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The US President George W Bush is raring to launch an attack on Iraq. Whether it has weapons of mass destruction or not, Iraq certainly has the world's second largest reserves of petroleum after Saudi Arabia. Thanks to UN sanctions, it produces a mere fraction of its potential. The US, on the other hand, is the world's largest consumer and importer of oil. It is certain whatever else, the desire to control Iraq's oil lubricates the US war machinery. As the daily Washington Post reports, US oil companies are ready - drills and all - to enter the Iraqi oilfields after Saddam Hussein's removal. Oil companies from the other four permanent member countries in the UN Security Council (the UK, France, Russia and China) also have interests in Iraqi oil fields.
The US oil tactics are clear. Countries that participate in the US effort against Hussein will get a fair share in the post-Hussein Iraqi oil party. "It's pretty straightforward. France and Russia have oil companies and interests in Iraq," said R James Woolsey, former director of the Central Intelligence Agency, who is all for attacking Iraq. "They should be told that if they are of assistance in moving Iraq towards a decent government, we'll do the best we can to ensure that the new government and American companies work closely with them."
Elements favoured to constitute a 'decent government' in Iraq - if Hussein is ousted in a US-led attack, that is - include the Iraqi National Congress (INC), a forum of opposition groups backed by the US. The Western media quoted an INC leader, Ahmed Chalabi, as saying that he favoured the creation of a US-led consortium to develop Iraqi oilfields: "American companies will have a big shot at Iraqi oil." Several countries, including India, Italy, Vietnam and Algeria, already have agreements with Iraq to extract oil. But these are in the cold bag due to the UN sanctions on Iraq. In a post-Hussein Iraq, these agreements are likely to be scrapped in favour of US companies.
All this speculation has led to a rapid rise in oil prices -hovering close to US $30 to the barrel, US $5 of which is being labelled 'war premium'. There are fears that it might climb beyond US $50 and set in a recession as had happened after the 1991 Gulf War. Just before a meeting of ministers of Organisation of Petroleum Exporting Countries (OPEC, a cartel that keeps oil prices unnaturally high by controlling production through quotas) in Osaka, Japan, in the third week of September 2002, the most influential member of OPEC, Saudi Arabia, a US ally, had said that it would increase supplies of oil to compensate any shortfall resulting from US military action against Iraq. But, at the Osaka meet, OPEC ministers decided to keep oil production levels unchanged till the end of the year as they were afraid of releasing extra oil into a weakening global economy. Major oil producers are unhappy with the prospect of the opening up of Iraq's oilfields. They fear the glut of oil might drive down the prices. The Iraq imbroglio is also about the US need to control the Saudi oil regime with competing reserves, according to The Economist.
But why is oil so important to international politics?
The post-war boom had brought gas-guzzling vehicles, expanding highways and mushrooming suburbs in the industrialised countries, especially the US. This boom was fuelled by oil - the industrialised economies depended almost entirely on intensive use of fossil fuels. The world learned about its dependence on oil in 1973. The Yom Kippur War broke out in October 1973 between Arab countries and Israel. The Arab nations embargoed oil export to Western nations that supported Israel and cut down production. OPEC, formed in 1960, was a big enough supplier to control prices by this time.
The terrorist attacks on the US on September 11, 2001, have revealed the cost the country has to pay for its oil dependence on the Gulf. Its oil ties with Saudi Arabia became a bit of an embarrassment when it was found that 15 of the 19 hijackers in the attacks were Saudi citizens. About 600 families who had their relatives killed in the September 11 attack have filed a US $100 trillion lawsuit against, among others, Saudi officials for helping the terrorist network behind the attack. The US government's continued support for the autocratic Saud family of Saudi Arabia causes considerable discomfiture to a country that plays the global cop and claims to defend democracy across the world.
