The Bush administration’s energy policy relies on a rising consumption of oil both in the United States and globally by one-third over the next 20 years, making a greater supply of oil crucial, said Michael Renner, a senior researcher and security expert at Worldwatch Institute.
“Certainly those that have argued that this is in fact an effort to re-shape the map of the Middle East have a strong argument. I think closely related to that, though, is the oil factor,” said Renner.
Iraq has the second largest oil reserves in the world with some 112 billion barrels of proven reserves after Saudi Arabia’s 259 billion barrels. But Iraq has yet to be fully explored and some studies place oil reserve figures closer to 432 billion barrels.
For US, Iraqi oil is
more power than fuel
“The Middle East will play a very central role in this kind of energy scenario. Clearly, oil companies are going to the far corners of the world to find more oil. But I think it’s reasonable to say at this point that these newly discovered reserves in the Caspian area, parts of Russia, in off-shore areas in the Atlantic, West Africa…are important sources but they just cannot replace the very large quantities of oil in the Middle East,” said Renner.
Contracts to rehabilitate and reconstruct Iraq’s oil industry are worth several billion dollars, he added. But the real economic gains are in the development and production of Iraqi oil.
However, the new operators will have the task of balancing increased supply with steady prices, said Renner. “The United States…has a certain interest in having available supplies of cheap oil. However, if the oil is too cheap than it really gets problematic back home for the remaining oil fields in Texas and Alaska,” he said. “There is a US interest in relatively cheap oil but only up to a point.”
In a US-friendly Iraq where Washington controls the oil fields, the US could use oil as a weapon against Europe and China, added Renner.
“If the United States maintains strong influence over what happens in the Middle East it certainly has control over the world’s…oil flow,” he said. “The US has at least a certain lever in it relations vis-à-vis these other countries. This well may translate into political capital.”
Michael Klare, professor of peace and world security studies at Hampshire College and author of Resource Wars, echoed Renner’s warnings. “Controlling Iraq is about oil as power, rather than oil as fuel,” he said. “Control over the Arabian Gulf translates into control over Europe, Japan and China,” he explained.
China’s meagre domestic oil reserves forces it to depend on imports mainly from the Arabian Gulf. A potential obstacle to its rise as a global power is whether it can ensure a sufficient supply of energy to maintain economic stability, wrote Frank Umbach, a senior researcher at the German Council on Foreign Relations in a recent paper.
By 2015 three-quarters of the Gulf’s oil will go to Asia, mainly China, according to a study by the Central Intelligence Agency’s National Intelligence Council. A US-friendly Iraq would eliminate other competitors for Gulf oil and block potential global powers.
Oil as a political weapon could also have a negative impact on Russia, said Renner. If Iraqi oil floods world markets Russia’s oil exports, already expensive to produce, would not be as competitive globally. This economic clout could translate into political leverage.
Renner said moves to price at least a portion of oil supplies in the euro rather than the US dollar had also upset Washington. Presently the US dollar is the key currency for oil and international transactions. Maintaining its role as the key international reserve currency is important to the US economy, explained Renner.
“If the United States maintains a strong political hand in the Middle East it may be more able to convince the governments in the region not to switch over to Euro pricing and to actually stay with the dollar,” he said.
Iraq bursting back onto world oil markets could also have consequences on the Organization of the Petroleum Exporting Countries (OPEC) and leave the future of the oil cartel uncertain, said Renner.
OPEC President Abdullah
al-Attiyah (R): problems
OPEC already suffers from internal rifts stemming from members exceeding agreed oil production quotas. Increased availability of Iraqi oil on global markets and a subsequent fall in prices and revenue may force its members to bust quota restrictions. This will lead to squabbles and eventually weaken or kill the cartel, said Renner.
Vice President for Defense and Foreign Policy Studies at the Cato Institute, Dr. Ted Carpenter, said the US would like to have a “friendly, quiet regime” in charge of a major oil source. “That way, policy makers believe we would not have to rely on the Saudis to stabilise the oil market to the extent that we do now. We don’t trust the Saudis that much any more and we would like to have a substitute.”
Carpenter added that US policymakers did not understand any more than the previous Bush administration how oil markets functioned, saying if they did, oil would not be a motive for war.
“It frankly doesn’t matter who controls a particular oil producer. They have little choice but to sell the oil and in many cases that is the chief, if not the only source, of significant revenue,” he said.
“They are going to put their oil on the market, regardless of who controls the political power in the capital city. And if they put their oil on the market, you know that determines the ultimate price, not whether the regime is friendly to the United States or hostile,” he said.
But if all goes according to plan, the Bush administration will emerge as a big winner, said Renner. “If you do have a regime change and a lifting of the sanctions, I think at the very least one would have to assume that the cards get re-shuffled, US oil companies have a far better chance of gaining access, probably not shutting out Russian and French companies as some people have assumed but rather still giving them a share of the pie, but the big winners in effect would be US companies.”