Iraq's oil and the Saudi welfare state
Vice President Dick Cheney and former President George H.W. Bush walks with newly crowned King Abdullah during a retreat at King Abdullah's Farm in Riyadh, Saudi Arabia Friday, August 5, 2005, following the death of his half-brother King Fahd who passed away August 1, 2005. Interpreter Gamal Helal, center, is also pictured. White House photo by David Bohrer
INVESTIGATIVE JOURNALIST Greg Palast has a theory purportedly supported by a secret, 323-page U.S. State Department plan for Iraq’s oil. Palast first came to my attention when he uncovered efforts in Florida to illegally disenfranchise black voters in advance of the 2000 election. He has continued to be a journalistic gadfly whose reports appear in the Guardian newspaper in the United Kingdom and on the BBC.
Now he claims to have in his possession a secret State Department plan that he alleges proves the U.S. invaded Iraq because of its oil, but not to secure it for its own consumption. Instead, the purpose of the invasion was to keep Iraq’s oil off the market.
That’s right, OFF the market.
Specifically, the system ordered up by the Bush cabal would keep a lid on Iraq's oil production -- limiting Iraq's oil pumping to the tight quota set by Saudi Arabia and the OPEC cartel.
The more I think about, the less far-fetched this sounds. Here’s why.
It’s believed by many experts that Iraq sits atop the world’s second largest collection of crude oil fields. While it appears that those fields were overworked and mismanaged during the sanction’s period after the First Gulf War, in time, with care, they could be refurbished and the oil start to flow in sufficient quantities to impact the global price of oil, which is largely set by the Saudis -- as well as oil speculators.
This much is clear, maps of Iraq’s oil fields were included in the original Cheney energy task force in 2001, as revealed by FOIA requests from the conservative watchdog group, Judicial Watch.
Why was the task force interested in these maps, which included lists of energy companies interested in various fields? One possibility is that oil company’s like Exxon and Chevron, who participated in task force meetings as revealed by recent Congressional testimony, wanted to get on the inside track of lucrative contracts once the country was liberated and the industry privatized.
In the light of the three year-long insurgency and its frequent attacks on Iraq’s oil infrastructure, that plan hasn’t worked out too well… assuming that was the plan in the first place.
On the other hand, what if the task force wanted to inventory the fields to get a better sense of their production potential, not for contract purposes, but for competitive reasons? Maybe they wanted to know how much oil could be pumped into the market and when. Remember, oil isn’t avocados, it’s not perishable. It’s been sitting in the ground for millions of years and as time progresses, it only gets more valuable.
Let’s assume for the sake of argument that the invasion of Iraq never took place. Instead, Sadam is still in power and has successfully negotiated an end to U.S.-British sanctions. He is now able to open the taps of his nation’s fields -- as well as requiring all purchases to be paid in Euros instead of dollars -- what would that have done to the price of oil, which prior to 2003 was below $30 a barrel?
My guess is it would have sent the price of oil south. That might be a good thing for Detroit and American SUV owners, but not for oil companies and producing nations, especially, Saudi Arabia.
In 2000, Gregory Gause III, who is an Associate Professor of Political Science at the University of Vermont and author of Oil Monarchies, wrote an essay in the May/June issues of Foreign Affairs magazine entitled, "Saudi Arabia: Over a Barrel."
From 1999 to 2000, the price of oil went from a low to $10 to $30 a barrel. He explains why in this summary:
A key reason for today's skyrocketing oil prices is the behavior of one of America's closest allies: Saudi Arabia. The world's largest oil exporter was the driving force behind the deal that turned off the spigots. Riyadh is risking a crisis with Washington because the once-flush kingdom has gone broke sustaining a vast welfare state for an exploding population. America must push the Saudis toward privatization and fiscal reform. The House of Saud must get its house in order.
Professor Gause isn’t the only academic to link oil prices with the health of the Saudi welfare state. In a 2004 article for the same magazine, Michael Scott Doran, an Assistant Professor of Near Eastern Studies at Princeton University and Adjunct Senior Fellow at the Council on Foreign Relations wrote:
Saudi Arabia is in the throes of a crisis. The economy cannot keep pace with population growth, the welfare state is rapidly deteriorating, and regional and sectarian resentments are rising to the fore.Former CIA operative, Robert Baer notes in a May 2003 article that was published in The Atlantic Monthly and based on his book, "The Fall of the House of Saud" that "per capita income in Saudi Arabia fell from $28,600 in 1981 to $6,800 in 2001".
Can you imagine how you’d react if you saw your family income erode that much? Now put yourself in the shoes of the Saudi leadership, which Doran characterizes as "a fragmented entity, divided between the fiefdoms of the royal family". You want desperately to stay in power and keep the nation from descending into an even more restrictive Sunni theocracy than it already is. To do so, you need to keep a lid on political and religious dissent with a combination of the proverbial "carrot and stick".
As for the carrot, 38.2 percent of the 2002 national budget of $56.9 billion was allocated to education, health care and welfare programs. That budget included a $12 billion deficit.
As for the "stick," Robert Baer estimates...
"Taking into account its murky 'off-budget' defense spending, Saudi Arabia may spend more per capita on defense than any other country in the world (some estimates put the figure at 50 percent of its total revenues), and the House of Saud believes this is necessary for its personal protection."Now back to Palast’s allegation that the purpose of the invasion of Iraq was to make sure it’s oil flow didn’t disrupt the market, but stayed within OPEC’s quota limits. The effect of an invasion and its resulting economic disruption in Iraq, would virtually guarantee the price of oil would remain high enough to keep the Saudi national security state and welfare system afloat a bit longer.
$60 a barrel oil might be an inconvenience for millions of American's -- who the president himself said are "addicted to oil" -- but it’s been a positive boon to oil states like Saudi Arabia and Dubai.
In 2005, Saudi oil income was $157 billion, an increase of 48 percent.
The Washington Times reported on September 7, 2005:
"The increased wealth is beginning to trickle down to ordinary Saudis," said Ihsan Buhuleiga, a leading economist and member of the Shura Council, in an interview with The Washington Times.The paper adds...
While some economic analysts have expressed worries over an overheating stock market, Mr. Buhuleiga said he hoped to see the surge of new listings continue.
"The number of companies currently listed are only 80. In Oman, they have double that number. More Saudi companies should be listed, as this will encourage more job creation," he said.
Job creation is something the Saudi government desperately wants to achieve in order to stop young, unemployed Saudi men from being lured into joining terrorist groups…
The spurt in oil revenue may also help the ruling al-Saud royal family to secure its popularity.Clearly the Saudis and other oil producing nations have benefited from the chaos in Iraq, where gasoline is in such short supply that people often sleep in their cars overnight waiting in line for fuel.
On Aug. 22, the government announced a 15 percent increase in the wages of all government employees, a move ordered by newly enthroned Saudi King Abdullah to garner popular support and to inject money into the local economy.
Even before the salary raise, Saudis had seen their per-capita gross domestic product grow from $7,437 in 1998 to $11,052 in 2004. Samba estimates per capita GDP in 2005 to reach $13,603.
Multinational oil companies have certainly profited. ExxonMobil enjoyed profits of $36 billion in 2005, as has Dick Cheney’s old company, Halliburton, along with various defense contractors. Even the U.S. alternative fuels industry is being helped as high prices drive investments in ethanol and biodiesel plants, as well as wind turbines and solar panels production.
The real losers -- for the moment -- are the poor in the developing world for whom the price of kerosene is now unaffordable... and of course, the Iraqi people.