[iwar] [fc:The.Last.Oil.Rush]

From: Fred Cohen (fc@all.net)
Date: 2001-10-25 19:48:16
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From: Fred Cohen <fc@all.net>
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Date: Thu, 25 Oct 2001 19:48:16 -0700 (PDT)
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The Last Oil Rush

World, October 25, 2001 [ 10:04 ]
By Giles Whittell, The
&lt;http://www.thetimes.co.uk/article/0,,7-2001370984,00.html 
Times

LONDON. Could the West survive without Saudi oil? The war on terrorism means
that we may have to. The former Soviet Union could fill the gap, but this
would bring its own set of pitfalls. 

It is mid-February, 2002. North America is in the depths of a bitter winter.
Consumption of heating oil is at an all-time high and petrol use is back to
prewar levels thanks to a long slump in world prices, but the war on
terrorism drags on. 

Contrary to most forecasts, Osama bin Laden has been captured alive and
airlifted to the USS Carl Vinson by triumphant US Marines. In line with
other forecasts, the terrorism has not stopped. The Strasbourg anthrax
outbreak appears to be contained but a smallpox scare is unfolding in Los
Angeles and well-sourced Pentagon leaks say that Saddam Hussein has
assembled a "dirty" nuclear bomb with enriched uranium packed around a Scud
warhead. Range: 1,300 miles. 

The Bush-Blair coalition is intact but under intense pressure from
Washington hawks who want to take the war to Baghdad. The nuclear leaks win
the argument for them and, with Blair's regretful non-cooperation, B2
bombers of the 509th air wing resume their 22-hour raids from Whiteman Air
Force Base in Missouri, this time on Saddam's revivified military
infrastructure and key Iraqi oil assets. 

Saudi Arabia erupts. The new offensive persuades millions in Riyadh and
Jedda that the war on terror is in fact the war on Islam against which their
imams have railed for months. Following the lead of a prominent dissident
cleric, tens of thousands take to the streets to condemn the royal family's
tacit support of the American attackers. 

To restore calm, the Saudi Government suspends oil sales to the US in what
it privately assures Washington is just a temporary move. But Iraqi exports
under the UN-approved oil-for-food programme have already dried up and the
damage is done. With a third of the world's known oil reserves in jeopardy,
global prices zoom to $44 a barrel. 

President Bush authorises an emergency withdrawal of 200 million barrels
from the Strategic Petroleum Reserve held in underground caverns in Texas
and Louisiana. It will make up the shortfall in US imports for barely a
fortnight unless he can persuade voters to switch overnight from conspicuous
consumption to manic conservation - a trick he is loath even to try.
Instead, flanked by his energy secretary and an uneasy-looking clutch of oil
executives gathered in the Roosevelt Room of the White House, he announces
an historic ten-year plan to wean the US off Middle-Eastern oil and meet its
energy needs elsewhere. 

"My proposals," he says, choosing words that would have been unimaginable
six months earlier, "will end the Arab world's unhealthy dependence on the
petrodollar. They will boost export-led growth for our friends elsewhere in
the world. They will bolster our national security and transform how we
define it. They may even transform the health of the planet we call home." 

This scenario could be triggered in any number of ways besides the bombing
of Iraq. Al-Qaeda terrorists could sink a supertanker in the Strait of
Hormuz. Saudi Arabia could be overtaken by a full-blown revolution, or
slapped with embargoes for failing fully to condemn future atrocities. 

The result would be a seismic shift in patterns of oil procurement that
would define the coming century. The losers, at least in the short term,
would be the Gulf states of the Middle East. The winner, in the supreme
irony of the post-Cold War period, would be Russia. 

In fact, it is already happening. Immediately after the September attacks,
President Putin endeared himself mightily to President Bush by ordering his
armed forces to stand down from the heightened alert they would otherwise
have adopted in such circumstances. But he also offered to make up any
shortfall in Middle East oil exports to the West that might result from the
war on terror. 

As if on cue, an Italian tanker left the Russian Black Sea port of
Novorossiysk last week with the first load of oil to flow through a new
990-mile pipeline linking the Tengiz field in Kazakhstan to the open seas. 

