Chevron-Texaco want stability, and this is not what Bush is providing in Iraq and the Gulf region,” adds Mohamedi [23].

 

Big Oil interests also know that not only is war no longer the way to gain access to oil, it is in fact an obstacle to gaining that access. Exclusion of U.S. oil companies from vast oil resources in countries such as Russia, Iran, Venezuela, and a number of central Asian countries due to militaristic U.S. foreign policy is a clear testament to this fact. Many of these countries (including, yes, Iran) would be glad to have major U.S. oil companies invest, explore and extract oil from their rich reserves. Needless to say that U.S. oil companies would be delighted to have access to those oil resources. But U.S. champions of war and militarism have successfully torpedoed such opportunities through their unilateral wars of aggression and their penchant for a Cold War-like international atmosphere.

 

When Vladimir Putin first became president of Russia he was willing to allow American energy companies to continue with the one-sided contracts they had drawn up during Boris Yeltsin’s presidency. Putin built a seemingly trusting relationship with George Bush who looked into Putin’s soul and liked what he saw. The two leaders grew even closer in the aftermath of the 9/11 attacks on World Trade Centre and the Pentagon—when Russia provided “help for America’s invasion of Afghanistan.” Soon after this generous cooperation, however, “Bush repudiated the anti-ballistic missile treaty in the belief that America could develop the technology for winning a nuclear war. This posed a huge strategic threat to Russia” [24].

 

Describing the heavy-handed, imperial U.S. policy toward Russia, Stephen F. Cohen writes: “The real US policy has been very different—a relentless, winner-take-all exploitation of Russia’s post-1991 weakness. Accompanied by broken American promises, condescending lectures and demands for unilateral concessions, it has been even more aggressive and uncompromising than was Washington’s approach to Soviet Communist Russia” [25].

 

Bush’s withdrawal from the ABM treaty not merely posed an existential threat to Russia but was almost a betrayal of the trust that Putin had put in him. This led to Putin’s disenchantment with America. “Eventually he seems to have decided that every time America transgressed against Russian interests he would retaliate by stopping another American company from exploiting Russian resources” [26].

 

During the past few decades, major oil companies have consistently opposed U.S. policies and military threats against countries like Iran, Iraq, and Libya. They have, indeed, time and again, lobbied U.S. foreign policy makers for the establishment of peaceful relations and diplomatic rapprochement with those countries. The Iran-Libya Sanction Act of 1996 (ILSA) is a strong testament to the fact that oil companies nowadays view wars, economic sanctions, and international political tensions as harmful to their long-term business interests and, accordingly, strive for peace, not war, in international relations.

 

On March 15, 1995 President Clinton issued Executive Order 12957 which banned all U.S. contributions to the development of Iran’s petroleum resources, a crushing blow to the oil industry, especially to the Conoco oil company that had just signed a $1 billion contract to develop fields in Iran. The deal marked a strong indication that Iran was willing to improve its relationship with the United States, only to have President Clinton effectively nullify it. Two months later, sighting “an extraordinary threat to the national security, foreign policy and economy of the U.S.,” President Clinton issued another order, 1259, that expanded the sanctions to become a total trade and investment embargo against Iran. Then a year later came ILSA which extended the sanctions imposed on Iran to Libya as well.

 

It is no secret that the major force behind the Iran-Libya Sanction Act was the America Israel Public Affairs Committee (AIPAC), the main Zionist lobby in Washington. The success of AIPAC in passing ILSA through both the Congress and the White House over the opposition of the major U.S. oil companies is testament to the fact that, in the context of U.S. policy in the Middle East, even the influence of the oil industry pales vis-à-vis the influence of the Zionist lobby [27].

 

ILSA was originally to be imposed on both U.S. and foreign companies. However, in the end it was the U.S. companies that suffered the most due to waivers that were given to European companies after pressure from the European Union. In 1996 the EU pursued its distaste of ILSA by lodging complaints with the World Trade Organization (WTO) against the U.S. and through adopting “blocking legislation” that would prevent EU companies from complying with ILSA. Meanwhile, the contract that Iran had originally signed with Conoco was awarded to TotalFinaElf of France for $760 million; the deal also left the door open for Total to sign an additional contract with Iran for $2 billion in 1997 with their partners Gazprom and Petronas.

