Supply and demand is not the only determinant of oil price. Short
'spikes' have been historically caused by political power plays in what
is an unstable area.
The first, and worst, was in 1973. The Arab-Israeli war resulted, first, in an oil embargo on Israel and it's supporters; and then OPEC deliberately restricted supply to drive up prices. Fed by panic as petrol supply was rationed and gas station ran out (as people hoarded petrol!), prices skyrocketed 400%. But other events in the unstable Middle East have caused spikes in oil prices.
At the time of the Iranian revolution (1979) oil price literally skyrocketed straight up from $US15 per barrel to nearly $US40 per barrel.
When Iraq invaded Kuwait oil price almost instantly doubled, from $US15 to more than $US30, as 4 million barrels a day (544 000 tonnes/day) were removed from supply.
When the USA liberated Kuwait the price of oil drops like a stone to more or less 'normal' levels as the Wests (chiefly US) deliberately accumulated 'strategic petroleum reserves' are dumped on the world market, and as Saudi Arabias unused excess productive capacity is cranked up to help make up the shortfall.
What can we learn from this?
The industrialised Eurasian and
American world is dependant on the oil
belonging to non-secular, poorly educated, corrupt, male dominated,
volatile, unstable countries
controlled by feudal overlords. Apart from Iraq and Iran, most citizens
of the Middle East are hugely undereducated. Some - and particularly
Saudi Arabia - are suceptible to hard-line religous fundementalist
manipulation. The people - mainly young - have little work, and are
increasingly impoverished and disillusioned.
They are a social
powderkeg. Yet these are the countries controlling an increasingly
large percentage of world oil and gas trade.
For example, as at year 2000, 62% of all U.S. oil was imported. Some domestic reserves are held untouched for strategic reasons. But the percentage of imported oil rises an additional 3% every year. If the current rate of consumption of oil continues, in five years from now (2010) 92% of the oil the US depends on will 'need to be' imported oil. The USA burns a hugely greater share (per capita) of oil resources than any other country on earth. It has burnt the greater part of the oil in its own country.
If any 2 of the 5 major oil producing Middle East countries had to stop production due to 'political instability', more than 4 million barrels a day of productive capacity would be lost. If Saudi Arabia was one of the two, it would be 10 million barrels a day.
And now there is only half the unused production capacity to call on, compared to what was available at the time of Iraqs invasion of Kuwait.Iraq, (i.e. USA) has, very broadly, about a sixth of the Middle East oil supplies. By around 2008 the Middle East's 'swing share' (the share of their oil production that makes up the difference between foreign countries own production and actual domestic demand) of oil production on the world trade will have passed 50% (thats the Middle East's share of world export trade in oil sucked out of the ground -currently about 38%- not share of world oil reserves. The 4 middle East countries plus the USA-controlled Iraqi oil have over half the world oil reserves right now).
USA uses force to secure
As its invasion of Iraq shows, USA will act to protect its oil supply. This would normally be regarded as inherently risky and destabilising. The American presidential administration/business/military complex is unelected and largely unaccountable, so has huge degrees of freedom to act on any whim. The original plan to take control of Iraqi oil was to use the traditional USA method of using USA secret service and military state agents to engineer the installation of a puppet regime. Astonishingly, the USA was delivered a perfect cover - the co-incidental terrorist attack on thousands of American people in New York. The public fear and demand for action led to a so-called 'war against terror'.
This 'war' involved not
attacking the Saudi Arabian
terrorists responsible for the
monstrous 9/11 crime; not
attacking the flakey North Korean regime brazenly
trumpeting to the world their making weapons of mass destruction -
nuclear bombs; but attacking Iraq, a country which had nothing to do with
terrorism - but does
have vast oil reserves!
Although USA has a long history of installing and supporting
murderers and torturers, (and continues to kidnap people it 'suspects'
of terrorism and deliver them to third party countries to be tortured -
imagine the world outrage if the UK kidnapped suspected Irish
Republican 'Army' terrorists and delivered them to other countries for
torture...) perhaps it decided the results would be too
uncertain if it used the traditional methods this time. The
circumstances were unbelievably fortuitous, so, for the first time, a
decision was made to use USA soldiers to invade another country and
seize its resources on business and economic grounds. It helped the US
public relations sham that Saddam Hussein was a typical Middle Eastern
despot, and used torture and murder to hold power - as do most regimes
in the Middle East, including oil-rich Saudi Arabia and Algeria; both
these murderous regimes continue to receive USA arms and training. The
brutal Saddam Hussein regime also received USA arms and training -
until it invaded Kuwait,
altogether too close to USA's oil-ally, Saudi Arabia.
