Petroleum politics

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Petroleum politics have been an increasingly important aspect of international diplomacy since the discovery of oil in the Middle East in the early 1900s. As competition grows for an increasingly scarce but vital resource, the strategic calculations of major and minor countries alike place more prominent emphasis on the pumping, refining, transport and use of petroleum products.

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[edit] Peak oil

Main article: Hubbert peak theory

In 1956, a Shell geophysicist named Marion King Hubbert accurately predicted that U.S. oil production would peak in 1970.[1]

Matthew Simmons, an energy investment banker and a former adviser to US president George W. Bush believes that oil production in Saudi Arabia will soon peak, meaning it will not be able to supply the world's growing energy needs.

In June of 2006, former U.S. president Bill Clinton said in a speech,[2]

"We may be at a point of peak oil production. You may see $100 a barrel oil in the next two or three years, but what still is driving this globalization is the idea that is you cannot possibly get rich, stay rich and get richer; if you don’t release more greenhouse gases into the atmosphere. That was true in the industrial era; it is simply factually not true. What is true is that the old energy economy is well organized, financed and connected politically."

In a 1999 speech, Richard Cheney, the US Vice President and former CEO of Halliburton (one of the world's largest energy services corporations), said,

"By some estimates there will be an average of two per cent annual growth in global oil demand over the years ahead along with conservatively a three per cent natural decline in production from existing reserves. That means by 2010 we will need on the order of an additional fifty million barrels a day. So where is the oil going to come from?....While many regions of the world offer great oil opportunities, the Middle East with two thirds of the world's oil and the lowest cost, is still where the prize ultimately lies, even though companies are anxious for greater access there, progress continues to be slow."[3]

Cheney went on to argue that the oil industry should become more active in politics:

" Oil is the only large industry whose leverage has not been all that effective in the political arena. Textiles, electronics, agriculture all seem oftentimes to be more influential. Our constituency is not only oilmen from Louisiana and Texas, but software writers in Massachusetts and specially steel producers in Pennsylvania. I am struck that this industry is so strong technically and financially yet not as politically successful or influential as are often smaller industries. We need to earn credibility to have our views heard."

[edit] Pipeline diplomacy

See also Baku-Tbilisi-Ceyhan Pipeline

[edit] Iran

Discovery of oil in 1908 at Masjed Soleiman in Iran initiated the quest for oil in the Middle East. The Anglo-Iranian Oil Company (AIOC) was founded in 1909. In 1951, Iran nationalized its oil fields initiating the Abadan Crisis. Iran exports oil to China and Russia. The United States is currently pressuring the United Nations to sanction Iran but there is speculation that China and Russia might veto such an action.

See also: Iranian Oil Subsidies

[edit] Saudi Arabia

Saudi Arabia is an oil-based economy with strong government controls over major economic activities. It possesses 25% of the world's proven petroleum reserves, ranks as the largest exporter of petroleum, and plays a leading role in OPEC.[4]

As of 2005, Ghawar field accounts for about half of Saudi Arabia's total oil production capacity.[5]

[edit] Nigeria

Petroleum in Nigeria was discovered in 1956 at Oloibiri in the Niger Delta.[6]

High oil prices were the driving force behind Nigeria’s economic growth in 2005. The country’s real gross domestic product (GDP) grew approximately 4.5 percent in 2005 and is expected to grow 6.2 percent in 2006. The Nigerian economy is heavily dependent on the oil sector, which accounts for 95 percent of government revenues. Even with the substantial oil wealth, Nigeria ranks as one of the poorest countries in the world, with a $1,000 per capita income and more than 70 percent of the population living in poverty. In October 2005, the 15-member Paris Club announced that it would cancel 60 percent of the debt owed by Nigeria. However, Nigeria must still pay $12.4 billion in arrears amongst meeting other conditions. In March 2006, phase two of the Paris Club agreement will include an additional 34 percent debt cancellation, while Nigeria will be responsible for paying back any remaining eligible debts to the lending nations. The International Monetary Fund (IMF), which recently praised the Nigerian government for adopting tighter fiscal policies, will be allowed to monitor Nigeria without having to disburse loans to the country.[7]

[edit] U.S.

Main article: U.S. Oil Politics

In 1998, about 40% of the energy consumed by the United States came from Oil.[8] The United States, with about 5% of the world's population, is responsible for 25% of the world's oil consumption while only having 3% of the world's proven oil reserves.[9] As of 2004, the U.S. had 21 billion barrels of proven oil reserves and consumes 20.6 million bbl/d.

[edit] Venezuela

See: Presidency of Hugo Chávez - 1999: Economic crisis and new constitution

Venezuela nationalized its oil industry in 1975-1976, creating PdVSA, the country's state-run oil and natural gas company. Along with being Venezuela's largest employer, PdVSA accounts for about one-third of the country’s GDP, 50 percent of the government’s revenue and 80 percent of Venezuela’s exports earnings. In recent years, under the influence of President Chavez, the Venezuelan government has reduced PdVSA’s previous autonomy and amended the rules regulating the country’s hydrocarbons sector.[10]

In the 1990s, Venezuela opened its upstream oil sector to private investment. This collection of policies, called apertura, facilitated the creation of 32 operating service agreements (OSA) with 22 separate foreign oil companies, including international oil majors like Chevron, BP, Total, and Repsol-YPF.

