The
collapse of the old oil
order By Michael T Klare
Whatever the outcome of the protests,
uprisings and rebellions now sweeping the Middle
East, one thing is guaranteed: the world of oil
will be permanently transformed. Consider
everything that's now happening as just the first
tremor of an oilquake that will shake our world to
its core.
For a century stretching back to
the discovery of oil in southwestern Persia before
World War I, Western powers have repeatedly
intervened in the Middle East to ensure the
survival of authoritarian governments devoted to
producing petroleum. Without such interventions,
the expansion of Western economies after World War
II and the current affluence of industrialized
societies would be inconceivable.
Here,
however, is the news that should be on the front
pages of
newspapers everywhere: that
old oil order is dying, and with its demise we
will see the end of cheap and readily accessible
petroleum - forever.
Ending the
petroleum age Let's try to take the measure
of what exactly is at risk in the current tumult.
As a start, there is almost no way to give full
justice to the critical role played by Middle
Eastern oil in the world's energy equation.
Although cheap coal fueled the original Industrial
Revolution, powering railroads, steamships, and
factories, cheap oil has made possible the
automobile, the aviation industry, suburbia,
mechanized agriculture, and an explosion of
economic globalization. And while a handful of
major oil-producing areas launched the Petroleum
Age - the United States, Mexico, Venezuela,
Romania, the area around Baku (in what was then
the Czarist Russian empire), and the Dutch East
Indies - it's been the Middle East that has
quenched the world's thirst for oil since World
War II.
In 2009, the most recent year for
which such data is available, BP reported that
suppliers in the Middle East and North Africa
jointly produced 29 million barrels per day, or
36% of the world's total oil supply - and even
this doesn't begin to suggest the region's
importance to the petroleum economy. More than any
other area, the Middle East has funneled its
production into export markets to satisfy the
energy cravings of oil-importing powers like the
United States, China, Japan, and the European
Union. We're talking 20 million barrels funneled
into export markets every day. Compare that to
Russia, the world's top individual producer, at
seven million barrels in exportable oil, the
continent of Africa at six million, and South
America at a mere one million.
As it
happens, Middle Eastern producers will be even
more important in the years to come because they
possess an estimated two-thirds of remaining
untapped petroleum reserves. According to recent
projections by the US Department of Energy, the
Middle East and North Africa will jointly provide
approximately 43% of the world's crude petroleum
supply by 2035 (up from 37% in 2007), and will
produce an even greater share of the world's
exportable oil.
To put the matter baldly:
the world economy requires an increasing supply of
affordable petroleum. The Middle East alone can
provide that supply. That's why Western
governments have long supported "stable"
authoritarian regimes throughout the region,
regularly supplying and training their security
forces. Now, this stultifying, petrified order,
whose greatest success was producing oil for the
world economy, is disintegrating. Don't count on
any new order (or disorder) to deliver enough
cheap oil to preserve the Petroleum Age.
To appreciate why this will be so, a
little history lesson is in order. The
Iranian coup After the Anglo-Persian Oil
Company (APOC) discovered oil in Iran (then known
as Persia) in 1908, the British government sought
to exercise imperial control over the Persian
state. A chief architect of this drive was First
Lord of the Admiralty Winston Churchill. Having
ordered the conversion of British warships from
coal to oil before World War I and determined to
put a significant source of oil under London's
control, Churchill orchestrated the
nationalization of APOC in 1914. In 1941, during
World War II, then-prime minister Churchill
oversaw the removal of Persia's pro-German ruler,
Shah Reza Pahlavi, and the ascendancy of his
21-year-old son, Mohammed Reza Pahlavi.
Though prone to extolling his (mythical)
ties to past Persian empires, Mohammed Reza
Pahlavi was a willing tool of the British. His
subjects, however, proved ever less willing to
tolerate subservience to imperial overlords in
London. In 1951, democratically elected prime
minister Mohammed Mossadeq won parliamentary
support for the nationalization of APOC, by then
renamed the Anglo-Iranian Oil Company (AIOC). The
move was wildly popular in Iran but caused panic
in London. In 1953, to save this great prize,
British leaders infamously conspired with
President Dwight Eisenhower's administration in
Washington and the CIA to engineer a coup d'etat
that deposed Mossadeq and brought Shah Pahlavi
back from exile in Rome, a story recently told
with great panache by Stephen Kinzer in All the
Shah's Men.
