That was a war between Saudi Arabia, the world's
largest oil reserve, and Iraq, arguably the world's second largest
oil reserve. Now we are fighting a war against what sometimes seems
like a virtual Saudi Arabia, and we may use Iraq to achieve victory.
But this will not be a victory over Osama bin Laden, or over
terrorism. It will be a victory over our dependence on Saudi oil,
and Russia is going to help us win it. Maybe.
It is often said that hunting down and killing
Osama will solve nothing. That after this Osama, there will be many
Osamas. This is true, but not just because of abstractions like
"poverty" or "ignorance." Osama is neither poor nor ignorant. The
reason there may be more Osamas is that there is a network that
grows them, and that network is, for the moment, indistinguishable
from the Saudi elite.
Committed to the conservative Wahhabite strain of
the Muslim faith, much of the Saudi power structure has been deeply
compromised by its support for the networks of militant Islam—how
deeply is the great mystery of this war. But when President Bush
made "You're either with us or against us" the war's mantra, he must
surely have been talking to people who never had to make the choice
before.
How deeply compromised are the Saudis? We don't
know, because our government is keeping very quiet about this. But
according to the book Ben Laden: La Verité Interdite, which
grew out of French intelligence reports (and was the subject of
James Ridgeway's November 27 column), the answer is pretty much . .
. totally.
In a chapter called "Terrorism's Banker," for
example, we learn that Osama's brother-in-law was once the biggest
private banker in the world. Until relieved of his duties in 1999,
he was also personal banker to the Saudi royal family. His name is
Khalid bin Mahfouz, and he was last seen in a Saudi military
hospital, being interrogated by U.S. officials about $2 billion gone
missing, very probably to terrorist causes.
These are not the type of people lending
institutions are comfortable doing business with. And many leading
banks have responded predictably: They have taken Bush at his word,
and declined to invest in the region. In an end-of-year prognosis
published in London's Financial Times, Arthur Andersen
partner Carl Hughes said: "The focus of the great geopolitical game
will no longer be east versus west, but north versus south. The 'war
on terrorism' will hasten this trend, slowing the reopening of the
Middle Eastern companies to western oil capital."
The power of the Saudi state, of course, rests on
262 billion barrels of oil, the largest concentration of wealth on
the planet. To do battle with that, one must do battle with OPEC,
the 13-nation cartel dominated by Saudi Arabia. And nobody can do
that better than what the oil industry calls "non-OPEC," led by
Russia, the world's second-largest oil-exporter.
The latest skirmish was occasioned by OPEC's
November 14 announcement that, in response to the continuing global
recession and the resultant fall in the price of oil, OPEC was
scheduling a cut in production for the third time last year. But
whereas non-OPEC—and especially Russia—had taken advantage of the
previous cuts to increase their global market share, this time they
were told to contribute a quarter of the planned drop of 2 million
barrels a day, scheduled for the first two quarters of 2002.
Mexico and Norway made cooperative noises. Moscow
most definitely did not. Having been asked to pony up a cut of
150,000 barrels a day, Russia offered 30,000—just enough to be
insulting. Andrei Illarionov, one of Putin's top economic advisors,
came flat out against cutting production, calling OPEC "an
unreliable partner" and "a historically doomed organization."
Eventually, a compromise was reached: Russia promised to cut
production the full 150,000, but for the first quarter only—when the
Siberian winter forces down output naturally.
The last thing the U.S. economy needs now is higher
oil prices. But the delicacy of current relations between the U.S.
and Saudi Arabia led to administration murmurs of support for "price
stability," instead of the all-out price war the Russians said they
were prepared to wage. But soon after there was a slightly different
message from America's inconspicuous but powerful secretary of
energy, Spencer Abraham. "Obviously we want stability. At the same
time, we don't want a recession that's artificially extended because
of decisions that are made with only a short-term focus."
In fact, Abraham, previously best known for his
opinion that many Department of Energy functions would be best
served by privatization, could not be more supportive of
U.S.-Russian oil initiatives. In October, for example, Exxon
exercised a previously unused option to develop Siberian oil. It's a
$12 billion investment, and will reap $35 billion in revenues over
the next three decades—and that's just the Russian share.
In this sense, Abraham's pro-Russian position is no
different from that of the rest of the administration. Despite the
abrogation of the ABM Treaty—a political embarrassment that Putin
waved away as being "of no major concern to us"—the administration
has supported Tony Blair's initiatives for the fast-track entry of
Russia into both the World Trade Organization and even, despite
Donald Rumsfeld's objections, NATO itself.
And why not? It's Statecraft 101: After World War
II, we used defeated Nazis to help us fight our former Soviet ally.
And after the Cold War, we are using the Russians in more or less
the same way against our close friends the Saudis: by rebuilding
their economy, starting with the oil business. As Secretary Abraham
put it: "Greater energy security through a more diverse supply of
oil for global markets—these are key elements of President Bush's
National Energy Policy."
The quote comes from a visit Abraham paid to Moscow
at the end of November. The ostensible and very p.c. purpose of the
visit was "strengthening standards for the protection and accounting
of nuclear materials," but the main event turned out to be the
pronouncement, from all parties concerned, that the days of
U.S.-Russian rivalry over Caspian Sea oil have finally ended.
The occasion for the lovefest was provided by the
Caspian Pipeline Consortium (CPC), whose members include
Chevron-Texaco, Arco, Mobil, Shell, and the governments of Russia
and Kazakhstan. The event they were celebrating was the inauguration
of a pipeline running from Kazakhstan's Tenghiz oil field (the
world's sixth largest) to the Russian Black Sea port of Novorossisk.
