The politics of oil
Dilip HIRO
OIL WEAPON: The fast rising demand for oil by China and India,
sharply declining fresh discoveries, and high prices are empowering the
countries with large reserves of oil as never before â but this oil card
is good for only a few rounds in the long-term game of international
diplomacy
Venezuelan President Hugo Chavez provides a striking example of how
petroleum has emboldened leaders of oil-rich states to thumb their noses
at the giant neighbour in the northâthe US.
Aside from his hint that Venezuela might be seeking nuclear power,
the highlight of Chavezâs recent visit to Moscow was to finalize a
contract to purchase five Russian diesel submarines for $1 billion to
safeguard his countryâs oil-rich underwater shelf and thwart a possible
embargo by the US in response to his anti-Washington crusade in Latin
America for the past several years.
Under his presidency, Venezuela has become the second largest
purchaser of Russian weapons after Algeria.
âWe are strengthening Venezuelaâs military power precisely to avoid
imperial aggression and assure peace, not to attack anybody,â said
Chavez in a recent speech at a military base in Caracas.
The arms procurement is funded by a treasury overflowing with foreign
exchange due to high petroleum prices. This gives Chavez the clout to
challenge the US, sorely dependent on imports of Venezuelan oil, and
insult President George Bush with impunity.
Oil income has enabled Chavez to consolidate his popular base at
home. And he has used price discounts on petroleum to gain diplomatic
backing of the Caribbean and Central American countries to the detriment
of Washington. He has financially helped debt-ridden Latin American
countries like Argentina.
At the same time Chavez is forging strong hydrocarbon ties with
oil-hungry China as insurance for the day when the US decides to stop
importing the Venezuelan crude. By 2009 Venezuelaâs oil exports to China
will treble to 500,000 barrels per day (bpd).
A Chinese oil company is collaborating with the state-owned Petroleos
de Venezuela SA to explore a new heavy oil field in the Orinoco Basin.
âThe support of China is very important [to us] from the political and
moral point of view,â Chavez said during his visit to China last year.
Another leader recently challenging Washington is Russian President
Vladimir Putin. He threatened to point his militaryâs nuclear missiles
at European cities, if Bush extended the present California-Alaska
anti-missile defense line to Poland and the Czech Republic.
This threat was the latest illustration of a radical change in the
Kremlinâs foreign policy, with Putin repeatedly attacking Washingtonâs
stance in the international arena.
His tough stance stems from the soaring wealth created by the
extraction of Russiaâs enormous hydrocarbon reserves and his policy of
bringing the leading Russian hydrocarbon companies under the control of
the Kremlin and using them as an instrument of Russiaâs foreign policy.
Four years ago Russia overtook the US to become the worldâs second
largest oil producer after Saudi Arabia. Last year Gazprom, a Russian
company, forged ahead of BP as the globeâs second largest energy
corporation by market value.
With petroleum prices rising fivefold between 1998âwhen the Russian
ruble crashed, forcing the Kremlin to beg for foreign financial aidâand
now, the Russian treasury is overflowing with cash. It has since paid
off its foreign loans and built up a foreign exchange nearing $300
billion.
Another example of oil riches enabling a countryâs leaders to act
with uncommon resolve is Iran. Its refusal to suspend enrichment of
uranium demanded by the United Nations Security Council has led to two
sets of sanctions against it. But these have proved ineffective.
Iranâs exports are rising and the high oil prices mean that the
government can go on using the hydrocarbon revenue on subsidies for food
and fuel at home.
What would really hurt Iran are sanctions on oil exports. But, given
the rising demand for the commodity, the tight supply in the petroleum
market and the fact that Iran is the second largest oil exporter in the
Organization of Oil Exporting Countries, a ban on the oil trade with
Iran is almost inconceivable.
Iranâs threat to cut off its petroleum exports, if attacked
militarily by the US or Israel, thus causing a big jump in prices, has
so far restrained the hawks in the US and Israeli governments.
These examples amply illustrate how petroleum has proved to be a
leading factor in determining international relations.
Condoleezza Rice made this discovery only after becoming the US
Secretary of State in January 2005. In her testimony to the Senate
Foreign Relations Committee in April 2006, she said, âNothing has taken
me aback more as secretary of state than the way that the politics of
energy isâI will use the word âwarpingââdiplomacy around the world.â
This statement from a former director of Chevron was truly
astonishing: It showed her ignorance of oilâs importance in Americaâs
diplomatic annals.
Summing up the post-World War II situation in August 1945, a top US
State Department official wrote: âA review of the diplomatic history of
the past 35 years will show that petroleum has historically played a
larger part in the external relations of the United States than any
other commodity.â This quote appears in many US history textbooks.
Actually, the US has the distinction of being the first to âwarpâ
diplomacy by deploying oil to further its economic and diplomatic
interests. During the first six decades of the last century, when the US
was the leading producer of oil, the government used the commodity to
further national interests abroad.
The US did so when joining the Allies in April 1917, at a time when
its oil output amounted to two-thirds of the global total. By supplying
four-fifths of the Alliesâ petroleum needs, in addition to sending
troops, Washington helped defeat the Central Powers.
As a quid pro quo after the war, the US compelled the victorious
Britain and France to give open access to American companies in Europe
and the Middle East (under the British and French mandates) where the
discovery of a bountiful oilfield in Iran in 1908 held the prospect of
hydrocarbon cornucopia.
Once the US entered World War II in December 1941, its petroleum
companies began extracting oil furiously to supply the Allies, thus
depleting the proven reserves at an alarming rate.
Worried policymakers turned their attention to Saudi Arabia where a
massive oilfield had been discovered in 1938. That forged strong links
between Washington and Riyadh, which continue to this day.
In 1956, when Britain-France-Israel invaded Egypt, the Egyptians
blocked the Suez Canal with sunken ships, thus disrupting oil supplies
from the Persian Gulf region to Western Europe.
The West Europeans appealed to US President Dwight Eisenhower to meet
their oil needs, knowing that American petroleum corporations at home
had a spare capacity of 4 million bpd.
But Eisenhower refused to oblige. He regarded the UN-brokered
ceasefire inadequate and urged the occupying forces to withdraw from
Egypt.Facing crippling oil shortages as winter advanced, London and
Paris conceded a quick evacuation.
However, once US oil output peaked in 1970 and began declining
irrevocably thereafter, making the nation increasingly dependent on
petroleum importsâcurrently accounting for three out of five oil barrels
consumed domesticallyâit could no longer wield the oil weapon.
Such will be the fate, a half century from now, for the countries now
enjoying an economic boom and hefty diplomatic clout due to their
hydrocarbon riches.
Courtesy Hindustan Times |