Proposing the largest energy budget in US history, Spencer Abraham, US energy secretary, told a committee of the House of Representatives on March 6, 2002: "Over the last 12 months we have seen energy supply shortages; natural gas and gasoline price spikes in the Midwest and California; and terrorist attacks within our borders... [The budget request] of $21.9 billion addresses the new security challenges we face as a nation after the events of September 11, as well as increased concern regarding our dependence on foreign oil, and the security of our critical energy infrastructure."
This dependence is not unique to the US. Take the example of Japan, the second largest consumer of oil in the world - it consumed more oil in 2001 than Russia and Germany put together. Oil meets 52 per cent of Japan's total energy needs and the country has virtually no oil reserves of its own. About 75-80 per cent of this oil comes from OPEC, particularly from countries in the Persian Gulf - United Arab Emirates, Saudi Arabia, Kuwait, Qatar and Iran. "Japan has worked - with relatively little success - to diversify its oil import sources away from the Middle East," notes the US department of energy. Japan has used its commitments to cut down carbon emissions under the 1997 Kyoto Protocol to rapidly increase its nuclear power production - nuclear provides about two-thirds of its electricity. The nuclear industry is witnessing something of a revival across the world (see box: Nuclear change for climate).
Another method the Japanese have tried is to build inroads for its oil companies overseas. In 1967, the government established the state-run Japan National Oil Company (JNOC) to promote overseas oil exploration to secure oil supplies. It amassed several bad loans in trying to invest extensively and guarantee loans of Japanese exploration firms. But in February 2000, the company lost drilling rights in Saudi Arabia, losing a supply of 280,000 billion barrels per day. This was after Japan refused to invest in development projects in the kingdom. Another concession to a Japanese exploration company expires in January 2003, and its renewal has been dogged by controversy. Japan's Arabian Oil Company has been trying to make up for the loss in Saudi Arabia by courting Iran. But Iran is a political anathema to the US, Japan's close ally. In its effort to diversify, Japan has created an exploration stake in the Caspian Sea region, just as the US interest in the Caspian has increased greatly in recent times.
Coming back to the US, it has developed a recent interest in several regions - from Russia to the Caspian region to a love affair with Central African nations. Africa supplies 15 per cent of the total US oil imports. This is bound to increase as a result of rapid growth of production from new fields and the construction of a pipeline from the landlocked Chad to ports in the Atlantic Ocean. There are two clear advantages in courting Africa. First, most African reserves are close to the coastline or offshore, making exports to the US easier. Second, several African oil producing countries aren't members of OPEC. Gabon walked out of OPEC in 1995. Nigeria is a member, but has been unhappy about the production quotas. There are reports that it has been producing over and above its quota through recently developed oilfields. "It is a measure of President Bush's interest in the geopolitics of oil that he found time at the United Nations last month to meet several leaders from west Africa," the Financial Times of London observes.
Attending the oil interests are stories of how systems are manipulated to benefit industrialised countries and their rich oil companies. Some US non-governmental organisations have alleged that federal government officials are compromising on environmental reviews of international infrastructure development funded by US-backed public development banks. One example is the US $3.7 billion oil pipeline to be built by a consortium of oil companies led by Exxon-Mobil from Chad to ports in Cameroon. Officials of the US Agency for International Development said that both the countries had failed to perform an adequate assessment of the environmental impact of the pipeline. Yet the US representative at the World Bank backed a loan of US $ 140 million for the pipeline.
A recent study by the Institute for Policy Studies in Washington, DC, shows that many energy corporations facing US government investigations - for accounting irregularities, energy market manipulation, fraud, bribery, human rights abuses or other malpractices - have coaxed out billions of dollars as finance from the World Bank over the past decade. These include Halliburton, the second largest beneficiary of World Bank energy financing. Dick Cheney, US vice president, was the CEO of the company before his election. Other names include the bankrupt energy giant Enron and Harken, which had George W Bush on its board before he became governor of Texas. Big oil and morality do not go together.
| The top players Producers, exporters and importers of oil |
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| *million tonnes; Source: 2001, Key World Energy Statistics from the International Energy Agency | ||||||||||||||||||||||||||||||
"Not since the rise of the railroads more than a
century ago has a single industry [energy] placed so many foot soldiers at the top of a new administration."