Until he was overthrown in
1979, the shah exercised ruthless and dictatorial
control over Iranian society, thanks in part to
lavish US military and police assistance. First he
crushed the secular left, the allies of Mossadeq,
and then the religious opposition, headed from
exile by the Ayatollah Ruhollah Khomeini. Given
their brutal exposure to police and prison gear
supplied by the United States, the shah's
opponents came to loathe his monarchy and
Washington in equal measure. In 1979, of course,
the Iranian people took to the streets, the shah
was overthrown, and Ayatollah Khomeini came to
power.
Much can be learned from these
events that led to the current impasse in
US-Iranian relations. The key point to grasp,
however, is that Iranian oil production never
recovered from the revolution of 1979-1980.
Between 1973 and 1979, Iran achieved an
output of nearly six million barrels of oil per
day, one of the highest in the world. After the
revolution, AIOC (rechristened British Petroleum,
or later simply BP) was nationalized for a second
time, and Iranian managers again took over the
company's operations. To punish Iran's new
leaders, Washington imposed tough trade sanctions,
hindering the state oil company's efforts to
obtain foreign technology and assistance. Iranian
output plunged to two million barrels per day and,
even three decades later, has made it back to only
slightly more than four million barrels per day,
even though the country possesses the world's
second largest oil reserves after Saudi Arabia.
Dreams of the invader Iraq
followed an eerily similar trajectory. Under
Saddam Hussein, the state-owned Iraq Petroleum
Company (IPC) produced up to 2.8 million barrels
per day until 1991, when the First Gulf War with
the United States and ensuing sanctions dropped
output to half a million barrels daily. Though by
2001 production had again risen to almost 2.5
million barrels per day, it never reached earlier
heights. As the Pentagon geared up for an invasion
of Iraq in late 2002, however, George W Bush
administration insiders and well-connected Iraqi
expatriates spoke dreamily of a coming golden age
in which foreign oil companies would be invited
back into the country, the national oil company
would be privatized, and production would reach
never before seen levels.
Who can forget
the effort the Bush administration and its
officials in Baghdad put into making their dream
come true? After all, the first American soldiers
to reach the Iraqi capital secured the Oil
Ministry building, even as they allowed Iraqi
looters free rein in the rest of the city. L Paul
Bremer III, the proconsul later chosen by
president Bush to oversee the establishment of a
new Iraq, brought in a team of American oil
executives to supervise the privatization of the
country's oil industry, while the US Department of
Energy confidently predicted in May 2003 that
Iraqi production would rise to 3.4 million barrels
per day in 2005, 4.1 million barrels by 2010, and
5.6 million by 2020.
None of this, of
course, came to pass. For many ordinary Iraqis,
the US decision to immediately head for the Oil
Ministry building was an instantaneous turning
point that transformed possible support for the
overthrow of a tyrant into anger and hostility.
Bremer's drive to privatize the state oil company
similarly produced a fierce nationalist backlash
among Iraqi oil engineers, who essentially
scuttled the plan. Soon enough, a full-scale Sunni
insurgency broke out. Oil output quickly fell,
averaging only 2.0 million barrels daily between
2003 and 2009. By 2010, it had finally inched back
up to the 2.5 million barrel mark - a far cry from
those dreamed of 4.1 million barrels.
One
conclusion isn't hard to draw: efforts by
outsiders to control the political order in the
Middle East for the sake of higher oil output will
inevitably generate countervailing pressures that
result in diminished production. The United States
and other powers watching the uprisings,
rebellions, and protests blazing through the
Middle East should be wary indeed: whatever their
political or religious desires, local populations
always turn out to harbor a fierce, passionate
hostility to foreign domination and, in a crunch,
will choose independence and the possibility of
freedom over increased oil output.
The
experiences of Iran and Iraq may not in the usual
sense be comparable to those of Algeria, Bahrain,
Egypt, Iraq, Jordan, Libya, Oman, Morocco, Saudi
Arabia, Sudan, Tunisia, and Yemen. However, all of
them (and other countries likely to get swept up
into the tumult) exhibit some elements of the same
authoritarian political mold and all are connected
to the old oil order. Algeria, Egypt, Iraq, Libya,
Oman, and Sudan are oil producers; Egypt and
Jordan guard vital oil pipelines and, in Egypt's
case, a crucial canal for the transport of oil;
Bahrain and Yemen as well as Oman occupy strategic
points along major oil sealanes. All have received
substantial US military aid and/or housed
important US military bases. And, in all of these
countries, the chant is the same: "The people want
the regime to fall."