 

In May of 1997 major U.S. oil companies such as Conoco, Exxon, Atlantic Richfield, and Occidental Petroleum joined other (non-military) U.S. companies to create an anti-sanction coalition. Earlier that same year Conoco’s Chief Executive Archie Dunham publicly took a stance against unilateral U.S. sanctions by stating that “U.S. companies, not rogue regimes, are the ones that suffer when the United States imposes economic sanctions.” Texaco officials have also argued that the U.S. can be more effective in bringing about change in other countries by allowing U.S. companies to do business with those countries instead of imposing economic sanctions that tend to be counterproductive.

 

Alas, Washington’s perverse, misguided and ineffectual policy of economic sanctions for political purposes—often in compliance with the wishes of some powerful special interests—continues unabated. “Even with the increased pro-trade lobbying efforts of the oil industry and groups like USAEngage, whose membership ranges from farmers and small business owners to Wall Street executives and oilmen, the lack of support from Washington and the Bush administration could not allow them [major oil companies and other non-military transnational companies] to overtake or counteract the already rolling momentum of AIPAC’s influence on Middle East policy or the renewal of ISLA” [28].

 

Despite the fact that oil companies nowadays view war and political turmoil in the Middle East as detrimental to their long-term interests and, therefore, do not support policies that are conducive to war and militarism, and despite the fact that war is no longer the way to gain access to oil, the widespread perception that every U.S. military engagement in the region, including the current invasion of Iraq, is prompted by oil considerations continues. The question is why?

 

 

Behind the Myth of War for Oil

 

The widely-shared but erroneous view that recent U.S. wars of choice are driven by oil concerns is partly due to precedence: the fact that for a long time military force was key to colonial or imperialist control and exploitation of foreign markets and resources, including oil. It is also partly due to perception: the exaggerated notion that both President Bush and Vice President Cheney were “oil men” before coming to the White House. But, as noted earlier, George W. Bush was never more than an ineffective minor oil prospector and Dick Cheney was never really an oil man; he headed the notorious Halliburton company that sold (and still sells) services to oil companies and the Pentagon.

 

But the major reason for the persistence of this pervasive myth seems to stem from certain deliberate efforts that are designed to perpetuate the legend in order to camouflage some real economic and geopolitical special interests that drive U.S. military adventures in the Middle East. There is evidence that both the military-industrial complex and hard-line Zionist proponents of “greater Israel” disingenuously use oil (as an issue of national interest) in order to disguise their own nefarious special interests and objectives: justification of continued expansion of military spending, extension of sales markets for military hardware, and recasting the geopolitical map of the Middle East in favor of Israel.

 

There is also evidence that for every dollar’s worth of oil imported from the Persian Gulf region the Pentagon takes five dollars out of the Federal budget to “secure” the flow of that oil! This is a clear indication that the claim that the U.S. military presence in the Middle East is due to oil consideration is a fraud [29].

 

While anecdotal, an example of how partisans of war and militarism use oil as a pretext to cover up the real forces behind war and militarism can be instructive. In the early stages of the invasion of Iraq, when the anti-occupation resistance in Iraq had not yet taken shape and the invasion seemed to be proceeding smoothly, two of the leading champions of the invasion, Secretary of Defense Donald Rumsfeld and his deputy Paul Wolfowitz, often boasting of the apparent or pre-mature success of the invasion at those early stages, gave frequent news conferences and press reports. During one of those press reports (at the end of an address to delegates at an Asian security summit in Singapore in early June 2003), Wolfowitz was asked why North Korea was being treated differently from Iraq, where hardly any weapons of mass destruction had been found. Wolfowitz’s response was: “Let’s look at it simply. The most important difference between North Korea and Iraq is that economically, we just had no choice in Iraq. The country swims on a sea of oil” [30].

 

Many opponents of the war jumped on this statement, so to speak, as corroboration of what they had been saying or suspecting all along: that the war on Iraq was prompted by oil interests. Yet, there is strong evidence—some of which presented in the preceding pages—that for the last several decades oil interests have not favored war and turbulence in the Middle East, including the current invasion of Iraq. Nor is war any longer the way to gain access to oil. Major oil companies, along with many other non-military transnational corporations, have lobbied both the Clinton and Bush administrations in support of changing the aggressive, militaristic U.S. policy toward countries like Iran, Iraq and Libya in favor of establishing normal, non-confrontational trade and diplomatic relations. Such efforts at normalization of trade and diplomatic relations, however, have failed time and again precisely because Wolfowitz and his cohorts, working through AIPAC and other war-mongering think tanks such as the American Enterprise Institute (AEI), Project for the New American Century (PNAC), and Jewish Institute for National Security Affairs (JINSA) oppose them.

