As the Organization of Petroleum Exporting Countries meets in Beirut, we take a look at global oil politics with Jim Paul, executive director of the Global Policy Forum. [includes rush transcript] As the election season moves into full gear, increasing oil and gas prices are becoming a significant campaign issue. Democratic candidate John Kerry has gone on the offensive, blaming the Bush administration’s policies for higher prices at the gas pumps. Meanwhile, the Organization of Petroleum Exporting Countries has been meeting in Beirut, where Senior OPEC officials said today the group has agreed to boost production in an effort to lower prices.
But the move is drawing criticism from some OPEC members, who say they want to avoid a repeat of the collapse in oil prices that followed a 1997 decision to raise production. Uncertainty over the size of the deal pushed up US oil prices by 59 cents a barrel in morning trading. Oil prices have been above $40 – and at a 21-year high – for most of the past three weeks.
Meanwhile, a battle is raging at the UN over the US/British proposed resolutions on Iraq. Several countries on the Security Council have said that Washington’s plan does not provide for Iraqi sovereignty. Veteran UN observers say oil is a major behind-the-scenes issue in the current debates at the UN. Today, we take an extensive look at the politics of oil.
* Jim Paul, Executive Director of Global Policy Forum. He is based at the United Nations and monitors events there. He has authored a number of reports on oil companies and Iraq. They can be found on www.globalpolicy.org.
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AMY GOODMAN: Welcome, Jim Paul. What is the story of oil now?
JIM PAUL: Nice to be here with you again, Amy. Oil is now and has been a driving force behind a lot of what’s been going on at the UN. Back five and six years ago, when I was talking with delegations sitting on the UN Security council, they made it clear to me, they were aware of the oil factor. Very aware, and quite outraged often at what was going on, where you had the US and UK on one side, supporting sanctions then, later going to war, and France, China, Russia, and others on the other side, but with some of those countries also with major oil interests in Iraq. They favored the lifting of sanctions at that time. Their companies were signing contracts with Saddam Hussein’s government. The US and UK oil giants, the four largest oil companies in the world wanted into Iraq. They were very worried that their whole future was at stake here, and so it’s really only through that lens that we can understand both the present situation and what’s been happening in Iraq over quite a substantial period of time.
JUAN GONZALEZ: One of the things that’s also become public, obviously in recent months, is that some of these major oil companies, especially in Saudi Arabia, had seriously, fraudulently projected their reserves, and actually, there’s a lot less oil in the ground in Saudi Arabia than they were claiming. So, would this add enormous pressures to the need to control Iraqi oil and other oil reserves around the world?
JIM PAUL: Well, there are a lot of people in the industry now who think that the world’s oil production is peaking or has just peaked. There’s very, very good evidence for that. Because the companies actually, unlike the situation in 1920’s when people predicted a peak then too, but today virtually the entire world has been given an investigation by the oil companies. They have capacity for seeing under the ground that wasn’t available then, and actually, if you look at the trend line of new discoveries, that trend line is down. It hasn’t been going down. It’s been going up for many decades. So, it’s a pretty strong reason to think that the world’s oil is headed down. There’s about a 15-year lag time between the actual discoveries and the turning of the peak of production, because it takes a while to get fields into production. So, the companies are aware that there’s just not a lot more of this stuff out there. Yes there may be technical breakthroughs and so forth, a change, they may find the odd field, but basically that’s the long term trend. So much of that oil is in Iraq. Of course a lot is in Saudi Arabia, too. Whatever the debates are about Saudi reserves, there’s still a lot of oil there. One of the most interesting things about the world oil companies and their reserves had to do with the battle inside Shell, where Shell falsely projected its reserves. And they had to bring their reserves down by 3 billion barrels total worldwide. They had been lying over a five year period about their reserves. And this is because the companies are having a harder and harder time replacing their reserves. And if a big company’s reserves go down, its market evaluation goes down. And that’s where Iraq comes in, because Iraq may have as much as 300 to 400 billion barrels. So if you compare the 3 billion barrels that almost wrecked the second or third largest company in the world, Shell, compare that with the big fields in Iraq, 25 billion barrels in Majnun for example, you see there’s reason for the companies to be really fighting to get their hands on that stuff.