The General Accounting Office (GAO), the investigative arm of the US Congress, had begun a probe into the functioning of the Cheney task force in April 2001 following complaints from two members of the House of Representatives. Cheney refused to disclose the details of the meetings his task force had with corporate representatives. There were raised eyebrows about Cheney trying to cover his links with the energy giants like Enron (see box: Enron and all that). On February 22, 2002, GAO filed a case in the US District Court in Washington, DC, to obtain certain records in connection with the task force.
Meanwhile, the Sierra Club also approached the courts in February 2002 to force disclosure of the task force's meetings with industry representatives. "When the Bush Administration wrote its energy policy, big oil and energy companies were given the red-carpet treatment, but the public was shut out of the process," said Carl Pope, Executive Director of the Sierra Club. "Americans deserve to know what happened behind those closed doors, and the law requires it." The suit was clubbed with another case filed by Judicial Watch, a public interest group that investigates and prosecutes government corruption.
"We are concerned that energy policy is being made in secret by individuals and interests with a financial and political stake in particular policies. If the vice president wants to involve the oil industry or environmentalists in his energy task force's deliberations, so be it, but the law requires that the American people be kept informed about these deliberations," stated Larry Klayman, chairperson of the group. The first hearing was held on May 23, 2002. The judge delivered a severe blow to the administration - he rejected Cheney's request to dismiss the lawsuit. He ordered Judicial Watch and co-pleaders to propose a 'discovery plan' for the task force.
The Natural Resources Defense Council, a prominent public interest group in the US, said the Bush-Cheney energy plan is the "culmination of a process that hinged on cosy business connections, secret deals and industry campaign contributions". The council stresses that there are too many points of convergence: "Both Bush and Cheney worked in the energy industry. They appointed pro-industry people to their transition teams and to key administration posts overseeing federal energy and environmental policies. They received generous campaign contributions from energy companies, which enjoyed easy access to the Cheney energy task force. The result? An energy plan that promotes industry-favoured measures" (see box: Cream team). "At best, the energy industry has undue influence on major governmental decisions that will affect all Americans. At worst, the energy industry, which is enjoying record profits, has hijacked our government and now has the power to seriously weaken environmental safeguards, threaten public health, and gouge consumers." Cheney admitted meeting Enron CEO Kenneth Lay on at least six occasions at the time when the White House was drafting its national energy policy. He refused to give further details. US oil interests have always governed its energy policies. It is just that Bush is a little more shameless and brazen about it as compared to previous regimes.
The Caspian region has possibly the third largest oil and natural gas reserves in the world (after the Persian Gulf and western Siberia), estimated to be up to 15 per cent of the total reserves of the world. Hardly any of this potential has been tapped as yet, and it is expected that there are much bigger reserves that haven't been assessed as yet.
When it comes to regional matters, perhaps the biggest mess has to do with the ownership of the Caspian Sea, the bed of which is rich with oil and gas. Before 1991, the Soviet-Iranian treaties of 1921 and 1940 regulated the ownership of the sea. But neither side established seabed boundaries or negotiated exploration. No new legal framework or treaty was worked out after the break-up of the Soviet Union, meaning the earlier treaties still govern development rights to the seabed.
The five nations along the shores of the Caspian - Russia, Azerbaijan, Iran, Turkmenistan and Kazakhstan - are locked in a bitter dispute over this. It came to a head on July 23, 2001. An Iranian gunboat chased two Azerbaijani oil exploration ships from a disputed oil field in the southern Caspian. This was the most serious flare-up in an uneasy peace. BP oil of the UK suspended all exploration and development activity under its contract with Azerbaijan in the Alov oil field to which Iran has a claim. Russia and the US condemned Iran. Turkey responded in late August 2001 with a show of force by sending fighter jets to Azerbaijan, its ethnic ally. Since then, exploration and development in the southern Caspian has come to a standstill.
