Global Policy Forum

Part II

By Michael Tanzer

In summary then, military power has always been a crucial element in the achievement and maintenance of oil power. As a result of the various events I have described, access to Middle Eastern oil, the most abundant in the world today, has become largely an Anglo American resource, with the emphasis on American. At the same time, because access to oil supplies has always been crucial to governments, both because of the enormous profits which can be obtained from them and their necessity for the economic and military well-being of their countries, the losers in the military struggles have never ceased trying to obtain during peacetime footholds in the oil resource basins of the world, particularly the enormously prolific Middle East.

These efforts were accelerated as a result of the OPEC nationalizations of the 1970s, because these nationalizations destroyed the contractual frameworks in oil producing countries under which the dominant Anglo American oil companies had concessions with lives ranging up to100 years. Thus, in theory, with the governments of the OPEC countries now having legal title to their countries oil resources, both discovered and yet to be discovered, there were new opportunities for the losers in the military struggles to obtain preferential access to crude oil supplies.

Moreover, as the losers in World War II, notably Germany, Japan and Italy, rebuilt their economies, access to external crude oil supplies became more and more important. For one thing, by an accident of nature, none of the leading industrial countries of Continental Western Europe or Japan had been able to find significant amounts of crude oil on their home soil, despite many attempts to do so. Second, while the industrial economies of Western Europe and Japan had been built on coal as the primary energy source, much of it produced indigenously, the revival of their economies after World War II was fueled primarily by oil rather than coal.

In the case of Western Europe this was largely due to pressure from the U.S. administrators of the Marshall plan aid program, which pushed these countries to set up oil refineries which then would utilize Middle Eastern oil controlled by, and highly profitable for, the Anglo American oil companies. And third and finally, since these losers in World War II could not redevelop major military power, at least to the present time, it was clear to them that Anglo American control of crude oil put them at a major disadvantage in the continuing and accelerating economic rivalries among the industrial countries.

Not only were they at an economic disadvantage in terms of not enjoying the Anglo American profitability from oil, but potentially they were at great risk if a serious economic confrontation were to take place. How could they not be, given the attitude so clearly expressed by the financial editor of the Chicago Tribune, at the time of the U.S. defeat of Iraq in the Persian Gulf War:

We must exploit our "virtual monopoly in the security market ... as a lever to gain funds and economic concessions" from Germany and Japan. The U.S.... will therefore be "the world's rent-a- cops". ... Some will call us "Hessians" but "that's a terribly demeaning phrase for a proud, well-trained, well-financed and well-respected military"; and whatever anyone may say "we should be able to pound our fists on a few desks" in Japan and Europe, and "extract a fair price for our considerable services," demanding that our rivals "buy our bonds at cheap rates, or keep the dollar propped up, or better yet, pay cash directly into our Treasury." "We could change this role "of enforcer, "but with it would go much of our control over the world economic system." (William Neikirk, Chicago Tribune, September 9, 1990, quoted in Noam Chomsky, "After the Cold War: U.S. Middle East Policy", in Beyond the Storm: A Gulf Crisis Reader, edited by Phyllis Bennis and Michel Moushabeck, 1991, p. 86)

For Japan and continental European countries seeking preferential access to external crude oil supplies, several countries seemed most promising. While Saudi Arabia would have been most desirable, the country was too closely tied to the United States in every way, militarily and economically, for these powers to gain a foothold there. A similar situation prevailed with regards to the smaller oil producing countries in the Persian Gulf, including Kuwait, where the U.S. and Great Britain were the dominant players

Thus, almost by default, the most promising countries for gaining a foothold were Iraq and Iran, which have the second and third-largest reserves of crude oil in the world. In Iran, the nationalization of the oil industry in the early 1970s, followed by the overthrow of the Shah in 1979, meant that the Anglo-American dominance had been eliminated and there was a possibility for other countries to gain a foothold.

Similarly, in the case of Iraq, there was an even longer history of attempts by various Iraqi regime's to break this Anglo-American stranglehold. After the overthrow of the Iraqi King in 1958, the military government took back the concession for the 99 percent of the area in Iraq which the monopoly ccompany had never exploited, including one very huge field in northern Iraq which had already been discovered. The problem for the Anglo American companies was that they already had huge crude oil reserves in Iran and Saudi Arabia, and thus had no interest in exploring for or developing the new reserves in Iraq. Over the next few years, France and Italy negotiated with the Iraqi government to get a foothold in this area, but after another coup in 1968, the new government decided to develop the field itself, with Soviet technical assistance.

Particularly since Iraq's nationalization of the whole oil industry in the early 1970s, it has been an attractive country for continental European and Japanese companies seeking crude oil, While little has been achieved, because of the war with Iran in the 1980s and the sanctions of the 1990s, the enormous potential is still there.

Given this situation, It makes perfect sense for an Administration buoyed up by its lightening military success in Afghanistan, to see if it's military power can be used to restore American control over two key countries where it's economic rivals might gain an oil foothold -- namely, two members of the "axis of evil," Iraq and Iran.