Whatever the circumstances, it marks a turning
point in USA presidential administration/business/military strategy.
Apart from the death and maiming of uncounted numbers of Iraqi women,
men, and children (and a relatively few USA soldiers) and damage and
destruction of vast amounts of the infrastructure of civil society,
from the inward-looking American view, nothing bad happened. Best of
all, the American People remain largely unaware of the venal
criminality of an action taken in their name. Having successfully
invaded a country once and seized its oil, it ought to be easier a
second time. Especially as the invasion infrastructure is now in place
The public expectation was that oil would flow like water, to US
The fact is that the country is in for a long, destructive civil war
fought by terrorism, such as used by the (partially American funded)
Irish terrorists (IRA) against
Britain. Did the USA know this? Probably. What, then, are the 'non-oil'
benefits to USA from its invasion of Iraq?
From the Iraqi standpoint, any monetary 'benefits' to Iraq of the US
invasion are hard to 'realise'. The US must allow Iraqis to
buy wheat, as Iraq is dependant on
imported wheat (3 million tonnes per year), chiefly from Australia.
Locally grown wheat is insufficient. With the country in
turmoil, farmers can't get enough of any requirement - not enough
fertiliser, and, ironically, not enough diesel for running planting and
harvesting machinery. There are over 25 million Iraqi people to be fed
every day. Post invasion, employment is insecure, and wages are third
world. Iraq is highly dependent on oil exports. Virtually all Iraqi
income is from oil sales. USA bombing of Iraqi infrastructure and
forced contracting out to US reconstruction suppliers has made Iraq
deeply indebted to US backed banks. Life in Iraq, while freer, is
likely to be marked by religious and tribal turmoil for the forseeable
Perhaps suprisingly, from the USA standpoint at least, the chief
benefit of the invasion of Iraq is not necessarily direct access by the
USA or UK to Iraqi oil.
The chief benefit to the US is that continued civil instability will
allow it to dominate the entire Middle East region. It can do this at
relatively low cost (in the longer run) by maintaining a small but
technologically advanced military force in a series of fortified
airfield and port based 'forts' across 'unfriendy' tribal Iraq. These
bases form 'unsinkable aircraft carriers' from which the USA can, if
necessary, precisely attack the leaders and hierachy of Iran or Saudi
Arabia - and certainly destroy any military capability. The modern
asymetric war also includes the new tactic of destroying electric power
generating facilities to demoralise the citizens. It does not include
destroying oil infrastructure - except for infrastructure used to
divert oil or gas exclusively to non-USA markets.
Power in Iraq was conferred by USA via the CIA-sponsored criminal
Saddam Hussein and his brutal thugs. He overstepped his authority by
invading Kuwait and denominating oil in euros. USA has removed him, and
has now filled the power vacuum directly. That vacuum will remain
filled by the USA for so long as Middle East oil lasts. But continued
civil instability in Iraq is necessary to legitimise the continued US
prescence in Iraq. Ensuring continued instability is unlikely to be a
USA military is insurance of
Western oil supply from the Middle East
War in the Middle East has previously sent oil prices through the roof, unrelated to shortage caused by actual reserve depletion. But this time, the USA invasion of Iraq had relatively little effect on oil prices. It may be that, in the same way that the dictator Saddam Hussein (installed by George Bush senior) ensured smooth running of Iraq through a regime of fear, so can USA ensure the smooth running of the oil production sector of the entire Middle East oil producing countries.
As it has demonstrated in Iraq, the USA has the power to largely
isolate its invading
force and oil administrators in english-speaking islands of 'little
America' around the oil infrastructure and strategic airports and
ports, and leave the Arabs and Persians, whose languages the invaders
do not speak,
to get by with just enough re-patriation of oil money to prevent
As Iraq shows, while expensive to mount and run in the short term,
the technique demonstrably works,
and thus could be applied to other adjacent Middle East countries.
even be necessary to go so far as to mount another expensive invasion?