Hugo Chávez, the President of Venezuela sharply diverged from previous administrations' economic policies, terminating their practice of extensively privatizing Venezuela's state-owned holdings, such as the oil sector.[11] Chávez also worked to reduce Venezuelan oil extraction in the hopes of garnering elevated oil prices and, at least theoretically, elevated total oil revenues, thereby boosting Venezuela's severely deflated foreign exchange reserves. He extensively lobbied other OPEC countries to cut their production rates as well. As a result of these actions, Chávez became known as a "price hawk" in his dealings with the oil industry and OPEC. Chávez also attempted a comprehensive renegotiation of 60-year-old royalty payment agreements with oil giants Philips Petroleum and ExxonMobil.[12] These agreements had allowed the corporations to pay in taxes as little as 1% of the tens of billions of dollars in revenues they were earning from the Venezuelan oil they were extracting. Afterwards, a frustrated Chávez stated his intention to complete the nationalization of Venezuela's oil resources. Although unsuccessful in his attempts to renegotiate with the oil corporations, Chávez succeeded in improving both the fairness and efficiency of Venezuela's formerly lax tax collection and auditing system, especially for major corporations and landholders.

Recently, Venezuela has pushed the creation of regional oil initiatives for the Caribbean (Petrocaribe), the Andean region (Petroandino), and South America (Petrosur), and Latin America (Petroamerica). The initiatives include assistance for oil developments, investments in refining capacity, and preferential oil pricing. The most developed of these three is the Petrocaribe initiative, with 13 nations signing a preliminary agreement in 2005. Under Petrocaribe, Venezuela will offer crude oil and petroleum products to Caribbean nations under preferential terms and prices, with Jamaica as the first nation to sign on in August 2005.

[edit] Politics of Oil Nationalization

The politics of oil nationalization has involved Western governments using coups and covert actions to prevent foreign regimes from taking control of Western run oil companies in these respective countries. Iran and Venezuela are two important examples. In 1953,Iran's Premier Mohammed Mossadegh was overthrown by a CIA/MI6 covert action known as Operation Ajax. The goal was to prevent Mossadegh from nationalizing the Anglo-Iranian oil company which later became British Petroleum. Similarly in Venezuela, Hugo Chavez attempted to nationalize Venezuela's oil during the early years of his presidency. Hugo Chavez rapidly reversed policy after a 2002 failed coup which he blames on the CIA.[citation needed]

[edit] Politics of Alternative fuels

Vinod Khosla (a well known invester in IT firms and alternative energy) argues[13] that the political interests of environmental advocates, agricultural businesses, energy security advocates (such as ex-CIA director James Woolsey) and automakers, are all aligned for the increased production of ethanol. He pointed out that from 2003 to 2006, ethanol fuel in Brazil has replaced 40% of its gasoline consumption while flex fuel vehicles went from 3% of car sales to 70%. Brazilian ethonol, which is produced using sugarcane, reduces green house gases by 60-80% (20% for corn produced ethanol). Khosla also says that ethanol is about 10% cheaper per given distance. There are currently ethanol subsidies in the United States but they are all blender's credits, meaning the oil refineries receive the subsidies rather than the farmers. Vinod says after one of his presentations in Davos, a Senior Saudi oil official came up to him and threatened: “If biofuels start to take off we will drop the price of oil.”[14] Since then, Vinod has come up with a new recommendation that oil should be taxed if it drops below $40.00/barrel in order to counter price manipulation.

Ex-CIA director James Woolsey and U.S. Senator Richard Lugar are also vocal proponents of ethanol.[15]

In 2005, Sweden announced plans to end its dependence on fossil fuels by the year 2020.[16]

[edit] References

  1. ^ http://www.guardian.co.uk/life/feature/story/0,13026,1464050,00.html
  2. ^ http://www.clintonfoundation.org/032806-sp-cf-gn-gl-gbr-sp-the-opportunity-for-private-citizens-to-effect-positive-change-in-an-increasingly-interdependent-world.htm
  3. ^ http://web.archive.org/web/20000414054656/http://www.petroleum.co.uk/speeches.htm
  4. ^ https://www.cia.gov/cia/publications/factbook/geos/sa.html
  5. ^ http://www.eia.doe.gov/emeu/cabs/saudi.html
  6. ^ http://www.mbendi.co.za/indy/oilg/ogus/af/ng/p0005.htm
  7. ^ http://www.eia.doe.gov/emeu/cabs/Nigeria/Background.html
  8. ^ http://energy.cr.usgs.gov/energy/stats_ctry/Stat1.html
  9. ^ http://www.nrdc.org/air/energy/fensec.asp
  10. ^ http://www.eia.doe.gov/emeu/cabs/Venezuela/Oil.html
  11. ^ http://www.venezuelanalysis.com/articles.php?artno=1579
  12. ^ http://www.cooperativeresearch.org/entity.jsp?entity=hugo_chavez_frias
  13. ^ http://video.google.com/videoplay?docid=-570288889128950913
  14. ^ http://www.economist.com/people/displaystory.cfm?story_id=5655161
  15. ^ http://lugar.senate.gov/new_petroleum.html
  16. ^ http://www.sweden.gov.se/sb/d/3212/a/51058

[edit] See also

[edit] External links

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