Dave O'Reilly, Chevron's CEO, used the moment to
proclaim to "the global business community that one can confidently
invest in Russia and Kazakhstan." And Secretary Abraham, with the
OPEC-Russia fracas no doubt in mind, said that "Russia is emerging
as a separate nucleus of the energy equation. We have great respect
for the energy role that Russia is playing, and we believe it will
be an expanded role in the future." The Russian press even reported
that Abraham had endorsed the idea of a "third nucleus," a channel
for ongoing consultations among non-OPEC nations (which in theory
could include the U.S.).
The CPC represents a complete reversal of the
traditional status quo on Caspian Sea oil, whose paradigm until
recently was the Baku-Ceyhan pipeline, a U.S.-backed effort to
transport oil (how much is uncertain, although the estimate has been
diminishing) an enormous distance (1100 miles) at a cost (up to $4
billion) almost double its original projection. The Baku-Ceyhan
pipeline would go from Azerbaijan (recently at war with Armenia)
through Georgia (occasionally bombed by Russia) and Armenia to
Turkey (across the Kurdish war zone)—all in the name of greater
"security." This meant the pipeline didn't pass through Russia or
Iran. And though it's been promoted for years by its main backer,
British Petroleum (BP), it has never been built.
The Russians, of course, always resented the rude
and exclusionary attitude to Caspian Sea oil represented by
Baku-Ceyhan, and boycotted it accordingly. So imagine the pleasure
felt this December in BP offices when representatives were invited
to make a presentation—to the Kremlin. If, as expected, Moscow
extends its blessing, then giant Russian oil companies like Lukoil
and Yukos will be free to invest in the pipeline, locking it into
their own extensive networks and using it to transport their own oil
to the Mediterranean—a win-win situation for everybody.
More and more in recent years, those networks have
extended to Iraq, which has long shipped its oil from Ceyhan.
Friendly relations between the two countries go back decades, and
Russia is by far Iraq's largest trading partner. It also holds $8
billion in Iraqi debt, giving it a long-term stake in Iraqi
stability. Lukoil, for example, holds rights to Iraq's West Qurna
oil field. One of the world's largest, West Qurna could eventually
pump up to a million barrels a day. So for historical and commercial
reasons, Russia has opposed the levying of further UN sanctions
against Iraq, and would like to see those in place lifted.
The sanctions have, of course, been a political and
humanitarian disaster (which Osama bin Laden has not hesitated to
exploit). Depending on whose abacus one uses, the number of innocent
children said to have died runs into the hundreds of thousands
(according to the UN) or even the millions (according to the
Iraqis).
The American and British response has been to lobby
intensively for a change in the nature of sanctions. This past
summer, they proposed to the UN Security Council the idea of "smart
sanctions," which would allow the Iraqi citizenry access to a far
greater range of goods, while clamping down more firmly on "dual
use" items with potential military applications. France,
traditionally a staunch ally of Iraq, went along with the U.S.-U.K.
proposal. Russia did not, and the long shadow of a Russian veto kept
the Security Council from voting smart sanctions into effect.
Iraq, which claims to have no more weapons of mass
destruction, is of course opposed to any sanctions, as well as to
the return of UN weapons inspectors. So in August of 2001, in clear
appreciation of Russia's backing at the UN, Iraq reassigned rights
to its oil fields at Nahr Umar and Majnoon, previously held by the
French, to Russia. Their potential is well over double that of the
West Qurna fields, which means that in a post-sanctions world,
Russia has access, from these fields alone, to more than 3 million
barrels a day of Iraqi oil. And there are others.
Russia is, by Western standards, an underdeveloped
country, with a GNP about the same size as Holland's. And it is very
unlikely that the West will ever stop buying Persian Gulf oil—there
are no known sources as cheap or as plentiful. But factoring in ever
rising output from both Russian and Caspian fields, the amount of
oil Russia can bring to market exceeds Saudi numbers (although the
quality of Russian oil is inferior to Saudi, and it costs three or
four times as much to extract). Add in Iraqi potential, and it's
roughly double Saudi Arabia's current production level of 8 million
barrels a day.
The Petroleum Finance Company, an influential
consulting and analysis firm, has devoted much study to this, and
some of it recently found an echo in The Washington Post. In
a December 23 column called "Russia Wins the War," David Ignatius
cited a PFC report and found it "obvious that Moscow is on its way
to becoming the next Houston—the global capital of energy."
On November 26—the same day Secretary Abraham took
off for Moscow—President Bush issued his famous "he'll find out"
threat to Saddam Hussein. Although the topic at the time was the
admission of weapons inspectors, it was not widely noted that four
days later, the UN Security Council was again to put the issue of
"smart sanctions" to a vote.
It never happened. The decision was tabled for six
months, because a deal had been worked out, it was reported, between
the U.S. and Russia. Both countries would come to agreement on a
list of prohibited dual-use items, to be presented to the Security
Council on June 1, 2002, at which time the whole issue of sanctions
against Iraq would be reviewed. In the meantime, Putin has been
calling on Iraq to readmit UN weapons inspectors, in the hope that
sanctions be lifted.
But whatever happens—air strikes, a new spirit of
cooperation from Iraq, nothing at all—one thing is certain. For the
foreseeable future, a resurgent Russia, America's new best friend,
will be Iraq's main partner in the oil business—Saddam or no Saddam.
or
decades, we've heard warnings that the West's overdependence on
Saudi oil could have disastrous effects were anything to go wrong in
the Middle East. But it's been a hard habit to break—the American
public's support for the 1991 Gulf War is proof enough of that.