In a moment of temporary insanity, Iran's leaders might refuse to
sell oil or gas to the West, or they might
to reduce supply at a critical moment to destabilise the dollar, or
they may make the prudential commercial decision to reduce financial
exposure and designate all or some of their oil in Euros, or Iran may
establish an oil trading bourse trading in Euros, not dollars. (But, as
at 2006, this danger is passing as world event unfold. Russia and
several Middle Eastern countries are also establishing oil bourses
denominated in other currencies.) Worst,
they might form an Eurasian-Asian alliance with Russia, China and India
and supply gas to the region by pipeline - just as Canada today
supplies huge amounts of USA gas by regional pipeline. What
could the USA do? There are several options.
It could look for a pretext to attack Iran, as it did with
It might invade, but Iran is not
Iraq. The invader must feed its subjugated population.
Unlike Iraq, Iran can now
almost produce enough
wheat domestically to feed its rocketing population (it is now 70.7
million - 48 million of that total have been added in just 34 years).
If America deliberately damages Irans civilian infrastructure prior to
invasion, as it
did in Iraq, Iran will slip back into dependance on wheat imports. A
portion of the
Iranian oil that America gains will have to be sold for food.
global 2004/2005 wheat
harvest was a bumper one - but wheat reserves are still only 3 months
of world consumption.
A bad harvest next year or the year after could see Iran under US
control importing very expensive reserve wheat (demand exceeding
supply), eroding the 'value' to USA of
Irans oil. This risk counts heavily against a decision to attempt a
full-scale invasion of Iran (although on the other side of the
argument, Iran's Bandar Al Khomeini Gulf port would be a useful prize,
as it is likely to be hired by the US to transit Australian wheat to
Iraq - congestion and equipment damage at Iraqs Um Qasr port has slowed
and prevented wheat ships from unloading). Other strategies may be more
from a USA standpoint.
achieve control of Iran by repeatedly blowing up military and
from oil and gas facilities) offices and equipment until the Iranian
leaders capitulate. This presumes the bunkers built by North Korea in
Iran are weaker than the German built bunker for Saddam Hussein in Iraq
- which successfully resisted USA conventional explosive 'bunker
buster' bombs. Nuclear 'bunker buster' bombs cannot be used as they
cannot penetrate deep enough to contain any nuclear explosion - their
use would kill large numbers of civilians and release a large
radioactive debris cloud into the atmosphere of the Middle East and
If the religous despots currently in control of
Iran are left in
place, the message would be compelling - do what you are told and
you will be left alone, fail to cooperate with USA wishes and you, your
your palace are next to be blown apart.Your electric power facilities
will be destroyed. The cost of recontruction will bankrupt your
government. You will face continuous social unrest. Cooperation would
New Iranian oil exploration and development would be put
out to tender as joint ventures; USA oil companies would mysteriously
win almost all of them. Gas supplies to Turkey and therefore Israel
(Turkey onsells Iranian gas to Israel) would be assured. Russia, China,
and Japan would be shut
out of large scale access to Iranian gas. China and Japan would be
forced to continue to pay greenbacks for
much of their imported oil. Any idea of accepting a large proportion of Euros or other
regional currencies for oil would evaporate. (The federal
reserve and banks in USA would give a huge sigh of relief).
Arab nations, seeing the price of disobeying, would do as directed by
the USA, ensuring smooth and continuous production from the region. The
USA would directly and indirectly control a
huge part of the best oil wells in the world. It would then also
control and guarantee access to the Straits of Hormuz, the
strategically vital seaway of oil export.
Another, slightly riskier strategy would be to bomb Iran into a form
of submission, but reward Turkey with north west Iran, on the pretext
of protecting Turkeys access to gas supplies. The area could include
gas or oil prospects, and simply become an Ottoman-US-Israeli
protectorate, or colony.
An even more attractive strategy would be for the USA, Turkey and
Israel to assist in the creation of an new state of 'Kurdistan', taking
in Kurdish Iraq, Kurdish Turkey, and Kurdish Iran. In this way, Turkey
will no longer be as reliant on Russia for gas and oil, and 'Kurdistan'
would have a more secure pipeline pathway for exports.