It is a different story in the northern Caspian. In August 2002, when Russia held the largest military exercises since the collapse of the Soviet Union in the Caspian Sea, it invited representatives from the four other littoral states as observers. Russia and Kazakhstan have signed a bilateral deal on sharing of disputed oil fields. In the second week of July, the Kazakh energy minister Vladimir Shkolnik was reported to have said that tenders would be invited before the end of the year for some 120 offshore sites. Russia has an understanding with Azerbaijan as well. Iran says such agreements are illegal before a five-way settlement is reached. But all this bickering seems inane in light of the fact that the very status of the Caspian 'Sea' is disputed.
Is it a body of water under the Law of the Sea Convention, which does not cover inland lakes? If so, the full maritime boundaries of the five countries would be based upon an equidistant division of the sea and undersea resources into national sectors. Under this, states would have exclusive rights only to resources lying within 45 nautical miles of their shore. If it were agreed, on the other hand, that the Caspian is not a 'sea', then international maritime laws would not apply. Then its resources have to be developed jointly (see map: Dividing the Caspian). Iran is agreeable to dividing the Caspian into national sectors, but on the condition that each country gets 20 per cent of the seabed and surface of the sea. However, if the Law of the Sea were to be applied, Iran would get only about 12-13 per cent. Kazakhstan and Azerbaijan want this as they have big offshore oil/gas fields not far from their shores. They oppose Iran's proposal of dividing the Caspian into five equal sectors. They are in a hurry to strike a deal to be able to exploit their fields. Iran has little oil or gas off its Caspian shore, and is playing a waiting game to maximise its share. Russia and Turkmenistan keep shifting sides depending on which plan - or which variation of the two plans - is more profitable to them. But let us assume that the legal dispute over the Caspian is sorted out. How will the oil and gas be marketed?
Anybody who invests billions in extraction of petroleum and natural gas would want the shortest, cheapest route to the most lucrative market. Unlike most major oil exporters of the world, most Caspian nations are land-locked.
Pipelines are preferable to overland and marine tankers, especially for gas, provided the volumes of supply and demand justify the investment. The Caspian region doesn't have the economy or the market for its oil and gas production capacity. It
doesn't have the investment and technology required to explore and transport oil/gas over long distances. To make the oil/gas reach a market, the pipelines or tankers need to cross international boundaries. This is where pipeline politics extends from economics to geopolitics (see map: Pipeline dreams).
The existing pipelines go north to Russia, already the owner of the largest gas reserves of the world as well as unpaid bills for gas imported from Caspian nations in the past. The rapidly growing economy and burgeoning population of China in the east is separated from the Caspian region by a vast desert pockmarked with ethnic unrest. A pipeline going west to European markets via the Black Sea or the Mediterranean is likely to be too costly and areas such as Chechnya and the Kurdish dominated parts of Turkey don't inspire too much confidence. Yet work has already begun on a 1,755-km pipeline from Azerbaijani capital Baku to the Turkish port of Ceyhan in the Mediterranean, via Georgia. This is the only pipeline that fits well with US foreign policy. Georgia has used US fears of Iran to settle for the western route because it gains transit fees from the pipeline passing through is territory.
After years of hesitation and mistrust, there were signs that the US and Russia might work together on the Baku-Ceyhan pipeline. Russia announced on June 11, 2002, that it would build a pipeline connection to the Baku-Ceyhan oil route. This would give Russia access to a warm-water port in the Mediterranean for exports. In May, Russian and Georgian officials had announced a joint venture to build a line connecting the Black Sea port of Novorossiisk to the Baku-Ceyhan pipeline.
The eastern pipeline route to China was a matter of speculation till news arrived that China had begun work on the 'east-west' gas pipeline. This large project, often compared to the Great Wall and the Three Gorges dam in terms of size, would stretch across a 4,250 km from the recently discovered gas fields in the western deserts of Xinjiang (close to China's border with Pakistan) to Shanghai in the east. This is relevant to the Caspian nations as they could build a connection to this pipeline and export gas to as far as Japan.