 

These think tanks, in collaboration with a whole host of similar militaristic lobbying entities like Center for Security Affairs (CSA) and National Institute for Public Policy (NIPP), working largely as institutional façades to serve the defacto alliance of the military-industrial complex and the pro-Israel lobby, have repeatedly thwarted efforts at peace and reconciliation in the Middle East—often over the objections and frustrations of major U.S. oil companies. It is a well established fact that Wolfowitz has been a devoted champion of these jingoistic think tanks and their aggressive unilateral policies in the Middle East. In light of his professional record and political loyalties, his claim that he championed the war on Iraq because of oil considerations can be characterized only as demagogic: it contradicts his political record and defies the policies he has been advocating for the last several decades; it is designed to divert attention from the main forces behind the war, the armaments lobby and the pro-Israel lobby.

 

These powerful interests are careful not to draw attention to the fact that they are the prime instigators of war and militarism in the Middle East. Therefore, they tend to deliberately perpetuate the popular perception that oil is the driving force behind the war in the region. They even do not mind having their aggressive foreign policies labeled as imperialistic as long as imperialism implies some vague or general connotations of hegemony and domination, that is, as long as it thus camouflages the real, special interests behind the war and political turbulence in the Middle East.

 

The oil and other non-military transnational corporations’ aversion to war and military adventures in the Middle East stem, of course, from the logical behavior of global or transnational capital in the era of integrated world markets, which tends to be loath to war and international political convulsions. Considering the fact that both importers and exporters of oil prefer peace and stability to war and militarism, why would, then, the flow of oil be in jeopardy if the powerful beneficiaries of war and political tension in the Middle East stopped their aggressive policies in the region?

 

Partisans of war in the Middle East tend to portray U.S. military operations in the region as reactions to terrorism and political turbulence in order to “safeguard the interests of the United States and its allies.” Yet, a close scrutiny of action-reaction or cause-effect relationship between U.S. military adventures and socio-political turbulence in the region reveals that perhaps the causality is the other way around. That is, social upheavals and political convulsions in the Middle East are more likely to be the result, not the cause, of U.S. foreign policy in the region, especially its one-sided, prejudicial Israeli-Palestinian policy. The U.S. policy of war and militarism in the region seems to resemble the behavior of a corrupt cop, or a mafia godfather, who would instigate fights and frictions in the neighborhood or community in order to, then, portray his parasitic role as necessary for the safety and security of the community and, in the process, fill out his deep pockets.

 

No matter how crucial oil is to the world economy, the fact remains that it is, after all, a commodity. As such, international trade in oil is as important to its importers as it is to its exporters. There is absolutely no reason that, in a world free of the influence of the powerful beneficiaries of war and militarism, the flow of oil could not be guaranteed by international trade conventions and commercial treaties.

 

_________________________________

 

References

[1] Robert L. Hirsch, Roger Bezdek, and Robert Wendling, “Peaking of World Oil Production: Impacts, Mitigation, and Risk Management,” Testimony on Peak Oil before the House Subcommittee on Energy and Industry (7 December 2005), http://www.netl.doe.gov/publications/others/pdf/Oil_Peaking_NETL.pdf

[2] Matthew Mosk, “Industry Gushed Money After Reversal on Drilling,” Washington Post (27 July 2008), http://www.washingtonpost.com/wp-dyn/content/article/2008/07/26/AR2008072601891.html

[3] Ron Andreas, reporter/researcher, e-mail correspondence with the author.

[4] Michael T. Klare, Resource Wars: The New Landscape of Global Conflict (Holt Paperbacks, 2002).

[5] Red Cavaney, “Global Oil Production about to Peak? A Recurring Myth,” World Watch (01 January 2006), http://goliath.ecnext.com/coms2/gi_0199-5142950/Global-oil-production-about-to.html

[6] Eliyahu Kanovsky, “Oil: Who’s Really Over a Barrel?” Middle East Quarterly (Spring 2003), http://www.meforum.org/article/527

[7] Ibid.

[8] Ibid.