Paradoxically, this may lead to stability in world oil prices, as it
would then be beyond question who dictates to the local dictators, and
the makes crystal clear the consequences of not cooperating with the
USA. Is this fantasy? Maybe. Maybe not.
Would the American public prevent
USA destroying Iranian defenses?
No. The USA public is well propogandised. Even almost all the USA Congress has been successfully sold the line:
Likewise, our proliferation of nuclear material to India is a clear violation of the nuclear proliferation treaty as well.
The tragedy is that the
inflation tax is
borne more by the poor and the middle class than the rich...
the well-connected rich, the politicians, the bureaucrats, the bankers,
the military industrialists and the international corporations reap the
benefits of war profits.
Economic interests almost always are
reasons for wars being fought. Noble and patriotic causes are easier to
sell to a public who must pay and provide cannon fodder to defend the
financial interests of a privileged class.
The fact that Saddam Hussein
demanded Euros for oil in an attempt to undermine the U.S. dollar is
believed by many to be one of the ulterior motives for our invasion and
occupation of Iraq.
Similarly, the Iranian oil burse now about to open may be seen as a threat to those who depend on maintaining the current monetary system with the dollar as the world's reserve currency.
The theory and
significance of ``peak oil''
is believed to be an additional motivating factor for the United States
and Great Britain wanting to maintain firm control over the oil
supplies in the Middle East. The two nations have been protecting our
oil interests in the Middle East for nearly 100 years. With diminishing
supplies and expanding demands, the incentive to maintain a military
presence in the Middle East is quite strong."
Will Indian and Chinese joint
ventures in Iranian oil production inhibit American attack on Iran?
China has recently invested 100 billion US dollars to help Iran develop one of its major gas fields, and for the purchase of 25 years supply of liquified natural gas. China's oil production probably peaked in 2003, and it depends on Iran for 14% of its oil supplies. A pipeline from NW China to its recently acquired oil field inside Khazakistan is intended to be extended, to meet an oil pipeline being built from northern Iranian oil fields to take oil to Iran's Caspian sea coast. Oil from Iran and Khazakistan would then meet around 30% of Chinas needs. Iran is increasingly significant in Chinas economic/military strategy.
Is China militarily strong enough to face off the USA? Not conventionally.
currency, the yuan, is tied to the dollar. Would it do anything that
might prevent the dollar from 'acquiring' some backbone? No. Its best
interests are served by quietly diversifiying its monetary reserves
over time, and facilitating a gradual weakening of the US dollar, not a
recession-triggering crash in dollar value.
Has the American administration-military come to similar
conclusions? Possibly. Therefore, although it is possible the American
administration might not attack Iran due to the prescence of Chinese
energy companies, it is unlikely they will weigh their presence heavily
- especially as they are in theory
private companies (although in fact owned by the Chinese
politico-military-banking complex, a complex of interests not
dissimilar to Americas).
India has relatively few oil reserves, yet is the worlds sixth
biggest oil consumer. It has to import about 66% of its oil needs.
India has contracted with Iran to buy 7.5 million tons of liquified
natural gas a year, the contract to run for the next 30 years.
Worst of all, India has made sufficient peace with Pakistan to agree to build a natural gas pipeline from Iran through Pakistan to India. The American Secretary of State condemned this blatant attempt by India to provide for part of its energy needs by piping gas from a nearby country (as USA does from Canada) -
"We have communicated to the Indian government our concerns
about the gas pipeline cooperation between Iran and India". (Rice, US
secretary of state).
Is India militarily strong enough to face off the USA? No.
Could China and India act together to face off the USA? No.
On these grounds, the execution of the second phase of the
presidential administrations possible strategy - seizing the
peoples natural gas reserves by coercive punitive strikes but without
invasion - while causing great tension between these major world
players, would probably only result in a temporary spike in oil prices.
A spike of some sort is likely because, in contrast to 2003, Saudi
Arabia has no real capacity to
pump extra oil in advance of the attack to prevent it. Oil prices would
on the rumor of the attack rather than the fact. But the American
invasion of Iraq has shown
the market that countries can be 'bombed back to the stone age'
without significant damage to oil assets and infrastructure. When the
TV images show the fact of the precision of the strikes, the markets
may settle back rapidly.
Could Japan threaten to dump US
dollars if America attacks its interests in Iran?
Japan has no oil, no gas, and no coal.
