Blog For Arizona

The Oil Coup

Incremental revelations over the past months clearly indicate that the reasons given by the Administration for war on Iraq were empty lies. They were designed and fabricated to whip America into state of fear and hatred sufficient to allow this Administration to undertake a preemptive war of aggression against a largely prostrate foe. The one reason left standing that the Administration will admit is that we needed to demonstrate our strength and resolve to states in the Middle East who might harbor terrorists or try to develop WMD. However, given that Iraq had neither and was attacked anyhow, it's an ambiguous demonstration, at best.

The reason was not WMD. It was not terrorism. It was not democracy. It was not human rights. It was not decade-old war crimes. It was nothing contained in any of the of the Administration's sophistry.

Having cleared away the Administration's camouflage, the essential question remains: why? Why have 500 American's given their lives in Iraq? Why have 3000 Americans suffered terrible wounds and pain? Why have thousands of Iraqis been murdered? Why have Americans paid hundreds of billions for this war? Was there any sensible reason at all?

By far the most important reason why Iraq is geo-strategically significant is oil. The answer is simple, but not simplistic.

Those who think the Iraq war was for Iraq's oil misunderstand the dynamics of global power. The Administration has no interest in appropriating Iraq's oil. This was a war for control of the world price of oil; a much more important and lucrative prize. In this distinction lies the implications of Bush's Oil Coup for the world. I term it a coup because it overturned the Constitutional restrictions on Executive power domestically, and the international legal order internationally.

Western oil companies no longer control the price of oil. This perception is an anachronism. They are marketers of oil and oil products; nothing more. They may affect the spot price of oil by stockpiling, but they lost control of the world oil market in the years prior to the OPEC crisis of 1973. They would dearly love to regain control.

The current world oil system is producer based. This means the price of oil is set largely by the variable of how much oil is pumped out of the ground and into the delivery infrastructure. Sounds like a free market, but it isn't. The amount pumped is carefully limited to ensure higher prices. The exact spot price may be determined by the futures market, but it moves within a constrained range, not freely.

The amount of oil available in the market is largely determined by OPEC, a cartel of oil producers that has proven quite adept at controlling production, and thereby the price, of oil. Although OPEC does not include all producers, nor are all OPEC nations in the Gulf, OPEC and the Gulf members remain the lynchpins of world productive capacity.

Because producers in the Gulf have effectively nationalized their oil industries, world oil price is largely a matter of Gulf security and OPEC politics. Controlling oil prices entails either using military domination the Gulf to set production limits or leadership of OPEC by dint of one's ability to absorb major cut-backs in production to meet OPEC targets; both would be best. There currently is no regional power with the strength to take the former path. The Shah came near to performing that role for us before he fell, and Saddam aspired to that role, and may have taken it if he had invaded Saudi Arabia as well as Kuwait, but contrary to our interests. But there is one who is able to lead OPEC. Currently, this role falls to Saudi Arabia, our increasingly less comfortable friend. They are the only nation in OPEC able to combine vast production capacity with the technical ability and political willingness to cut their own production on demand. Others, including Iraq, have massive reserves, but lack flexibility.

The Bush Administration's goal in this war is the creation of a proxy state to militarily dominate the Gulf also having enough productive capacity to destroy Saudi Arabia's de facto control of OPEC and world oil prices. Historically, America has failed in fostering the emergence of a stable American proxy in the Gulf and no producer under our sway has the capacity to break Saudi control of OPEC. Bush hopes to defy history in one bold coup: by taking control of Iraq. The move is hoped to counter-balance an increasingly resurgent Iran, moderate Syria's policies in Lebanon and the West Bank by our proximity, lessen our reliance on an ever more unstable Saudi Arabia, and put our military might near the crèches of terrorist activity. Bush certainly intended for Iraq to be the central front in the war on terror, as a base to project power, not as a frontline target for attacks.