To the west, a Russian oil terminal is to open before the end of the year at
Primorsk on the Gulf of Finland to bring more crude from western Siberia,
Russia's booming oil zone, to Europe via the Baltic. In the Far North,
Lukoil, Russia's biggest oil producer, is building an Arctic Coast terminal
from which to ship 250,000 barrels a day straight across the Arctic Ocean in
a fleet of icebreaking tankers. 

Plans for former Soviet Central Asia are even more ambitious. Starting in
Azerbaijan, at least two pipelines will eventually carry oil and gas to the
outside world via Georgia and Turkey, and in Turkmenistan, a land of
scorching deserts and vast gas reserves bordering Afghanistan to the north,
the current fighting has paradoxically revived hopes of long-term stability
making possible the most Herculean undertaking of all: a gas pipeline over
the Hindu Kush to Pakistan and India. 

These are the outlines of the last great oil rush; a race to open the
Caspian basin in the hope that it may replace the Middle East as filling
station to the world - and the expectation that even if it doesn't, its oil
will find a market somewhere. 

The stakes could hardly be higher. With America alone spending Ł100 million
a day on imported crude, oil remains the world's great wealth-creator. The
rise of the personal computer notwithstanding, it still drives every
industrial economy, provides profits for the world's largest corporations,
pays for most of the Middle East's armies, and funds a sprawling culture of
gilded vulgarity stretching from Dubai's seven-star Burj Al Arab Hotel to
the subterranean swimming pools of Kensington Palace Row. 

"Access to large sources of oil has long constituted a strategic prize,"
writes Daniel Yergin in The Prize, his seminal study of oil politics. "It
enables nations to accumulate wealth, to fuel their economies, to produce
and to sell goods and services, to build, to buy, to move, to acquire and
manufacture weapons, to win wars." 

It also forces importing nations to do business with regimes they would
otherwise condemn, and the race to the Caspian could lead the West into an
array of new strategic relationships every bit as problematic as those now
under strain in the Persian Gulf. 

Azerbaijan, key to the Caucasus and the oil-drenched Apsheron Peninsula, is
one of the most corrupt nations on earth. At the start of the 1990s its
capital, Baku, was hailed as the next Houston and enjoyed a brief boom,
depicted with surprising accuracy by Robbie Coltrane and a host of dancing
girls in 007's The World Is Not Enough. More recently, the multinationals
have been pulling out in droves rather than adapt to Baku's rising violence
and bribery. 

Kazakhstan is still run by its former communist chieftain, Nursultan
Nazarbayev, ten years after the Soviet collapse, while his three daughters
hold those levers of power that he does not. One is married to the son of
the President of neighbouring Kyrgyzstan, another to the head of
Kazakhstan's oil and gas monopoly. The third controls state TV. And
Turkmenistan has degenerated from its previous incarnation as a Soviet
Socialist Republic (something few thought possible in 1991) to a parody of a
Third-World dictatorship under the deeply eccentric guidance of Saparmurad
Niyazov, who likes to be known as "Father of all the Turkmens" and has
anointed himself President for life. 

Qualms over democracy and human rights have not impeded the hunt for oil in
the past. A more important question, as Western leaders reassess their
energy policies in the light of September 11, is whether the former Soviet
Union has enough of it. 

Broadly speaking, it does. According to figures from the US Energy
Information Administration and the London-based Petroleum Argus, the Middle
East produces about 16 million barrels of oil a day, of which Saudi Arabia
pumps 7.5 million. The US relies on the region for 2.6 million, or about a
third of its imports. 

The former Soviet Union pumps four million barrels a day, projected to rise
to seven million over the next five years and much more within a decade as
the Tengiz field and the even larger Kashagan reserves in the northern
Caspian come on stream. 

Kazakhstan, by the most conservative estimates, is sitting on more than 20
billion barrels of recoverable oil. Russia has nearly 50 billion barrels,
and exploration has barely begun in some of the remoter reaches of Siberia. 

