The New Great Game
War on Iraq is about a lot more than boosting
oil companies’ profits. It’s the latest battle in the
ongoing war over who gets to control the earth’s remaining
energy reserves. By Lutz C Kleveman
‘No blood for oil’ was a common slogan at the recent
anti-war demos around the globe. Yet, few people have an idea
of just how momentous a strategic struggle is being waged behind
the rhetoric of weapons inspections and human rights. What is
at stake is nothing less than who controls the earth’s remaining
energy reserves. This new ‘Great Game’ (a modern variant
of the imperial rivalry between Great Britain and Tsarist Russia
in 19th century Central Asia) over oil is about to enter a crucial
stage. However vehement the denials by the Bush administration,
Washington’s true intention is to turn Iraq into an alternative
to Saudi Arabia: a strategic oil supplier for its economy and
a key US ally in the Middle East.
The new Great Game is being played out not only in the Middle
East but also in other energy-rich regions such as West Africa
and the Caspian Sea. There too, the scramble for petrol reserves
and pipeline routes is producing bloody conflicts, proving beyond
doubt why oil has been called ‘the tears of the devil’.
Iraq, however, has become the linchpin in a US strategy to secure
cheap oil while breaking the clout of the Arab-dominated oil cartel
Opec. Iraq sits on an astronomic 112 billion barrels of crude.
At 12 per cent of the world’s reserves, this is the second
largest proven source in the world. Only Saudi Arabia (with 262
billion barrels and roughly one fourth of the earth’s total
resources) has more oil. At the moment, Iraq legally exports about
two million barrels a day as part of the UN ‘food for oil’
programme. Most of its oil production facilities are in dire need
of technical modernisation, but the UN sanctions keep foreign
investors out. If sanctions were lifted after the overthrow of
Saddam Hussein, trans-national energy corporations could start
exploiting Iraq’s huge oil fields. There would be no shortage
of suitors: Iraq’s light, low-sulphur oil is considered to
be among the best in the world. Moreover, the fact that the country’s
oil reserves often lie right under the earth’s surface makes
it extremely cheap to drill. Production costs in Iraq can be as
low as $2 a barrel.
With the help of $20 billion of investment in new and existing
facilities, Iraqi oil output could soar within a few years to
seven million barrels a day. That would be roughly a 10th of global
consumption. Abundant supply would lead to a price drop, which
is just what lagging Western economies need. Last September George
W Bush’s former economic adviser Larry Lindsey put the war
aim bluntly, when he said: ‘When there is a regime change
in Iraq, you could add three to five million barrels of production
to world supply [per day]. The successful prosecution of the war
would be good for the economy.’
Americans currently burn 21 million barrels of oil a day, roughly
half of which is imported. As the country's domestic crude production
is going to fall by an estimated 12 per cent over the next decade,
imports will have to provide for two thirds of its total energy
demand in 2020. To secure oil supplies for the US’s wasteful
way of life, vice-president Dick Cheney’s 2001 National Energy
Policy report recommended that ‘the President make energy
security a priority of our trade and foreign policy.’ It
also advocated global engagement in resource-rich regions ‘that
will have a major impact on the global energy balance.’ Though
this meant regions such as the Caspian; as well, by any count,
the Gulf’s oil producers will remain central to world oil
security and a primary focus of US international energy policy.
The Saudi ‘threat’
Since the 1973 oil crisis, Opec has used oil as a pawn to gain
leverage over the West. In a bid to decrease its dependency on
the sheikhs, the US has sought for years to ‘diversify its
oil supplies’. The problem is that many non-Opec oil fields,
such as those in the North Sea, are approaching depletion. At
the same time, the International Energy Agency estimates that
booming economic growth in countries like China and India is likely
to cause a surge in global oil consumption from today’s 73
million barrels per day to 90 million in 2020. Inevitably, Opec
will expand its share of the world market to more than 60 per
cent – thus enhancing its political clout.
The influence of the Saudi petrol sheikhs will grow especially.
Already, the US imports about 2.6 million barrels of oil from
Saudi Arabia every day. The scale of its reserves puts the desert
kingdom in a unique position to dictate prices to the West; it
is the only country in the world capable of acting as a so-called
‘swing supplier’. To compensate for production losses
like those caused by the current crisis in Venezuela, the Saudis
are capable of boosting production from eight to 10.5 million
barrels per day. Alternatively, if a price hike is in their interest,
they can choose not to act at all.
Many people in Washington are far from comfortable with the Saudis’
power. The country is turning out to be an embarrassing, and perhaps
even dangerous, ally. Nearly all the hijackers on September 11
were Saudis, and there is a growing risk that radical Islamist
groups could topple the corrupt Saud dynasty and stop the flow
of oil to Western ‘infidels’.
Yet even without an anti-Western revolution such as the one in
Iran in 1979 (when 5.6 million barrels of crude disappeared from
the world market overnight) Saudi petrol is already ideologically
tainted. In an effort to stave off political turmoil the regime
in Riyadh funds the radical Sunni sect of the Wahhabis, who themselves
backed the Afghan Taliban and foment terror against Americans
around the world. The Wahhabis also pose a danger to the thousands
of US troops stationed in the Gulf following the first US-led
campaign against Saddam 12 years ago. At an estimated cost of
$50 billion a year, the US forces serve essentially to protect
Saudi oil wells against internal threats and Iraqi aggression.