AMY GOODMAN: Can you talk about the Saudi’s privatizing natural gas, and who the contract went to?
JIM PAUL: Sure. The Saudis, of course, nationalized their oil and gas resources back in the 1970’s, when all of the Middle East oil was nationalized. And after that time, it stayed in the production company, Saudi Aramco, which has some involvement with US companies. Nonetheless, the Saudis control and own the reserves. More recently, the Saudis decided to let some contracts that were sort of semi-privatization in their gas sector. This was considered very, very important by the companies, and possibly a signal of what might happen in future in the oil sector. There were big hopes by the US companies, particularly by Exxon Mobil, that they would get this contract and have the inside deal. After the Iraq war, the decision was taken in Saudi Arabia, and it was given to a consortium headed by Total, the French company. This was considered to be practically an earthquake in the global energy industry. It was one of the many things that shook up the relationship between the US and Saudi Arabia.
AMY GOODMAN: Exxon Mobil had expected to get it.
JIM PAUL: Exxon Mobil expected to get it.
AMY GOODMAN: Why did they give it to France, Total?
JIM PAUL: I think it was basically a political signal that they were very unhappy with what was happening both in Palestine and also in Iraq. And you have to remember that the Saudi government, although it’s very dependent on the United States, also is under all kinds of political pressure domestically. So, this, you might say, was a gesture to domestic political pressure.
JUAN GONZALEZ: But given the control that the United States occupation forces have over Iraqi oil and the fact that a lot of it has come back online, why has there been such a huge spike in the recent months in oil prices worldwide?
JIM PAUL: Well, I think there’s nervousness in the markets. These are various oil traders, and hedge funds and stuff that are doing this bidding on the market and driving the price up. It’s just a lot of nervousness about the political situation. Recognizing the fact that oil resources are limited, and that nothing — no big, new amounts of oil, even if the Saudis increased their production by a million or 2 million barrels a day, it’s not going to change the thing all that much.
AMY GOODMAN: But Iraq? Increasing their production?
JIM PAUL: Iraq production will increase, certainly, tremendously over time. But right now this is a limit to the capacity to increase production, because the Iraqi oil industry is very, very run down after the sanctions. And since the invasion, they have not been able to fix it up very much.
AMY GOODMAN: The US running the show in Iraq has been very costly for Bush. Many believe that the reason he wouldn’t hand it over to the UN was precisely because of oil, though it might have solved things politically, it would have meant giving up control of the oil. Do you believe that?
JIM PAUL: I absolutely do. I think that is really the only way to understand why Bush and company are hanging onto Iraq with such tenacity in spite of the huge political costs that they evidently are facing here, and with the upcoming election. They could have brought in some of the other powers. They could have shared out the situation in Iraq. The US companies might still have done moderately well, but they’re going for the big prize. It’s quite clear. The big prize is very, very substantial control over this enormous prize of 300 billion barrels. That means 9 to 12 trillion dollars in profits. It’s a profit that is just inconceivable.
JUAN GONZALEZ: Dilip Hiro, in terms of what’s happening within Iraq in terms of the politics, the battle for control of oil, and who the Iraqi people see on the world scene as most conducive or responsive to their needs as a nation?
DILIP HIRO: Well, you can see what’s happening? Oil pipelines are getting blown up practically every other day, and they happen so frequently that they don’t make the news. It’s happening all the time. And in the north, oil is actually taken not by pipelines, but by trucks to go to the refineries. I think even if the American oil companies get there, I don’t think they’ll be able to function physically in Iraq because people are very much anti-American. They’re turning more and more anti-American. That’s something that — ultimately, you may have a military power, but if the people are against that country and their corporations, I don’t think that the American corporations will be able to develop extract oil in Iraq.
AMY GOODMAN: We are now hitting the 15th anniversary of the Tiananmen uprising. Jim Paul, what about China and how it fits into the relationship between the United States and Iraq, and oil?
