IS IS OIL? by Arthur Macewan
Autor: Claudio Martins | Publicado: 2012-08-26T12:57:00-04:00



Is It Oil?

BY ARTHUR
MACEWAN
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Before U.S.
forces invaded Iraq, the United Nations inspection team that had been searching
the country for weapons of mass destruction was unable to find either such
weapons or a capacity to produce them in the near future. As of mid-April,
while the U.S. military is apparently wrapping up its invasion, it too has not
found the alleged weapons. The U.S. government continues to claim that weapons
of mass destruction exist in Iraq but provides scant evidence to substantiate
its claim.

While weapons
of mass destruction are hard to find in Iraq, there is one thing that is
relatively easy to find: oil. Lots of oil. With 112.5 billion barrels of proven
reserves, Iraq has greater stores of oil than any country except Saudi Arabia.
This combination—lots of oil and no weapons of mass destruction—begs the
question: Is it oil and not weapons
of mass destruction that motivates the U.S. government’s aggressive policy
towards Iraq?

The U.S.
"Need" for Oil?

Much of the
discussion of the United States, oil, and Iraq focuses on the U.S. economy’s
overall dependence on oil. We are a country highly dependent on oil, consuming
far more than we produce. We have a small share, about 3%, of the world’s total
proven oil reserves. By depleting our reserves at a much higher rate than most
other countries, the United States accounts for about 10% of world production.
But, by importing from the rest of the world, we can consume oil at a still
higher rate: U.S. oil consumption is over 25% of the world’s total. (See the
accompanying figures for these and
related data.) Thus, the United States relies on the rest of the world’s oil in
order to keep its economy running—or at least running in its present
oil-dependent form. Moreover, for the United States to operate as it does and
maintain current standards of living, we need access to oil at low prices.
Otherwise we would have to turn over a large share of U.S. GDP as payment to
those who supply us with oil. 

Iraq could
present the United States with supply problems. With a hostile government in
Baghdad, the likelihood that the United States would be subject to some sort of
boycott as in the early 1970s is greater than otherwise. Likewise, a government
in Baghdad that does not cooperate with Washington could be a catalyst to a
reinvigoration of the Organization of Petroleum Exporting Countries (OPEC) and
the result could be higher oil prices. 

Such threats,
however, while real, are not as great as they might first appear. Boycotts are
hard to maintain. The sellers of oil need to sell as much as the buyers need to
buy; oil exporters depend on the U.S. market, just as U.S. consumers depend on
those exporters. (An illustration of this mutual dependence is provided by the
continuing oil trade between Iraq and the United States in recent years. During
2001, while the two countries were in a virtual state of war, the United States
bought 284 million barrels of oil from Iraq, about 7% of U.S. imports and
almost a third of Iraq’s exports.) Also, U.S. oil imports come from diverse
sources, with less than half from OPEC countries and less than one-quarter from
Persian Gulf nations. 

Most
important, ever since the initial surge of OPEC in the 1970s, the organization
has followed a policy of price restraint. While price restraint may in part be
a strategy of political cooperation, resulting from the close U.S.-Saudi
relationship in particular, it is also a policy adopted because high prices are
counter-productive for OPEC itself; high prices lead consumers to switch
sources of supply and conserve energy, undercutting the longer term profits for
the oil suppliers. Furthermore, a sudden rise in prices can lead to general
economic disruption, which is no more desirable for the oil exporters than for
the oil importers. To be sure, the United States would prefer to have
cooperative governments in oil producing countries, but the specter of another
boycott as in the 1970s or somewhat higher prices for oil hardly provides a
rationale, let alone a justification, for war. 

The Profits
Problem

There is,
however, also the importance of oil in the profits of large U.S. firms: the oil
companies themselves (with ExxonMobil at the head of the list) but also the
numerous drilling, shipping, refining, and marketing firms that make up the
rest of the oil industry. Perhaps the most famous of this latter group, because
former CEO Dick Cheney is now vice president, is the Halliburton Company, which
supplies a wide range of equipment and engineering services to the industry.
Even while many governments—Saudi Arabia, Kuwait, and Venezuela, for
example—have taken ownership of their countries’ oil reserves, these companies
have been able to maintain their profits because of their decisive roles at
each stage in the long sequence from exploration through drilling to refining
and marketing. Ultimately, however, as with any resource-based industry, the
monopolistic position—and thus the large profits—of the firms that dominate the
oil industry depends on their access to the supply of the resource. Their
access, in turn, depends on the relations they are able to establish with the
governments of oil-producing countries.