This military presence on what is holy soil for Muslims has backfired
terribly. No other cause has done more to motivate al-Qaeda to
wage jihad against the US.
As long as the US needs Saudi oil and cooperation in a war against
Iraq, officials in Washington protest their interest in maintaining
good relations with Riyadh. However, a growing number of influential
politicians are openly suggesting taking the war on terror to
Saudi Arabia and occupying its oilfields.
Washington, meanwhile, has begun to look for a new ally and main
oil supplier in the Middle East. This is where Iraq fits in. It
is the only possible alternative as a swing supplier.
It is not unlikely that a US-backed government in Baghdad would
pull Iraq out of Opec lest foreign investors would be burdened
by production limits. In that case, Iraq would serve as an Opec-buster.
As one of a block of non-Opec producers – including Russia
and the Caspian countries – it would churn out enough oil
to undermine the cartel’s high-price agreements. The clout
of Opec and Saudi Arabia would be broken, and oil would once again
flow freely to the West.
US corporates to carve up Iraq’s oil?
Oil corporations are currently jockeying for the best deals in
a post-Saddam Iraq. So, do the US war plans aim merely to open
up Iraq for lucrative investments by US oil companies? Prima facie,
there is plenty of circumstantial evidence for this view: the
close connections between the Bush administration and big oil
are well documented, for example.
It is not difficult to imagine that a regime installed in Baghdad
by US forces would favour US firms in the allotment of drilling
concessions. Ahmed Chalabi, the leader of the dubious CIA-backed
opposition movement the Iraqi National Congress, has already met
with managers of ExxonMobil and ChevronTexaco. Talking to The
Washington Post, Chalabi said: ‘US companies will get a big
shot at Iraqi oil.’ This blatant favouritism worries BP,
which pioneered the discovery of petrol in Iraq in the early 20th
century. BP head Lord Browne speculated that if the Blair government
did not actively support regime change in Iraq, British oil companies
would lose out to their US competitors.
Russian oil companies, likewise, have a lot to lose in Iraq.
In 1997 Russian oil giant Lukoil signed a contract with Saddam
to develop Iraq’s giant West Qurna oilfield. The $20 billion
deal is of significant diplomatic importance. Upset about Moscow’s
support for UN resolution 1441, Baghdad unilaterally cancelled
the contract in December. But a Russian delegation of diplomats
and oil barons was hastily dispatched to Iraq, and managed to
mend fences and change the dictator’s mind. And Chinese and
French energy corporations have also been active in Iraq for years.
In the 1990s, TotalFinaElf made preliminary agreements with Baghdad
to develop the oilfields of Majnoon and Nahr Umar in southern
Iraq.
Moscow and Paris fear that a new Iraqi government indebted to
Washington would declare the old regime’s contracts null
and void, and offer them to US firms. Behind-closed-doors, therefore,
US diplomacy has sought to assure the Russians and the French
that their contracts would be honoured. It is, however, in no
way certain that a post-Hussein government, keen to establish
nationalist credentials with the Iraqi people, would necessarily
privatise the state-owned oil industry.
However, the rivalry between oil corporations per se plays a
less significant role in the Iraq crisis than supporters of a
narrow business-centred ‘blood for oil’ theory contend.
While the ties between Bush and the US oil industry are intimate,
the US president would be unlikely to launch such a massive and
costly military campaign merely to obtain a few juicy contracts
for his Texan pals. Instead, wider strategic considerations are
the key to understanding the decision makers in Washington –
as well as those in Moscow and Bejing.
This is particularly true for Russia. To be sure, Putin’s
opposition to US war plans in Iraq also represents a diplomatic
attempt to prevent the US from emerging as the unchallenged hegemonic
power in the Middle East. However, his government’s stance
is mainly about preventing a war that could erode its main source
of income: the Siberian oil and gas industry. The Russians fear
that after a regime change in Baghdad, Iraqi oil might flood the
world market causing prices to drop.
As a result of enormous effort over the past three years, Russia
has boosted its crude output to eight million barrels a day. Its
pipeline network is pumping at full capacity, with preparations
underway to build a new giant pipeline to the Arctic port of Murmansk.
The Russian state budget is financed almost entirely through revenues
from raw materials exports. No other economic sector is as important
in the former communist empire, which today struggles to keep
up with Belgium in industrial performance.
Russia’s problem is that all state expenditure has been
calculated in expectation of an oil price of $23 per barrel. Describing
the effects of Iraqi oil flooding the market, Aleksej Arbatov,
deputy chairman of the defence committee of the Duma (Russia’s
lower house of parliament), says: ‘Our budget would collapse.’
Production costs in faraway Siberia can reach up to $13 a barrel.
If profits were to collapse, foreign corporations, whose capital
Russia is trying to attract, might find a re-opened Iraq a far
more attractive option.