[9] ] Red Cavaney, “Global Oil Production about to Peak? A Recurring Myth,” World Watch (01 January 2006), http://goliath.ecnext.com/coms2/gi_0199-5142950/Global-oil-production-about-to.html

[10] The Wall Street Journal (10 March 1998); cited in Eliyahu Kantovsky, “Oil: Who’s Really Over a Barrel?” Middle East Quarterly (Spring 2003), http://www.meforum.org/article/527

[11] The Wall Street Journal (17 May 2001); cited in Eliyahu Kantovsky, Ibid.; see also Bill Kovarik, “The Oil Reserve Fallacy: Proven reserves are not a measure of future supply,” http://www.radford.edu/~wkovarik/oil/

[12] F. William Engdahl, “Perhaps 60% of Today’s Oil Price Is Pure Speculation,” financialsense.com (2 May 2008), http://www.financialsense.com/editorials/engdahl/2008/0502.html

[13] Ibid.

[14] Stanley Reed, “Help from the House of Saud: Why the leading oil producer wants to cool off the market,” Business Week (29 May 2008), http://www.businessweek.com/print/magazine/content/08_23/b4087030945015.htm

[15] Ibid.

[16] Cyrus Bina and Minh Vo, “OPEC in the Epoch of Globalization: An Event Study of Global Oil Prices,” Global Economy Journal, Vol. 7, Issue 1 (2007); for a discussion of the theory and history of oil price determination see also, Cyrus Bina, “The Rhetoric of Oil and the Dilemma of War and American Hegemony,” Arab Studies Quarterly 15, no. 3 (Summer 1993); also Cyrus Bina, “Limits of OPEC Pricing: OPEC Profits and the Nature of Global Oil Accumulation,” OPEC Review 14, no. 1 (Spring 1990).

[17]. F. William Engdahl, “Perhaps 60% of Today’s Oil Price Is Pure Speculation,” financialsense.com (2 May 2008), http://www.financialsense.com/editorials/engdahl/2008/0502.html

[18] Cyrus Bina and Minh Vo, “OPEC in the Epoch of Globalization: An Event Study of Global Oil Prices,” Global Economy Journal, Vol. 7, Issue 1 (2007).

[19] Gary S. Becker, “Why War with Iraq Is Not about Oil,” Business Week (17 March 2003): 30.

[20] Johnathan Nitzan and Shimshon Bichler. The Global Political Economy of Israel (London and Sterling, Virginia: Pluto Press, 2002).

[21] Melinda K. Ruby, “Is Oil the Driving Force to War?” unpublished Senior thesis, Dept. of Economics and Finance, Drake University, Des Moines, Iowa (spring 2004), 10.

[22] As quoted in Ruby, Ibid., P. 13.

[23] As cited by Roger Burbach, “Bush Ideologues vs. Big Oil: The Iraq Game Gets Even Stranger,” http://www.counterpunch.org/burbach10032003.html

[24] Israel Shamir, The Writings of Israel Shamir, Contributor 45, http://www.israelshamir.net/Contributors/Contributor45.htm

[25] Stephen F. Cohen “The New American Cold War,” The Nation (10 July 2006), http://www.thenation.com/doc/20060710/cohen ; as quoted in Shamir, Ibid.

[26] Shamir, Ibid.

[27] Ruby, “Is Oil the Driving Force to War?” pp. 14-15; see also Herman Franssen and Elaine Morton, “A Review of U.S. Unilateral Sanctions Against Iran,” Middle East Economic Survey 45, no. 34 (26 August 2002), pp. D1-D5 (D section contains op eds. as opposed to staff-written articles).

[28] Ruby, “Is Oil the Driving Force to War?” pp. 16-17; see also David Ivanovich, “Conoco’s Chief Blasts Sanctions,” Houston Chronicle (12 February 1997).

[29] On this issue see, for example, Chalmers Johnson, Blowback: The Costs and Consequences of American Empire (New York: Henry Holt and Company, 2000), 87-88.

[30] The statement was widely reported by many news papers and other media outlets. See, for example, The Guardian (4 June 2003), http://www.whatreallyhappened.com/aboutoil.htm

 

Ismael Hossein-zadeh, author of the recently published The Political Economy of U.S. Militarism (Palgrave-Macmillan 2007), teaches economics at Drake University, Des Moines, Iowa.