The
Rising and Falling Power of Hydrocarbon States
Lookout: Oil is a temporary tool of foreign policy;
Venezuela’s
President Hugo Chavez
and other leaders of oil-rich nations must
plan ahead to the day when oil wells run dry
By
Dilip Hiro
The fast rising demand for oil by China and India,
sharply declining fresh discoveries, and high prices are
empowering the countries with large reserves of black gold
as never before. Venezuelan President Hugo Chavez provides
a striking example of how petroleum has emboldened leaders
of oil-rich states to thumb their noses at the giant neighbor
in the north - the US.
Aside
from his hint that Venezuela might be seeking nuclear power,
the
highlight of Chavez’s recent visit to Moscow
was to finalize a contract to purchase five Russian diesel
submarines for $1 billion to safeguard his country’s
oil-rich underwater shelf and thwart a possible embargo by
the US in response to his anti-Washington crusade in Latin
America for the past several years. Under his presidency, Venezuela
has become the second largest purchaser of Russian weapons
after Algeria.
“We are strengthening Venezuela’s military power
precisely to avoid imperial aggression and assure peace, not
to attack anybody,” said Chavez in a recent speech at
a military base in Caracas.
The arms procurement is funded by a treasury overflowing with
foreign exchange due to high petroleum prices. This gives Chavez
the clout to challenge the US, sorely dependent on imports
of Venezuelan oil, and insult President George Bush with impunity.
Oil income has enabled Chavez to consolidate his popular base
at home. And he has used price discounts on petroleum to gain
diplomatic backing of the Caribbean and Central American countries
to the detriment of Washington. He has financially helped debt-ridden
Latin American countries like Argentina.
At
the same time Chavez is forging strong hydrocarbon ties with
oil-hungry China as insurance for the day when the US
decides to stop importing the Venezuelan crude. By 2009 Venezuela’s
oil exports to China will treble to 500,000 barrels per day
(bpd). A Chinese oil company is collaborating with the state-owned
Petroleos de Venezuela SA to explore a new heavy oil field
in the Orinoco Basin. “The support of China is very important
[to us] from the political and moral point of view,” Chavez
said during his visit to China last year.
Another
leader recently challenging Washington is Russian President
Vladimir Putin. He threatened to point his military’s
nuclear missiles at European cities, if Bush extended the present
California-Alaska anti-missile defense line to Poland and the
Czech Republic. This threat was the latest illustration of
a radical change in the Kremlin’s foreign policy, with
Putin repeatedly attacking Washington’s stance in the
international arena.
His
tough stance stems from the soaring wealth created by the
extraction
of Russia’s enormous hydrocarbon reserves
and his policy of bringing the leading Russian hydrocarbon
companies under the control of the Kremlin and using them as
an instrument of Russia’s foreign policy.
Four
years ago Russia overtook the US to become the world’s
second largest oil producer after Saudi Arabia. Last year Gazprom,
a Russian company, forged ahead of BP as the globe’s
second largest energy corporation by market value.
With petroleum prices rising fivefold between 1998 - when the
Russian ruble crashed, forcing the Kremlin to beg for foreign
financial aid - and now, the Russian treasury is overflowing
with cash. It has since paid off its foreign loans and built
up a foreign exchange nearing $300 billion.
Another
example of oil riches enabling a country’s leaders
to act with uncommon resolve is Iran. Its refusal to suspend
enrichment of uranium demanded by the United Nations Security
Council has led to two sets of sanctions against it. But these
have proved ineffective. Iran’s exports are rising and
the high oil prices mean that the government can go on using
the hydrocarbon revenue on subsidies for food and fuel at home.
What
would really hurt Iran are sanctions on oil exports. But,
given
the rising demand for the commodity, the tight supply
in the petroleum market and the fact that Iran is the second
largest oil exporter in the Organization of Oil Exporting Countries,
a ban on the oil trade with Iran is almost inconceivable. Iran’s
threat to cut off its petroleum exports, if attacked militarily
by the US or Israel, thus causing a big jump in prices, has
so far restrained the hawks in the US and Israeli governments.
These examples amply illustrate how petroleum has proved to
be a leading factor in determining international relations.
Condoleezza Rice made this discovery only after becoming the
US Secretary of State in January 2005. In her testimony to
the Senate Foreign Relations Committee in April 2006, she said, “Nothing
has taken me aback more as secretary of state than the way
that the politics of energy is - I will use the word ‘warping’ -
diplomacy around the world.”
This
statement from a former director of Chevron was truly astonishing:
It showed her ignorance of oil’s importance
in America’s diplomatic annals. Summing up the post-World
War II situation in August 1945, a top US State Department
official wrote: “A review of the diplomatic history of
the past 35 years will show that petroleum has historically
played a larger part in the external relations of the United
States than any other commodity.” This quote appears
in many US history textbooks.
Actually,
the US has the distinction of being the first to “warp” diplomacy
by deploying oil to further its economic and diplomatic interests.
During the first six decades of the last century, when the
US was the leading producer of oil, the government used the
commodity to further national interests abroad.
The US did so when joining the Allies in April 1917, at a
time when its oil output amounted to two-thirds of the global
total.
By
supplying four-fifths of the Allies’ petroleum needs,
in addition to sending troops, Washington helped defeat the
Central Powers.
As a quid pro quo after the war, the US compelled the victorious
Britain and France to give open access to American companies
in Europe and the Middle East (under the British and French
mandates) where the discovery of a bountiful oilfield in Iran
in 1908 held the prospect of hydrocarbon cornucopia.
Once the US entered World War II in December 1941, its petroleum
companies began extracting oil furiously to supply the Allies,
thus depleting the proven reserves at an alarming rate. Worried
policymakers turned their attention to Saudi Arabia where a
massive oilfield had been discovered in 1938. That forged strong
links between Washington and Riyadh, which continue to this
day.
In 1956, when Britain-France-Israel invaded Egypt, the Egyptians
blocked the Suez Canal with sunken ships, thus disrupting oil
supplies from the Persian Gulf region to Western Europe. The
West Europeans appealed to US President Dwight Eisenhower to
meet their oil needs, knowing that American petroleum corporations
at home had a spare capacity of 4 million bpd.
But Eisenhower refused to oblige. He regarded the UN-brokered
ceasefire inadequate and urged the occupying forces to withdraw
from Egypt. Facing crippling oil shortages as winter advanced,
London and Paris conceded a quick evacuation.
However, once US oil output peaked in 1970 and began declining
irrevocably thereafter, making the nation increasingly dependent
on petroleum imports - currently accounting for three out of
five oil barrels consumed domestically - it could no longer
wield the oil weapon.
Such will be the fate, a half century from now, for the countries
now enjoying an economic boom and hefty diplomatic clout due
to their hydrocarbon riches.
Dilip
Hiro (born Larkana) is a playwright and analyst specializing
in Islamic countries, ranging from Iraq and Lebanon to the
Central Asian republics. He currently lives in London. Dilip
Hiro’s latest book is “Blood of the Earth: The
Battle for the World’s Vanishing Oil Resources,” published
by Nation Books, New York. He
is also a journalist, contributing to the Observer, New York
Times, the Guardian, the Washington Post and is a commentator
on the BBC, Sky News and CNN and various radio stations. Petroleumworld
not necessarily share these views.
Editor's Note: This article was first published by Yale
Center for the Study of Globalization, YaleGlobal, 3 July 2007. Petroleumworld
reprint this article in the interest of our readers. Petroleumworld
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