Candidates for the role of our Gulf proxy had to have a significant population for military purposes and extravagant oil reserves. The only real candidates are Iraq and Iran. Most of the Gulf states, including Saudi Arabia, lack sufficient population for the job. Syria lacks sufficient oil. Pakistan has the bomb. Of the two candidates, Iraq offered several advantages; Saddam is hated and mistrusted in West (easier to sell an invasion), his base of political support was narrower than the broad popular support Iran's regime enjoys (easier to destabilize), Iraq was militarily weak from a decade of sanctions (easier to fight), and it has an ethnically and religiously divided population (easier to control by the use of factionalism).

Now that we have control of Iraq and it's oil fields, we will turn the taps on full as soon as we're able with the unquestionable excuse of raising money to rebuild Iraq and provide humanitarian relief to the Iraqi people. We will deliver on our promise to rebuild, though it is likely that much of those funds will end up in the pockets of the multinationals who get the contracts. Our real purpose however is the 'side effect' of increasing supply, depressing the price of oil. It may take few years to refit old rigs with the latest technology and to open untapped reserves, but eventually Iraqi production can be made to swamp Saudi ability to cut production. Once the Saudis can afford to cut production no further to adjust for new Iraqi supplies, the Administration can control the world price of oil and become the de facto leader of OPEC. Only instead of keeping prices artificially high by holding down production, we can keep oil prices fairly low and stable by ensuring high production regardless of other producer's attempts to cut supply. This strategy may also be the reason Bush is so desperate to open Alaska's ANWAR to drilling; any source of additional supply helps him break OPEC.

Meanwhile, the forces and bases required by the occupation and administration of Iraq will make us a major permanent military force in the Gulf. No matter what Bush says, he has no intention of significantly drawing down our force structure in the Gulf any time soon. Our power will be increasing enhanced by a compliant, U.S. equipped and trained Iraqi armed forces. Between these two factors, our dominant position in the Gulf will be unquestionable. We will become the guarantors of security in the Gulf; a stabilizing force as well as a coercive one. Stability will ensure that the oil continues to flow, coercion will ensure that it will remain cheap.

Bush thinks that low and stable energy costs will foster worldwide economic recovery and long term prosperity. He's likely right. But at the same time, price incentives to develop conservation technologies and alternative energy sources will all but disappear. Big oil will continue to dominate the energy sector of the world economy. Progress toward reducing greenhouse emissions will likely stall. American energy dependence on Gulf oil, and Gulf politics, will grow.

The Oil Coup's effect on American security is debatable. We will have permanent power projection into the Gulf which no government can embarrass or inconvenience us by gainsaying our use of bases. However, our presence will be an even stronger irritant, and target, to terrorists and to restive Gulf governments being cheated of their 'rightful' oil revenues. Our ability to control events in the region will be enhanced, but our ability to remain aloof from the violent and unpredictable politics of the Middle East will be reduced. The incentives for terrorists to strike at our population will grow.

Is it a plausible plan? Absolutely. Audacious and bold, it will revolutionize the balance of world power, and escalate the conflict between the Arab world and ourselves. It links the world's greatest military power with control of the world's most important resource. Is Bush's vision of the future right or wrong for America? That is a judgment that everyone needs to make for themselves based on their values and worldview. However, one cannot make an informed judgement about the wisdom of the course Bush has charted without solid information, and the Administration has not laid it's cards on the table about it's real motives, even if they do not align with my speculations.

Bush has done our democracy no service by his secrecy; America has never, and now may never, get the opportunity to discuss whether this is the kind of future we want. After all, if 9/11 was a message to get out of the Middle East, the wisdom of increasing our presence in the region dramatically is certainly debatable. More abstractly, we never got to have the discussion if we want to be the sort of nation that uses force unilaterally to enhance its own power. Certainly a nation has a right to protect its security, but if the real threat Bush was responding to was the increasing political risks in the Middle East threatening the world's supply of oil, don't we deserve a chance to have a debate about what we should do about it?