For Putin and Nazarbayev, that is the good news. The bad news is that Saudi
Arabia's energy reserve remains the biggest and most accessible on the
planet by such a margin that it would take a full-blown revolution there to
end its dominance of Opec and the global oil business. 

"Stick a straw in the ground there, and oil gushes," says Ian Bourne, the
editor of Petroleum Argus. "Then you put it in a tanker and ship it for $2 a
barrel. It's almost as simple as that." 

At 262 billion barrels, Saudi Arabia's known reserves are still biblically
huge. Its infrastructure is so extensive that if Iraq were to shut down
production altogether, it could summon enough reserve capacity within 90
days to make up the shortfall and stabilise world prices. Over time, its
shimmering sands have yielded so many new fields that successive predictions
of a peak in production followed by decline have turned instead into a
series of peaks - a plateau, as Bourne says, with no horizon in sight. 

Iran, Iraq and Kuwait are similarly blessed. This is why, despite the
region's record of war, sanctions, ecological devastation and grotesque
abuse of human rights, most major Western oil companies were returning there
before September 11 in the hope of winning new access to old but reliable
reserves. 

Before the world changed irrevocably, Western companies were competing
fiercely for new gasextraction contracts in Saudi Arabia that they still
hope to use as toeholds in the Saudi oil business. In Iran, the prospects of
an end to the national oil monopoly's supremacy were better than at any time
since the 1979 revolution that toppled the Shah. Even Iraq looked a good
long-term bet, as pressure from Russia and elsewhere mounted for a complete
end to sanctions. 

Now Big Oil has fallen silent, sometimes to the point of hostility. No
company I phoned would comment publicly on what the war on terror might mean
for its business. Bourne says: "They're holding their breath and crossing
their fingers." One British spokesman insisted on anonymity before saying:
"Nothing will change." 

Analysts agree it is highly unlikely that Saudi Arabia will stop selling its
oil to the West, or that the West will stop buying it. Yet if nothing
changes within the world's only oil superpower, it could detonate a
demographic time bomb. The Saudi Royal Family has cleaved to power since the
1930s thanks to an unwritten social contract by which its subjects remain
politically submissive in return for free, oil-funded education and
healthcare and an average annual income of $7,000. 

That contract is crumbling. Saudi Arabia's population is young,
fast-growing, underemployed and increasingly resentful of the
institutionalised corruption that is said to siphon the revenue from 600,000
barrels of oil a day to fund the louche lifestyles of the country's 15,000
princes. 

The Saudi exchequer needs an oil price of $24 a barrel for the foreseeable
future to put the economy back on a sound footing. The price is now $19 a
barrel - barely enough to meet the country's immediate expenses and service
its debts - and Opec is loath to raise it for fear of being seen to profit
in a time of crisis. 

Next to most Middle Eastern governments, Putin's Russia is a model of
progressive development, even if the same cannot be said of his Central
Asian neighbours. He has a vision of his country as a Eurasian commercial
behemoth selling its oil to the highest bidder and earning transit fees on
most of Kazakhstan's as it flows from Tengiz to the Black Sea. In this
vision, Moscow's profits are limited only by the bore of its pipelines and
the size of tanker that can squeeze through the Bosphorus. 

There is a catch, of course. As James Bond learnt on his latest adventure,
every pipeline is a potential terrorist target. And as Hitler showed with
his murderous advance on Stalingrad - and, he hoped, the "oily rocks" of the
Caspian shore - a thriving oilfield can drive the world to war even if it is
embedded in the heart of Russia. 

It is February 2002 again. The pundits are digesting President Bush's brave
switch away from the Middle East in search of apolitical oil. They ask if he
has found the answer to America's latest energy crisis and conclude that he
has probably not, because oil, by its nature, will always be political.
Instead they paint a picture of an America turning away from oil altogether
in favour of liquefied natural gas, methanol, solar and wind power and
hydrogen, the holy grail of alternative fuels. The Wall Street Journal says
that America can lead the technological revolution that will lead the world
into the post-oil era. Al Gore, with beard, emerges from obscurity to note
that this might save the planet. This is a future that could work, the
pundits say. 

Whether Bush is the man to embrace it is another matter.

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