The new 'Great Game' being played out over oil

Iraq has become the linchpin in a US strategy to secure cheap oil while breaking Opec, the Arab-dominated oil cartel

31 March 2003

"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) 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.

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. It sits on an astronomical 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 quarter 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, transnational energy corporations could start exploiting Iraq's huge oil fields.

With the help of $20bn (£13bn) 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 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.

Since the 1973 oil crisis, Opec has used oil as a pawn to gain leverage over the West. In an effort 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 such as 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.

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, the Saudis are capable of boosting production from eight to 10.5 million barrels per day.

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 11 September 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".

As long as the US needs Saudi oil and co-operation in a war against Iraq, officials in Washington proclaim their interest in maintaining good relations with Riyadh. However, a growing number of influential politicians is 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.

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. This blatant favouritism worries BP, which pioneered the discovery of petrol in Iraq in the early 20th century

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 $20bn 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. 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.

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.

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.