It is totally dependant on
imported crude for its oil needs. An 'ant trail' of oil tankers loop
continuously between Japan and the Gulf.
Japanese companies have a 20% stake in developing the 1 billion
barrel Soroush-Nowruz offshore
field in the Iranian Persian Gulf, and have contracts for natural gas
liquids from that and other Iranian offshore fields.
Obviously, Japan depends on the goodwill of America for protection,
and would not attempt to 'strongarm' America even if it could.
However, if it dumped its vast holdings of American dollars on the
world market, it could make the dollar almost worthless overnight. That
is a weapon. But, like nuclear weapons, it can never be used. Using it
would destroy its own economic base. As with nuclear weapons, use of
the dollar weapon would result in assured self-destruction.
Therefore Japan will not create a ripple of dissent large enough to
frighten the market and spike oil prices.
US bombs prevent a popular
uprising in Saudi Arabia?
So long as the feudal rulers who have hijacked peoples democratic self governance in Saudi Arabia can pay the population off, all will be well. The population continues to explode in number (about 4 million in 1955 to about 26 million today in a land of sand and rock).
of the 26 million, based on the oil wealth they could reasonably expect
to receive an equal 'share' of, are not being met - except for the
7,000 rich 'royals' who have feudally taken what might politely be
described as 'more than a fair share'. This
is rich ground for the spread of ideology promising a 'better'and
life. Especially when fundementalist religous extremists also promote
an ideology that male violence against society in pursuit of a
politico-religious agenda will be rewarded by 'use' of
compliant virgins in some (apparently male) 'heaven'!
Weighing against an inability to pay off its citizens is an increase
in profit as the supply:demand mismatch ensures greater profitability
physical production limits are reached, or even decline. So long as
fields are able to produce at current levels, all will probably be
The greatest risk would be if a major field was damaged from
over-pumping and the decline in production was enough to make a big
dent in Saudi government receipts. Civil unrest might result, although
it is by no means inevitable at this time.
The interests of the Saudi despots and the Americans are
co-incident. Using techniques worked out in Iraq, there is no reason
that Saudi oil fields could not be quarantined by Saudi and US
military, restive cities sealed off, the Saudi rulers retired to a life
of luxury somewhere, a provisional 'transitional' government installed,
and oil kept pumping under Saudi oil company (linked to the feudal
leaders) and US (linked to US oil and banking business) control. And
Saudi oil would continue to be paid for in dollars, not Euros...
US bombs certainly can't stop a popular uprising and are unlikely to be used extensively to kill civilians; US military logistics (handily based in Iraq, with its US military 'owned' port and airport) can certainly seal an uprising away from the oil resources and infrastructure, and can certainly keep the supply pumping with little or no interruption.
Can US blockade Middle East
Violent actions are not necessary. While USA and the west needs hydrocarbons, the entire Middle East needs carbohydrates.
The Middle East is either desert, or is very dry and broadly
unsuited to cropping. Only Iran and (pre-US
invasion) Iraq can produce substantial crops of wheat. Success of the
crop from year to year is at the mercy of a variable climate. There is
almost no birth control in the Middle East. Their cultural constructs
value as many children as possible. Only oil revenue, sold for food,
makes unrestrained reproduction 'possible'.
A blockade of all sea and land routes (by airforce and navy) of any
gulf state, including Iran, would allow USA to swap 'oil exports for
food'. That is, US appointed agents would control the flow of oil out,
and food in. The corruption in the UN 'oil for food' programme (if
real) would allow a veneer of 'justification'.
While Japan is learning
that money is not fungible, the middle east may discover that wheat is
very fungible, and when there is a blockade on your ports, the worlds
most fungible commodity can, astonishingly, become unfungible.
Alternative oil supplies for a
'foreign oil' dependant USA
In the extremely unlikely event Iran cut oil supply to the West (it would only obliquely affect America -the USA imports most of its oil from Canada, Mexico, Saudi Arabia, Venezuela, Nigeria, and, to lesser extent, Iraq) the only counter is to increase in supply from 'stable' areas, and where they are uncooperative, destabilise them and use the time tested technique of installing a puppet regime. Venezuela? Former USSR countries? Libya? Nigeria? Too many, too far, too difficult. As Cheny said, "the Middle East is the prize".