From the
perspective of the major U.S. oil companies, a hostile Iraqi government
presents a clear set of problems. To begin with, there is the obvious: because
Iraq has a lot of oil, access to that oil would represent an important
profit-making opportunity. What’s more, Iraqi oil can be easily extracted and
thus produced at very low cost. With all oil selling at the same price on the
world market, Iraqi oil thus presents opportunities for especially large
profits per unit of production. According to the Guardian newspaper (London), Iraqi oil could cost as little as 97
cents a barrel to produce, compared to the UK’s North Sea oil produced at $3 to
$4 per barrel. As one oil executive told the Guardian last November, "Ninety cents a barrel for oil that
sells for $30—that’s the kind of business anyone would want to be in. A 97% profit
margin—you can live with that." The Guardian
continues: "The stakes are high. Iraq could be producing 8 million barrels
a day within the decade. The math is impressive—8 million times 365 at $30 per
barrel or $87.5 billion a year. Any share would be worth fighting for."
The question for the oil companies is: what share will they be able to claim
and what share will be claimed by the Iraqi government? The split would
undoubtedly be more favorable for the oil companies with a compliant U.S.-installed
government in Baghdad. 

Furthermore,
the conflict is not simply one between the private oil companies and the
government of Iraq. The U.S.-based firms and their British (and British-Dutch)
allies are vying with French, Russian, and Chinese firms for access to Iraqi
oil. During recent years, firms from these other nations signed oil exploration
and development contracts with the Hussein government in Iraq, and, if there
were no "regime change," they would preempt the operations of the
U.S. and British firms in that country. If, however, the U.S. government
succeeds in replacing the government of Saddam Hussein with its preferred
allies in the Iraqi opposition, the outlook will change dramatically. According
to Ahmed Chalabi, head of the Iraqi National Congress and a figure in the Iraqi
opposition who seems to be currently favored by Washington, "The future
democratic government in Iraq will be grateful to the United States for helping
the Iraqi people liberate themselves and getting rid of Saddam.... American companies,
we expect, will play an important and leading role in the future oil
situation." (In recent years, U.S. firms have not been fully frozen out of
the oil business in Iraq. For example, according to a June 2001 report in the Washington Post, while Vice President
Cheney was CEO at Halliburton Company during the late 1990s, the firm operated
through subsidiaries to sell some $73 million of oil production equipment and
spare parts to Iraq.)

The rivalry
with French, Russian and Chinese oil companies is in part driven by the direct
prize of the profits to be obtained from Iraqi operations. In addition, in
order to maintain their dominant positions in the world oil industry, it is
important for the U.S. and British-based firms to deprive their rivals of the
growth potential that access to Iraq would afford. In any monopolistic
industry, leading firms need to deny their potential competitors market
position and control of new sources of supply; otherwise, those competitors
will be in a better position to challenge the leaders. The British Guardian reports that the Hussein
government is "believed to have offered the French company TotalFinaElf
exclusive rights to the largest of Iraq’s oil fields, the Majoon, which would
more than double the company’s entire output at a single stroke." Such a
development would catapult TotalFinaElf from the second ranks into the first
ranks of the major oil firms. The basic structure of the world oil industry
would not change, but the sharing of power and profits among the leaders would
be altered. Thus for ExxonMobil, Chevron, Shell and the other traditional
"majors" in the industry, access to Iraq is a defensive as well as an
offensive goal. ("Regime change" in Iraq will not necessarily provide
the legal basis for cancellation of contracts signed between the Hussein regime
and various oil companies. International law would not allow a new regime
simply to turn things over to the U.S. oil companies. "Should ‘regime
change’ happen, one thing is guaranteed," according to the Guardian, "shortly afterwards there
will be the mother of all legal ­battles.")

Oil companies
are big and powerful. The biggest, ExxonMobil, had 2002 profits of $15 billion,
more than any other corporation, in the United States or in the world.
Chevron-Texaco came in with $3.3 billion in 2002 profits, and Phillips-Tosco
garnered $1.7 billion. British Petroleum-Amoco-Arco pulled in $8 billion, while
Royal Dutch/Shell Group registered almost $11 billion. Firms of this magnitude
have a large role affecting the policies of their governments, and, for that
matter, the governments of many other countries. 

With the
ascendancy of the Bush-Cheney team to the White House in 2000, perhaps the
relationship between oil and the government became more personal, but it was
not new. Big oil has been important in shaping U.S. foreign policy since the
end of the 19th century (to say nothing of its role in shaping other policy
realms, particularly environmental regulation). From 1914, when the Marines
landed at Mexico’s Tampico Bay to protect U.S. oil interests, to the
CIA-engineered overthrow of the Mosadegh government in Iran in 1953, to the
close relationship with the oppressive Saudi monarchy through the past 70
years, oil and the interests of the oil companies have been central factors in
U.S. foreign policy. Iraq today is one more chapter in a long story.

The Larger
Issue

Yet in Iraq
today, as in many other instances of the U.S. government’s international
actions, oil is not the whole story. The international policies of the U.S. government
are certainly shaped in significant part by the interests of U.S.-based firms,
but not only the oil companies. ExxonMobil may have had the largest 2002
profits, but there are many additional large U.S. firms with international
interests: Citbank and the other huge financial firms; IBM, Microsoft, and
other information technology companies; General Motors and Ford; Merck, Pfizer
and the other pharmaceutical corporations; large retailers like MacDonald’s and
Wal-Mart (and many more) depend on access to foreign markets and foreign
sources of supply for large shares of their sales and profits.