JIM PAUL: Well, China’s economy is growing very fast. They have decided to take a path of development very similar to that in the West. That is to say, automobile and other similar transportation, with trucks and airplanes and all of the rest. Very energy intensive economy. And so, although they produce about 3.5 million barrels a day domestically, they don’t have enough. So, their imports, primarily from the Gulf, are shooting up. They expect to go from about half a million barrels a day from the Gulf in 1997, to perhaps five or six or seven million barrels a day they’re going to need from there by 2015. So, where is that oil going to come from, and how are the Chinese government and the Chinese companies going to make sure that they get what they need? So, that led to a tremendous initiative with the China National Oil Company, and some of the other lesser companies to get, for instance in Iraq, to sign up for some of the major fields. It was this initiative, many people think, that sort of was one of the items that crossed the line in terms of the US government in terms of the big US companies worrying about what was going to happen. We have noticed now, interestingly, because of China’s big stake there, an increasing stake every year that china has suddenly become active on the UN Security Council in making demands. And I was talking with people in the last few weeks about China’s role in the oil sector, and suddenly, everyone around the Security Council was astonished to find that the Chinese, who usually play a very quiet behind-the-scenes role, never making waves in the Council, very often barely speaking, suddenly, they were taking a big initiative. One of the biggest papers that was circulating in the Council, the Chinese paper, recently suggested that China has decided it is in its very, very most important interests to pursue new and different relations between the transitional government and the US and UK occupiers.
JUAN GONZALEZ: Of course, Saudi Arabia with its growing internal resistance movement, as well as Iraq, are not the only concerns of the United States. There’s also the question in terms of oil of Venezuela, and sudden insecurity in terms of the situation in Venezuela. How has that affected US policy, as far as you can tell?
JIM PAUL: Well, Venezuela is another one of these cases. Venezuela has had so many coups over the years, and first the British were there, then the US pushed them out. US companies have been dominating the oil sector — dominated the oil sector for a long time. It was nationalization, but now Chavez has been throwing bones to the foreign companies because of the resistance that was represented by his own national company to his own government. It’s a very complex political situation, but I think when you look at Venezuela, you look at Russia and Algeria, Libya, all of these major oil producing countries are all in a turmoil, and have been for a long time. The internal disruptions in wars and civil wars and so forth are not entirely about oil, but oil is the biggest ingredient in terms of the international …
JUAN GONZALEZ: To what degree do either of you think that the recent detent between the United States and Algeria is due more to this growing insecurity and need, than it is to the question of whether Khadafy has suddenly become more malleable and more willing to be responsive to the world community?
DILIP HIRO: I think Khadafi seems to be a good guy, and of course, the American companies were not able to get in. I think what’s happening now, which is directly related to what’s happening in Iraq, is that Saudi Arabia is getting destabilized. The Saudi militants have gone into phase two. You know, so, they are now attacking oil facilities. Oil in Saudi Arabia is in a very limited area. There are only eight major oil fields. They’re all in the east. At the same time, that particular area, the Shiites have a very substantial presence there in that part of the oil region of Saudi Arabia, and that is what is upsetting the market very much. Finally, we talked about China. India also needs more and more oil. Between India and China, the oil consumption is going up by 7% a year. And if you compound that, in ten years they will consume twice as much oil. That’s basically as Jim pointed out. The oil production is going this way, in India and China, it’s going like that. That’s where the crunch is going to come in four or five years.
JIM PAUL: I wanted to also mention that not too long ago when a big contract was signed between Libya and one of the big UK companies, Tony Blair himself was there to applaud the signing that gives you an idea when the prime minister is present at the contract how important that is seen by the UK government.
AMY GOODMAN: I want to thank you both very much for being with us. Jim Paul, executive director of Global Policy Forum, and Dilip Hiro. “Secrets and Lies” is his book, “Operation ‘Iraqi Freedom’ and After.” And this note that was in the Times this week, with gas prices already high, Europe is less rattled by a jump, saying that Europe, after three decades of seeking alternatives to oil, is somewhat less vulnerable to the effects of high crude prices. Oil and natural gas still lubricate Europe’s economy to be sure. And industrial countries like Germany remain among the world’s largest importers. But for a variety of reasons, ranging from smaller cars and shorter commutes, to the windmills that dot the countryside from Denmark to Spain, Europe does not view $40 a barrel oil with the same alarm. Indeed, some see it as a chance it redouble Europe’s campaign to wean itself from fossil fuels. This is Democracy Now!. Back in a minute.
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