The Kremlin has, therefore, taken an anti-war course. ‘We
are going to vote against any second resolution at the UN Security
Council that enables the US to attack Iraq,’ a high-ranking
Russian diplomat in the Near East told The Ecologist. ‘We
simply cannot afford the potential consequences of a war for our
petrol industry.’ US diplomacy will seek to sway the Russians
through overall economic incentives. US and Russian officials
have already discussed the concept of an ‘energy partnership’
in which Russian oil giants Lukoil and Yukos would directly deliver
their Siberian oil to the US.
The battle for the Caspian
But decision makers in Moscow have become suspicious. They are
still waiting for the lifting of trade restrictions promised by
the US in return for Russia’s acceptance of the stationing
of US troops in ex-Soviet Afghanistan. Conservatives in Moscow,
in particular, have come to suspect that the US is not so much
after terrorists in Central Asia but the fabulous energy reserves
of the Caspian Sea. While some estimates have been exaggerated,
the US Department of Energy predicts the region sits on a vast
200 billion barrels of crude oil.
This has turned the Caspian into a crucial battleground in the
new Great Game, where the US and Britain compete with Russia and
regional countries over access to its ‘black gold’.
Western multinationals have invested tens of billions into new
production facilities in the region. But there is a problem: Caspian
oil and gas is worthless until moved. The region is landlocked
and the oil lies thousands of miles from any high-sea port from
where it could be shippped to the markets of the industrialised
world. Pipelines need to be built. For 10 years, however, their
disputed routes have caused bloody conflicts around the Caspian
Sea, in the Caucasus and Central Asia. There is no end in sight.
Russia, still regarding itself as imperial overlord of its former
colonies, is trying to hold the US at arm’s length. The world’s
second biggest oil exporter after Saudi Arabia insists the Caspian
pipelines should be built, as in Soviet times, across Russian
territory north of the Caucasus mountains to the Black Sea port
of Novorossijsk. This would give Moscow considerable political
and economic power over the newly independent states.
For their part, the US and Britain are trying to keep the Caspian’s
precious oil beyond Russia’s reach. Keen to strengthen the
former Soviet republics’ independence from Moscow, the US
has championed a pipeline that would circumvent Russia. But Washington
also adamantly objects to a southern route through Iran –
its arch-enemy for over 20 years.
Thus, in the mid-1990s the US government supported plans by the
US oil company Unocal to build oil and gas pipelines from Turkmenistan
through Afghanistan to the Indian Ocean. When it became clear
in 1998 that the Taliban supported anti-US terrorists, the pipeline
plans for Afghanistan were temporarily shelved. Now the US-led
so-called ‘anti-terrorist’ campaign in Afghanistan has
reopened the Herat-Kandahar corridor, these plans have been dusted
off.
As an alternative, Washington has put its weight behind another
gigantic project: a pipeline that would run over 1,000 miles from
Azerbaijan’s capital Baku, via neighbouring Georgia all the
way to Turkey’s Mediterranean port of Ceyhan. An international
consortium led by BP started construction on the project last
autumn. In a bid to deter investors, Moscow has responded by continuing
to politically destabilise the war-torn Caucasus. To rein in Russian
influence in the region, the US has used the Afghan war for a
massive military build-up in three ex-Soviet Central Asian republics.
Hence, war in Iraq may just be a beginning, with the stage already
set for future oil wars.
More oil wars ahead
As long as there is no end in sight to the age of fossil fuels,
and the industrialised world’s dependency on Middle Eastern
oil continues to grow unabated, conflicts are likely to break
out which are essentially about securing the earth’s remaining
energy reserves. To be sure, the planet’s crude oil resources
are going to last for a few more decades yet. However, the struggles
over access and profits between countries and multinational corporations
are already becoming fiercer.
Similar battles are being waged internally, within the societies
of oil-rich countries. In most of these countries – Nigeria,
Venezuela, Angola and the Arab sheikhdoms for example – sudden
oil wealth has led to corruption, economic decline, political
oppression, revolutions and civil war. ‘We are drowning in
the excrement of the Devil,’ the Venezuelan Opec founding
father Juan Alfonzo once said of the oil boom’s dire consequences.
More often than not ‘liquid gold’ turns out to be a
curse rather than a blessing. The repercussions of energy imperialism
and wars over raw materials will be felt in the West in the shape
of floods of refugees and oil-price shocks. These will force the
West to further increase costly overseas military commitments.
In the long run, however, the vulnerability of oil infrastructure
in volatile regions makes it virtually impossible to secure energy
supply purely by military means.
Political leaders would be well advised, therefore, to dilute
our nefarious dependence on petrol through the promotion of renewable
energy technologies. The task of protecting the climate against
the greenhouse effect urgently requires these steps anyway. The
events in Iraq and around the Caspian Sea demonstrate how a truly
new energy policy – irrespective of its obvious ecological
advantages – would also be a foresighted security policy.
Lutz Kleveman is New York correspondent for the German news
magazine Der Spiegel (Online). He has also worked as a conflict
zone reporter for The Daily Telegraph. The New Great Game, his
book on the struggle for oil in Central Asia, is published by
Atlantic Books in August.
"The Ecologist"
Date Published: 22/04/2003