The U.S.
government (like other governments) has long defined its role in international
affairs as protecting the interests of its nationals, and by far the largest
interests of U.S. nationals abroad are the interests of these large U.S.
companies. The day-to-day activities of U.S. embassies and consular offices
around the world are dominated by efforts to further the interests of
particular U.S. firms—for example, helping the firms establish local markets,
negotiate a country’s regulations, or develop relations with local businesses.
When the issue is large, such as when governments in low-income countries have
attempted to assure the availability of HIV-AIDS drugs in spite of patents held
by U.S. firms, Washington steps directly into the fray. On the broadest level,
the U.S. government tries to shape the rules and institutions of the world
economy in ways that work well for U.S. firms. These rules are summed up under
the heading of "free trade," which in practice means free access of
U.S. firms to the markets and resources of the rest of the world. 

In normal
times, Washington uses diplomacy and institutions like the International
Monetary Fund, the World Bank, and the World Trade Organization to shape the
rules of the world economy. But times are not always "normal." When
governments have attempted to remove their economies from the open system and
break with the "rules of the game," the U.S. government has responded
with overt or covert military interventions. Latin America has had a long
history of such interventions, where Guatemala (1954), Cuba (1961), Chile
(1973) and Nicaragua (1980s) provide fairly recent examples. The Middle East
also provides several illustrations of this approach to foreign affairs, with
U.S. interventions in Iran (1953), Lebanon (1958), Libya (1981), and now Iraq.
These interventions are generally presented as efforts to preserve freedom and
democracy, but, if freedom and democracy were actually the goals of U.S.
interventions the record would be very different; both the Saudi monarchy and
the Shah of Iran, in an earlier era, would then have been high on the U.S. hit
list. (Also, as with maintaining the source of supply of oil, the U.S. government
did not intervene in Guatemala in 1954 to maintain our supply of bananas; the
profits of the United Fruit Company, however, did provide a powerful causal
factor.)

The rhetorical
rationale of U.S. foreign policy has seen many alterations and adjustments over
the last century: at the end of the 19th century, U.S. officials spoke of the
need to spread Christianity; Woodrow Wilson defined the mission as keeping the
world safe for democracy; for most of the latter half of the 20th century, the
fight against Communism was the paramount rationale; for a fleeting moment
during the Carter administration, the protection of human rights entered the
government’s vocabulary; in recent years we have seen the war against drugs;
and now we have the current administration’s war against terrorism. 

What
distinguishes the current administration in Washington is neither its approach
toward foreign affairs and U.S. business interests in general nor its policy in
the Middle East and oil interests in particular. Even its rhetoric builds on
well established traditions, albeit with new twists. What does distinguish the
Bush administration is the clarity and aggressiveness with which it has put
forth its goal of maintaining U.S. domination internationally. The "Bush
Doctrine" that the administration has articulated claims legitimacy for
pre-emptive action against those who might threaten U.S. interests, and it is
clear from the statement of that doctrine in last September’s issuance of The National Security Strategy of the United
States of America that "U.S. interests" includes economic
interests.

The&nbsp; economic&nbsp;
story&nbsp; is&nbsp; never&nbsp;
the&nbsp; whole&nbsp; story,&nbsp;
and&nbsp; oil&nbsp; is&nbsp;
never&nbsp; the&nbsp; whole&nbsp;
economic&nbsp; story. In the&nbsp; particular&nbsp;
application&nbsp; of U.S. power,
numerous strategic and political considerations come into play. With the
application of the Bush Doctrine in the case of Iraq, the especially heinous
character of the Hussein regime is certainly a factor, as is the regime’s
history of conflict with other nations of the region (at times with U.S.
support) and its apparent efforts at developing nuclear, chemical, and
biological weapons; certainly the weakness of the Iraqi military also affects
the U.S. government’s willingness to go to war. Yet, as September’s Security Strategy document makes clear,
the U.S. government is concerned with domination and a major factor driving
that goal of domination is economic. In the Middle East, Iraq and elsewhere,
oil—or, more precisely, the profit from oil—looms large in the picture. An&nbsp; earlier&nbsp;
version&nbsp; of&nbsp; this&nbsp;
article&nbsp; was&nbsp; prepared&nbsp;
for&nbsp; the&nbsp; newsletter&nbsp;
of&nbsp; the&nbsp; Joiner&nbsp;
Center&nbsp; for War&nbsp; and&nbsp;
Social&nbsp; Consequences&nbsp; at&nbsp;
the&nbsp; University&nbsp; of&nbsp;
Massachusetts-Boston. This&nbsp;
article&nbsp; was largely prepared
before the start of the war on Iraq.
&nbsp;

Arthur MacEwan
teaches economics at the University of Massachusetts-Boston. His most recent
book is Neoliberalism or Democracy? Economic Strategy,
Markets, and Alternatives for the 21st Century (Zed Books, 1999). A founder of Dollars &amp; Sense, he served as its "Ask Dr. Dollar"
columnist from 1997 to 2001 and is a D&amp;S associate.



Issue #247, May/June 2003