But the most economical access to the sea (and the international market) for Caspian oil and gas is through Iran, a political anathema for the West. Such a route would greatly increase Iran's wealth and influence in the region, something the US finds unacceptable (see box: Behind the veil). The second most viable route is through Afghanistan to Pakistan and possibly to India. On May 30, 2002, Turkmen, Afghani and Pakistani leaders signed a long-negotiated agreement in Islamabad over the pipeline via Afghanistan. But according to sources in Pakistan, oil companies haven't shown any interest in the deal due to the situation in Afghanistan. With Indo-Pakistani relations at a low ebb, there is no possibility of a pipeline coming to India through Pakistan. This deters oil companies as the Pakistani market isn't big enough. The real attraction for the companies is the energy starved Indian market.
India's prominence in the energy market is that it is the world's sixth largest energy consumer - and yet woefully short of energy sources. It has large coal reserves but the worrisome part is petroleum, which accounts for about 30 per cent of the total energy. India produces only 30 per cent of the 110 million tonnes of petroleum products it consumes. Its share of 0.4 per cent of the world's petroleum reserves is best described as 'traces'. Reserves of natural gas, too, are nothing much to talk about.
There are two proposals for gas pipelines to India. Unocal of USA, which discovered significant amounts of gas in the Bibiyana field of northwest Bangladesh in 1998, wants to build a 1,363-km pipeline to export 500 million cubic feet (14 million cubic metres) of gas every day for the next 20 years. But the Bangladeshi government has been unable to decide if it wants to allow export of gas to India - the issue is too sensitive politically. Whichever party is in opposition starts whipping up fears of a deal that compromises Bangladesh's interests as Unocal would get the money and India would get the gas (see map: Only on paper) India has now started negotiating with Myanmar for its oil and gas reserves in the hope that Bangladesh will cave in to business demands.
The pipeline from Iran to India via Pakistan has been discussed and debated for over 10 years. But it is getting nowhere due to deteriorating Indo-Pak relations. Pakistan is quite keen on the project - it would earn Pakistan over US $500 million annually as transit fees - but India is not willing. An undersea pipeline fetching gas from Iran or Qatar has gotten nowhere. Another project to fetch gas from Oman has been shelved after eight years of study and expenses of Rs 330 crore. An undersea pipeline is anywhere between two to ten times as expensive as an overland one.
India is also woefully short of electricity. The prospect of importing electricity from Nepal by building dams has gotten nowhere. There is a lot of talk of expansion of India's nuclear power. A lot of international nuclear power companies have shown interest in India. But any talk of foreign support or investment in nuclear power in India disregards the fact that India is not a signatory to the Non-Proliferation Treaty (NPT), and is not likely to be any time soon, says G Parthasarthy, former High Commissioner to Pakistan.
India is also working on the fast breeder technology.
In 1997 it began operating the Indira Gandhi Centre for Atomic Research in Kalpakkam. This is primarily due to its precarious position on nuclear fuel: India has vast resources of thorium but limited uranium. "Kalpakkam to my mind is a failure. Fast-breeder technology is dangerous and I don't want my family to live anywhere close to a fast breeder reactor. Thorium is an overrated fuel given the state of technology," says Sunil Dasgupta, journalist and researcher on energy security issues, based at the Brookings Institution in Washington, DC.
"Fast-breeder reactors are expensive, largely due to important safety concerns," says M V Ramana, research associate at the programme on science and global security at Princeton University, USA. "Mere availability of an energy resource cannot determine a country's energy strategy. If that were to be the case, then clearly we could derive the required power from solar photovoltaic cells, for example." All said and done, India isn't really trying to free itself from dependence on oil imports.
"One of the ironies at the turn of the century is that, in an age when the pace of technological change is almost overwhelming, the world will remain dependent, out to the year 2020 at least, essentially on the same sources of energy - oil, natural gas, coal - that prevailed in the twentieth century."