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The Perils of Petrocracy

Tina Rosenber, New York Times magazine
Who holds the world’s oil? You might assume it’s in the hands of big private oil companies like ExxonMobil. But in fact, 77 percent of the world’s oil reserves are held by national oil companies with no private equity, and there are 13 state-owned oil companies with more reserves than ExxonMobil, the largest multinational oil company. The popular perception in the United States is that if leaders of oil countries nationalize their oil, they are bucking a global trend toward privatization. In reality, nationalized oil is the trend. And the percentage of oil controlled by state-owned companies is likely to continue rising, mainly because of the demographics of oil. Deposits are being exhausted in wealthy countries – the ones that exploited their oil first and generally have the most private oil – and are being found largely in developing countries, where oil tends to belong to the state.

…To other countries – especially the oil and gas nations in Latin America that watch Chávez with particular interest – the appeal [of Chavez in Venezuela] is simple to understand. Oil- and gas-dependent countries are historically ill governed. Today their people are in rebellion against globalization, which promised much but has brought them little. They have been told their countries are rich, but they see they are poor. So someone must be stealing the profits.

Most often, nationalization is a reaction to the idea that the thief is a foreign company. For populist leftists, El Petroleo es Nuestro! – the oil is ours – is an alluring slogan. Now as the record high price of oil has made exploitation worthwhile even in places that are remote or geologically complicated (Chad comes to mind), more underdeveloped countries have to choose what to do with their oil. Those that have long held oil must decide how to spend the incomprehensible amounts of money oil is now bringing them.

Historically, almost every country dependent on the export of oil has answered this question in the same way: badly. It may seem paradoxical, but finding a hole in the ground that spouts money can be one of the worst things to happen to a nation. With one or two exceptions, oil-dependent countries are poorer, more conflict-ridden and despotic. OPEC’s own studies show the perils of relying on oil. Between 1965 and 1998, the economies of OPEC members contracted by 1.3 percent a year. Oil-dependent nations do especially badly by their poor: infant survival, nutrition, life expectancy, literacy, schooling – all are worse in oil-producing countries. The history of oil-dependent countries has produced what Terry Lynn Karl, a Stanford University professor, calls the paradox of plenty.

…So perhaps the best strategy for resource-rich countries is to keep the oil private, watch it carefully and tax the hell out of it. Better yet, raise royalties, which are more straightforward and easier to collect.

…“The problem isn’t who owns the resources, it’s what you get from the proceeds,” says David Mares, a professor of political science at the University of California, San Diego, who studies energy in Latin America. “If you waste it in corruption and unsustainable programs, it’s as bad as if you have international corporations dominating, who pay very few taxes.”
(4 November 2007)
Long article.

Iran shuns greenback deals

AME Info (“Middle East Finance and Economy”)
An official at the National Iranian Oil Company (NIOC) has revealed that 85% of the Islamic Republic’s oil deals are now conducted in currencies other than the US dollar, reported the Tehran Times. The NIOC has requested that purchasers pay in alternative currencies so that Iran can reduce its ‘dollar dependence’. The US is currently leading an aggressive economic boycott of Iran over its disputed nuclear policy.
(4 November 2007)

William Clark updates “Petrodollar Warfare” in video discussion of “Hysteria Over Iran and a New Cold War with Russia”

Marc Strassman, Etopia News Channel.
A three-part video interview with Petrodollar Warfare author William Clark, in which he brings the story of U.S. interests’ efforts to maintain global hegemony for the dollar in the age of peak oil and all that entails up-to-date with a discussion of his new essay, “Hysteria Over Iran and a New Cold War with Russia,” recorded remotely using the SightSpeed videoconferencing platform, recorded November 3, 2007
(3 November 2007)

PdVSA Won’t Seek Partners for Former Exxon, Conoco Fields

Raul Gallegos, Dow Jones Newswire via Rigzone
Venezuela has no plans to find new partners among foreign oil companies to jointly operate the oil fields left behind by Exxon Mobil Corp. (XOM) and ConocoPhillips (COP) earlier this year.

“No, no, there are no plans to get new partners. That’s not being considered and we’re not open to that. We like having those fields in the hands of Petroleos de Venezuela,” Oil Minister Rafael Ramirez said Thursday in remarks to the press.

Heavy crude upgraders located in the Orinoco area have run smoothly since the May 1 state takeover, Ramirez said, so PdVSA plans to operate former Conoco and Exxon fields unassisted.

…Few in the oil industry believe PdVSA will manage to efficiently run these projects by itself in the long run, an argument the Chavez administration calls unfair.

Ramirez says the Orinoco region is operating smoothly and now produces roughly 600,000 barrels of crude a day, for a total national output of 3.2 million barrels a day.
(2 November 2007)