While in my view these countries will likely be the primary focus of U.S.attention., this does not mean that the Caspian region will be neglected. For one thing, there are very large oil and gas reserves in the region. In 1996, France's foreign minister opined that the Caspian Basis had become "the new Oil El Dorado." Quantitative estimates of potential oil reserves at that time ranged between 100 and 150 billion barrels. However, particularly after some disappointing drilling results, present estimates are considerably more modest. .The most definitive source I am aware of is a detailed study by a British oil-consulting firm, Wood McKenzie, published two months ago in the Oil and Gas Journal. (December 17 and 24, 2001) By their reckoning, potential oil reserves for the region amount to about 40 billion barrels of oil. In addition, there are estimated to be about 200 Trillion Cubic Feet of natural gas, equivalent in energy value to another 35 billion barrels of oil.

By far the most important country is Kazakhstan, with three-fourth's of the region's oil reserves and about half of its gas reserves.. Second most important is Azerbaijan, with one-sixth of the region's oil reserves and 10 percent of its gas reserves. Finally, Turkmenistan has five percent of the regions oil reserves and close to half of the gas reserves. (No figures are available for the Iranian part of the Caspian region because exploratory drilling has not yet begun.)

While these are impressive figures in absolute terms, to put them in some perspective in relation to global energy resources, total world oil reserves are over 1000 billion barrels, with close to another 1000 billion barrels of oil equivalent in natural gas. Moreover, these global figures are proven reserves, and do not take into account potential reserves which could be brought into production at higher prices or with improved technology or with new discoveries.

Thus, at present the Caspian regions estimated potential oil and gas reserves are only about four percent of the world's proven reserves. Saudi Arabia alone has proven oil reserves more than six times as great as the Caspian region. Even more relevant, in our view, is that Iraq's published proven oil reserves, which for reasons discussed previously are likely to be far lower than actual reserves, are almost three times that of the Caspian region, while Iranian oil reserves are twice that of the region, and Iran's gas reserves are over four times that of the region.

Furthermore, if we look ahead to the not-too-distant future, it seems clear that in light of the growing and enormous problem of global warming, even these low-cost Middle Eastern oil reserves will probably never be utilized. Let me just briefly summarize what one expert has characterized as "the basic arithmetic of Carbon in the atmosphere." (Jeremy Leggett, in The Carbon Wars) For thousands of years up until the end of World War II the amount of carbon in the atmosphere in the form of carbon dioxide was relatively stable, amounting to 580 billion tons. In the next 45 years the estimated amount increased by about 200 billion tons. Now, ecologists warn that 200 billion tons more put into the atmosphere runs the risk of various ecological catastrophes, while 300 billion tons more risks irreversible catastrophes that threaten the very existence of the human species.

The latest estimate by the intergovernmental panel on climate change is that, of the realistically recoverable hydrocarbons in the world, even leaving aside the highly polluting coal, if fully utilized oil and gas reserves would add about 1000 billion tons of Carbon to the atmosphere -- -- enough to kill off humanity many times over. Thus, it seems clear that although we may have discovered reserves of oil sufficient for perhaps 30 or more years at current levels of consumption, and natural gas and coal reserves adequate for hundreds of years, there is no way that these hydrocarbons resources can actually be produced and utilized.

Nevertheless, in today's world of micro-rationality and macro-madness, several factors make these Caspian region energy resources of particular interest to the major oil companies and their home governments. First, these reserves are largely in the hands of the major oil companies. According to the Oil and Gas Journal study cited previously, "it is clear that the region's reserves base is very much dominated by the majors and supermajors, for which the Caspian region provides a significant part of their overall global reserve base and is likely to remain a focus for future reserve additions.The top 20 companies... control about 60 % of the region's remaining oil and gas reserves." (, Dec. 17, 2001, p. 22) The leading company in the region is Chevron-Texaco, followed by Exxon Mobil. Interestingly, Condoleeza Rice, President Bush's National Security Advisor, was throughout the 1990s a Director of Chevron, and in fact the Chevron tanker fleet had a vessel named the "Condoleeza Rice."

Second, while there is not a great deal of information on the terms of the concessions under which the oil companies are operating in the region, all indications are that they are highly favorable to the companies. For example, when Turkmenistan first awarded two exploration blocks to a company from Argentina in one case there was a 50-50 split in profits and in the second case a 75:25 split in profits in favor of the company -- -- an incredibly favorable set of terms for the company. Third, since these reserves are in countries which are not members of OPEC, and are not located in the Persian Gulf, their availability would give the companies and the U.S. government an alternative source of supply-a supply which could be useful both in weakening OPEC's control over oil prices and also providing additional supplies in case of energy crises.

So, despite the fact that, from a rational viewpoint, the Caspian oil and gas reserves are really not needed at all, the twin logics of company profit maximization and industrial country economic rivalries, virtually ensure that the energy resources of the Caspian region will be a contested area for years to come.

Click Here for Part I

FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C íŸ 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.