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US OIL DIPLOMACY - SELF-DEFEATING
                                        
By
David MacMichael
  
 
            Conventional wisdom tells us that the person in need of a particular commodity takes pains to establish friendly relations with those able to supply that commodity. One does not go out of one's way, certainly, to offend the supplier, unless, of course, one plans to and is able to take the commodity by force. With these thoughts in mind, it is interesting to look at the way the United States is approaching important current and potential suppliers of the commodity of which it is most in need to keep its economy running - oil.

            Today, the United States, like most industrialized and industrializing countries (with certain exceptions, most notably Russia), is increasingly dependent on imported petroleum and natural gas. Moreover, the United States, which until fairly recent times, through the agency of the great international oil companies, effectively controlled the international oil and gas market in informal partnership with Europe and Japan, faces increased competition for access to suppliers from the rapidly growing industrial economies of China and India. Although the existing suppliers' cartel, the Organization of Petroleum Exporting Countries (OPEC), no longer has the dominant influence over the world market it held during the 1970s, the fact is that in the field of energy today it is a seller's market. An important additional factor, absent in the 1970s when OPEC emerged, is that the American dollar - even though international oil and gas prices are still essentially denominated in dollars - has been so weakened in recent years that Washington's ability to exercise monetary control over international energy trading is significantly less than it once was. Indeed, it is a commonplace that Baghdad's decision in early 2003 to begin pricing its oil in euros rather than dollars was one of the factors, although almost certainly not the chief one, behind the Bush administration's decision to go to war against Iraq.

            Whether or not one believes that the US invasion of Iraq had, as one, at least, of its rationales a determination to take physical control of one of the major existing sources of oil in the world (taking the commodity by force from a reluctant supplier) it is hard not to conclude that the result of the invasion has been just that. It is also not at all difficult to conclude that if taking direct control of Iraq's oilfields was an objective it has been at best imperfectly achieved. The invasion and the ongoing subsequent internal war against the US occupying forces and their Iraqi collaborators - added to the damage done by the Gulf War and the succeeding decade or more of UN sanctions - has severely reduced Iraq's production of oil for the international market, exacerbating world shortages and increasing competition for the resource. This has certainly had adverse effects on the US economy,  probably unforeseen (like so many effects of the invasion) by those who devised the strategy.

            It is also true that not only in Iraq but elsewhere in the Middle East, particularly the Caspian Basin, the United States has established a significant and apparently permanent military presence. Its bases in Afghanistan and the former southern republics of the old Soviet Union are openly rationalized as necessary to protect the natural gas and oil pipelines that will, if all goes according to plan, direct the production of the region to ports controlled by the American navy.

            The old axiom holds that one resorts to military force to achieve the objective after diplomacy fails. However, in the Middle East - and elsewhere, as will be shown - the United States, in seeking to ensure its access to the sources of oil, seems to have employed force or the threat of force first and looked to diplomacy, if at all, as a secondary means of proceeding. Having invaded and occupied Iraq, disrupting and partially destroying the country's petroleum production system in the process, at least temporarily, Washington has also stimulated the latent anti-American nationalism among the Islamic peoples of the region which also bodes ill for its continued easy access to Middle East petroleum. Even in long time ally Saudi Arabia, where a visiting President Bush is currently cajoling the royal family to increase production, there is growing popular dislike of the United States - personified, of course, by Osama bin Laden's al-Quaeda. It should not be forgotten that bin Laden himself and almost all of the nineteen 9/11 attackers of the World Trade Center and the Pentagon were Saudis.

            It would seem that American policymakers, if access to oil is indeed a major concern, would have drawn the lesson from the Iraq experience thus far that military attack on and occupation of oil producing countries is both counter-productive and hugely expensive.  Yet, in its approach to at least two other important oil suppliers - Iran and Venezuela - the Bush administration continues to employ a diplomacy, if it can be called that, which seems to consist almost entirely of threats.

            In the case of Iran, a country with which the United States has refused to trade ever since the hostage situation that followed the revolution which overthrew the Shah's regime in 1978, Washington has chosen to create an international crisis over Teheran's nuclear power development program. Iran, as a signatory to the Nuclear Proliferation Treaty (NPT), has submitted itself to the inspections and regulations of the International Atomic Energy Agency (IAEA), which has concluded that Iran's energy program is legal and not a disguised nuclear weapons program posing a military menace to any of its neighbors, let alone to the United States. However, the Bush administration, in a manner almost identical to the way in which it made its false case about a non-existent Iraq nuclear weapons program, continues to threaten Iran, essentially demanding not just that it abandon its atom power efforts but that there be regime change, with its dominant Shiite clergy abandoning political control. There is no chance that either of these US demands will be met, and so the crisis continues to simmer. Credible reports in the American press speak of US covert military forces already operating in Iran and of the possibility of open US military action there sometime this summer.

            As noted, there is currently no US trade with Iran, for oil or anything else. In effect, Washington has continued to cut itself off from this important source of energy, even while it scrambles to find supplies elsewhere. In the meantime,  risking Washington's displeasure, the Europeans look to purchase Iranian oil and gas and to invest in its production. Russia, ignoring Bush administration disapproval, provides Teheran with significnt assistance in its nuclear energy program. Italy has just sent industrial investment research teams there. Most importantly, the two nations emerging as major industrial economies and consumers of petroleum - China and India - are busy cooperatively negotiating oil and gas deals with Iran, including the construction of pipelines and development of ports to get the fuel to them. Both countries, which, through recent diplomatic efforts seem to have resolved the outstanding border and other issues that have troubled their relations, have almost ostentatiously been building up their navies as an indication to the United States that they are able and determined to defend these new petroleum lifelines.