Most people still believe this is a democracy. Presidents have deceived America into doing what must be done before, our entry into WWI and WWII were both accomplished employing some deceptions, but does this threat justify such means? I don't think it does, but opinions will differ. Notice, however, that a rational and civil discussion can be based upon real motives, while screaming matches and personal aspersions are the inevitable result of debating about lies. If nothing else, Bush has made America a divided and rancorous place with his lies.

I do not know for a fact that these are the Administration's motives for carrying out the Oil Coup. The actual plan is likely more complex with multiple objectives, but this is the most likely primary purpose. I made an assumption (it is up to you to decide how warranted it is) that the Administration is acting rationally, and deduced this to be the most reasonable objective for invading Iraq setting aside all criteria except strategic cogency. The most vulnerable point in the Middle East was clearly Iraq, and the most valuable prize, control over the world's oil supply, was there for the taking. Given a rational power maximizing motive, the US would act to exploit those conditions. I propose that this Administration did exactly that. The only motive of sufficient weight that could justify the expense and diplomatic costs of this war to the elites of this nation is long-term strategic control of the Gulf region via an Iraqi proxy and control of world oil prices by breaking OPEC.

The no bid contracts, additional defense spending, and cementation of their political control are considerable, but clearly secondary, benefits. I suspect that the Bechtel and Halliburton contracts are red flags waived before the bull's eyes. Outraged by such blatant political corruption and influence peddling, most will not look beyond these for additional fiscal motives. We know that a wholesale restructuring and privatization of Iraq is occurring, but haven't much hard data on private economic activity there. This manipulation is also a secondary goal, and also illegal. The Iraqi economy promises considerable potential for investment growth, but creation of a lucrative new market is a modest goal in comparison to the main objective of the Oil Coup.

Were the invasion of Iraq a purely baseless and irrational policy, predicated only upon the wild dreams of Neo-Cons and Bush's filial revenge fantasies, Bush would already be facing impeachment. Very powerful forces in America find the Oil Coup a very reasonable proposal indeed. Whether the United States' adoption of such a geostrategic position in the Middle East is desirable or sustainable is yet to be seen, but the human costs involved are so extreme they make this policy highly unethical, regardless of its success. I fear that the way in which the Bush Administration engineered the Oil Coup may be so costly to our democracy that we will soon find our political institutions as deeply in deficit as our fisc.

Welcome to the real new world order.

Addendum: Interestingly, I just ran across an essay by on W. Clark (no, not him...) who has very similar ideas about the origins the war. His essay was written in January of 2003, while the core of mine was written in March of 2003 and a new introduction included this month. I was not aware of his essay until now. I was reading a book about the world oil industry when the idea for my essay occured to me. W. Clark puts most of the emphasis on the United States' desire to prevent OPEC from switching to use of Euros to denominate their oil trade, which I thought I might note, but finally left out for the sake of clarity. The goal is exactly the same, however, to crush OPEC by swamping it's ability to impose price controls by uncorking Iraq's full production. The purpose is to disincentivize the any switch to Euros and have a military force on stand-by in the region to prevent any further mischief.

The hypothesis regarding a motive rooted in the financial sector makes sense. Two peices of evidence also support the theory. First, Bush has become even closer to the financial sector since becoming President. He's taking the heat to save their necks, and they are grateful. The stockmarket, credit, and property markets would deflate like a balloon stuck with a needle if the dollar were no longer the world's reserve currency. Their gratatude comes at $2,000 a plate. Second, The devaluation which would occur if a signifcant portion of the world stopped holding dollars as reserve currency is roughly equal to our trade imbalace and would cause a very nasty bump as the dollar fell. Treasury Secretary Snow put the dollar into a nosedive last year resulting in a devaluation of about 20%, perfectly positioned to minimize the impact of on the dollar's value of any party scrapping the dollar as their reserves. As if we were girding for economic war, which, of course, is exactly what we were doing.

Much of the financial aspect of the motivation for the war is part of the layers of complexity I mentioned. The central goal remains the same, but some tasty evidence becomes available through study of the financial and currency markets if you know what to look for.

posted by Michael Bryan @ 1/12/2004 04:56:00 PM