Two of these regimes
have already fallen, three are tottering, and
others are at risk. The impact on global oil
prices has been swift and merciless: on February
24th, the delivery price for North Brent crude, an
industry benchmark, nearly reached $115 per
barrel, the highest it's been since the global
economic meltdown of October 2008. West Texas
Intermediate, another benchmark crude, briefly and
ominously crossed the $100 threshold.
Why the Saudis are key So far,
the most important Middle Eastern producer of all,
Saudi Arabia, has not exhibited obvious signs of
vulnerability, or prices would have soared even
higher. However, the royal house of neighboring
Bahrain is already in deep trouble; tens of
thousands of protesters - more than 20% of its
half million people - have repeatedly taken to the
streets, despite the threat of live fire, in a
movement for the abolition of the autocratic
government of King Hamad ibn Isa al-Khalifa, and
its replacement with genuine democratic rule.
These developments are especially
worrisome to the Saudi leadership as the drive for
change in Bahrain is being directed by that
country's long-abused Shiite population against an
entrenched Sunni ruling elite. Saudi Arabia also
contains a large, though not - as in Bahrain - a
majority Shiite population that has also suffered
discrimination from Sunni rulers. There is anxiety
in Riyadh that the explosion in Bahrain could
spill into the adjacent oil-rich Eastern Province
of Saudi Arabia - the one area of the kingdom
where Shiites do form the majority - producing a
major challenge to the regime. Partly to forestall
any youth rebellion, 87-year-old King Abdullah has
just promised $10 billion in grants, part of a $36
billion package of changes, to help young Saudi
citizens get married and obtain homes and
apartments.
Even if rebellion doesn't
reach Saudi Arabia, the old Middle Eastern oil
order cannot be reconstructed. The result is sure
to be a long-term decline in the future
availability of exportable petroleum.
Three-quarters of the 1.7 million barrels
of oil Libya produces daily were quickly taken off
the market as turmoil spread in that country. Much
of it may remain off-line and out of the market
for the indefinite future. Egypt and Tunisia can
be expected to restore production, modest in both
countries, to pre-rebellion levels soon, but are
unlikely to embrace the sorts of major joint
ventures with foreign firms that might boost
production while diluting local control. Iraq,
whose largest oil refinery was badly damaged by
insurgents only last week, and Iran exhibit no
signs of being able to boost production
significantly in the years ahead.
The
critical player is Saudi Arabia, which just
increased production to compensate for Libyan
losses on the global market. But don't expect this
pattern to hold forever. Assuming the royal family
survives the current round of upheavals, it will
undoubtedly have to divert more of its daily oil
output to satisfy rising domestic consumption
levels and fuel local petrochemical industries
that could provide a fast-growing, restive
population with better-paying jobs.
From
2005 to 2009, Saudis used about 2.3 million
barrels daily, leaving about 8.3 million barrels
for export. Only if Saudi Arabia continues to
provide at least this much oil to international
markets could the world even meet its anticipated
low-end oil needs. This is not likely to occur.
The Saudi royals have expressed reluctance to
raise output much above 10 million barrels per
day, fearing damage to their remaining fields and
so a decline in future income for their many
progeny. At the same time, rising domestic demand
is expected to consume an ever-increasing share of
Saudi Arabia's net output. In April 2010, the
chief executive officer of state-owned Saudi
Aramco, Khalid al-Falih, predicted that domestic
consumption could reach a staggering 8.3 million
barrels per day by 2028, leaving only a few
million barrels for export and ensuring that, if
the world can't switch to other energy sources,
there will be petroleum starvation.
In
other words, if one traces a reasonable trajectory
from current developments in the Middle East, the
handwriting is already on the wall. Since no other
area is capable of replacing the Middle East as
the world's premier oil exporter, the oil economy
will shrivel - and with it, the global economy as
a whole.
Consider the recent rise in the
price of oil just a faint and early tremor
heralding the oilquake to come. Oil won't
disappear from international markets, but in the
coming decades it will never reach the volumes
needed to satisfy projected world demand, which
means that, sooner rather than later, scarcity
will become the dominant market condition. Only
the rapid development of alternative sources of
energy and a dramatic reduction in oil consumption
might spare the world the most severe economic
repercussions.
Michael T Klare is a
professor of peace and world security studies at
Hampshire College, a TomDispatch
regular, and the author, most recently, of
Rising
Powers, Shrinking Planet. A documentary
film version of his previous book, Blood and
Oil,is available
from the Media Education Foundation. To listen to
Timothy MacBain's latest TomCast audio interview
in which Klare explains how resource scarcity is
driving protest and much else on our planet, click
here,
or download it to your iPod here.
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