            In sum, if an important economic security consideration for the United States is to establish and maintain ready access to Middle East petroleum sources over the next few decades, its reliance on military action and threats of more have been counter-productive both in Iraq and Iran. The major beneficiaries thus far have been America's emerging Asian economic rivals, China and India.

            Closer to home, the Bush administration has also gone out of its way to worsen relations with its main Western Hemisphere oil supplier, Venezuela.  Venezuela, whose state-owned and managed oil company, Petroleos Venezelanos, provides as much as 20 per cent of US oil imports, became a sort of minor league member of Bush's "Axis of Evil" when its newly-elected president, Hugo Chavez Frias - a former army colonel - proclaimed his regime a "Bolivarian Revolution" that would transform Venezuelan society. The nation's oil wealth, hitherto controlled by and used almost for the exclusive benefit of its upper and middle classes (including the privileged workers in the oil industry) would be redirected into programs to benefit the poor who make up fifty per cent of Venezuela's 25 million people.

            This mere populism might have been tolerated by Washington, but Chavez aligned himself with the new generation of Latin American elected leaders - Luis Inacio Da Silva (Lula) of Brazil, Nestor Kirchner of Argentina, and Tabare Vazquez of Uruguay - who had all pronounced against the US initiative for the Free Trade Agreement of the Americas (FTAA) and the neo-liberal, free market policies embedded in it. This apostasy was bad enough, but Chavez then committed the unpardonable by establishing close and friendly links with Cuba. He and Fidel Castro established an arrangement by which Venezuela provides free or low cost oil to Cuba which, in return, has sent thousands of doctors, teachers, and sports trainers to work in the slums of Caracas and desolate rural villages in the country's interior.

            In 2002, it is generally acknowledged, the Bush administration, working with those elements of the Venezuelan population - the upper classes and the oil unions and elements of the military - who feared the loss of their privileged positions, arranged a coup d'etat that succeeded momentarily in toppling Chavez. However, Washington's expressions of approval were premature. A counter-coup restored Chavez. Despite the support - covert and overt - given by the US to Chavez's opponents, the Venezuelan leader survived a political recall election and subsequently was re-elected president. Through the whole period official Washington continued to denounce Chavez as a tyrant and a threat to democracy in the Western Hemisphere, charging, without any evidence that he was supporting insurgent forces in neighboring Colombia and that  purchases of small arms from Russia, as well as transport aircraft and coast guard vessels from  Spain, were indications of his aggressive intentions. In the meantime, US naval forces ostentatiously patrolled in waters off Venezuela's coast and there were indications that US intelligence agents helped precipitate a crisis with Colombia by assisting in the kidnapping from Venezuelan soil a representative of a Colombian insurgent organization. Most recently, Venezuela announced an end to existing military relations with the United States by requiring the departure of four US officers assigned to military training bases in Venezuela.  In the Middle East US tactics have intensified broad and deep hostility among the regional population. In Latin America the heavy handed approach to Venezuela is having the same effect on people there.

            Washington's tactics, not surprisingly, have started to affect its current and future access to Venezuela's petroleum. Venezuela has begun to cut back on its relations with the Houston, Texas-based CITGO chain which markets gasoline of Venezuelan origin throughout the United States. CITGO is an important employer in Houston, and Venezuela rightly believes that the current contract between Petroleos de Venezuela and CITGO is unfavorable to Venezuela. Perhaps more importantly, it has entered into a series of arrangements with China both for sales of oil and for Chinese investment in oilfield development in Venezuela. Additionally, again to the outrage of the US, Venezuela is assisting Cuba in the development of its offshore oil fields.

            So, just as with Iran, the United States is making threatening moves against another important source of future petroleum imports with which it has political and ideological differences. Again, just as with Iran, the result is that the threatened country has sought and gained alternative markets for its oil and gas.

            Whether the United States, its armed forces stretched thin in Iraq, has the capability to use military force to compel Iran or Venezuela to deliver its oil to the American market is dubious. The experience in Iraq thus far suggests that even if Washington tried to seize the oil fields of either country those fields would sabotaged or destroyed to such an extent that the prize would be next to worthless. Moreover, the international opposition that arose over the Iraq invasion would be magnified many fold should the United States try military action. And, as has been noted here, the mere threat of taking such action has enabled other consumer countries to come forward both as customers and allies of the threatened states.

            In conclusion, it is almost impossible to understand the reasoning behind the current United States policy toward Iran or Venezuela if Washington's objective is to secure sources of petroleum. Use of military force in Iraq has severely reduced the value of that country for the purpose. The threat of force against Iran and Venezuela has not only ensured that the former will continue to be denied as a source but that the latter will continue to move away from the US orbit. Both will find and favor markets for their energy resources elsewhere.

            Perhaps one answer lies in the United States' traditional propensity for demonizing certain regimes or foreign leaders and absolutely refusing to negotiate with them even when not doing so demonstrably harms larger American interests. Iran and Cuba, and now Chavez's Venezuela, fall into that category. The term for that sort of behavior is cutting off your nose to spite your face.

April 26, 2005

___
David MacMichael, PhD, is a historian and a former analyst for U.S. government agencies and lives near Washington, D.C. He is currently a steering committee member of "Veteran Intelligence Professionals for Sanity" (VIPS).

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David MacMichael/lifeinfo.de 2005.
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