lUniversite dAlger le departement de economie 04 Mai

l’Universite d’Alger / le departement de economie / 04 Mai 2005 The global oil system and the new U. S. policy Thomas W. O’Donnell The University of Michigan Science, Technology and Society Program, Michigan Center for Theoretical Physics Residential College Social Science Program twod@umich. edu, http: //www. umich. edu/~twod/courses 1

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Does the U. S. have a global “empire”? Aspects of American hegemony includes: • Advanced industry & information technology • Finance & monetary – $US dollar, International Monetary Fund, World Bank, Wall Street, . . . • Trade – U. S. dominates WTO (OCM), NAFTA, … • Military – Navy & Air superiority, Army with Information technology, new methods & tactics … • Culture – global English; U. S. music, film, television, … • Science – Biology, physics, information theory, social … • … 2

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Does the U. S. have a global “empire”? Aspects of American hegemony includes: • Advanced industry & information technology • Finance & monetary – $US dollar, International Monetary Fund, World Bank, Wall Street, . . . • Trade – U. S. dominates WTO (OCM), NAFTA, … • Military – Navy & Air superiority, Army with Information technology, new methods & tactics … • Culture – global English; U. S. music, film, television, … • Science – Biology, physics, information theory, social … • Energy – Global oil and natural gas Today’s lecture: “U. S. GLOBAL OIL HEGEMONY POLICY” 3

l’Universite d’Alger / le departement de economie / 04 Mai 2005 N. B. , definitions of “hegemony”: Hegemony [Greek hegemonia , from hegemon, leader. ] Herein taken simply as: • The predominant influence, as of a state, region, or group, over another or others. The American Heritage® Dictionary, 4 th Edition © 2000 • Leadership; preponderant influence or authority; -- usually applied to the relation of a government or state to its neighbors or confederates. – Lieber Webster's Revised Unabridged Dictionary, © 1996, 1998 MICRA • The domination of one state over its allies. Word. Net 2. 0, © 2003 Princeton Respectable topic … 4

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Research program: We use “official” sources, … are widely accepted: - Energy Information Agency (EIA) of U. S. Dept. of Energy - International Energy Agency (IEA) of OECD (First World) - E. U. Directorate-General of Energy and Transportation Also … - White House Energy Report (“Cheney’s Energy Report”) - OPEC - ARAMCO - BP Data - CIA Fact sheets -… The facts … 5

l’Universite d’Alger / le departement de economie / 04 Mai 2005 HOW THE GLOBAL OIL SYSTEM WORKS: - WORLD ENERGY USE: What portion of the world’s energy is coal, natural gas, oil, nuclear, renewables? What regions of the world consume this energy---now and in the future? - WORLD RESERVES: Where is most of the oil, natural gas reserves? Quess: What is main global source? … - WORLD PRODUCTION CAPACITY: Which countries have the technology to pump the most oil? - WORLD SUPPLY & PRICE: How have global supply and price varied? Which countries have controlled the supply? (Can anyone? ) - ABOUT THE US: Domestic consumption, domestic sources, imports, dependence vs. independence, … US has the most oil-centric and auto-centric economy (least sustainable), biggest oil user! - ABOUT INTERNATIONAL ENERGY ORGANIZATIONS (IEF, OPEC, IEA, etc. ) 6

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Absolute levels shown Note: the world of electronicrevolution still depends on ancient fossil fuels (Report#: DOE/EIA-0484(2002) Relative: % projection? 7

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Oil % constant. Why? ? natural gas up, coal down Where are the resources? … Yet, little relative US ‘dependence’ … 8

l’Universite d’Alger / le departement de economie / 04 Mai 2005 FACTS NEEDED TO UNDERSTAND THE GLOBAL OIL SYSTEM: - WORLD ENERGY USE: What portion of the world’s energy is coal, natural gas, oil, nuclear, renewables? What regions of the world consume this energy---now and in the future? - WORLD RESERVES: Where are most of the oil, natural gas reserves? - WORLD PRODUCTION CAPACITY: Which countries have the technology to pump the most oil? - WORLD SUPPLY & PRICE: How have global supply and price varied? Which countries have controlled the supply? (Can anyone? ) - ABOUT US: Domestic consumption, domestic sources, imports, dependence vs. independence, … US has the most oil-centric and auto-centric economy (least sustainable), biggest oil user! - Facts about international organizations (IEF, IEA, OPEC, etc. ) 9

l’Universite d’Alger / le departement de economie / 04 Mai 2005 PRECONCITION for hegemony: …natural concentration but even more so… 10

l’Universite d’Alger / le departement de economie / 04 Mai 2005 2/3 of world reserves five countries, three very small… hegemony possible US M. East dependence has always been low … 11

l’Universite d’Alger / le departement de economie / 04 Mai 2005 “Oil-price swing states” Where is the oil? By: Matt Simmons@ Rice U. conf, 2004. Source: Professor Steven Dutch, University of Wisconsin - Green Bay. 12

l’Universite d’Alger / le departement de economie / 04 Mai 2005 FACTS NEEDED TO UNDERSTAND THE GLOBAL OIL SYSTEM: - WORLD ENERGY USE: What portion of the world’s energy is coal, natural gas, oil, nuclear, renewables? What regions of the world consume this energy---now and in the future? - WORLD RESERVES: Where are most of the oil, natural gas reserves? - WORLD PRODUCTION CAPACITY: Which countries have the technology to pump the most oil? Guess!? - WORLD SUPPLY & PRICE: How have global supply and price varied? Which countries have controlled the supply? (Can anyone? ) - ABOUT THE US: Domestic consumption, domestic sources, imports, dependence vs. independence, … US has the most oil-centric and auto-centric economy (least sustainable), biggest oil user! - ABOUT INTERNATIONAL ORGANIZATIONS (OPEC, IEA, IEF, etc. ) 13

l’Universite d’Alger / le departement de economie / 04 Mai 2005 - Biggest producers: 1. Saudi A. 2. U. S. 3. Russia 4. Iran 5 Mexico (1, 2, 3 vary) - Biggest regionally: M. East - US/Russia pump fast on small reserves Much of world reserves Source: IEA ½-depleted, but not ME. - Non-Mideast world pumps at ~max. rate (Hubbert’s Peak: by 1971 US was ½-emptied out) 14

l’Universite d’Alger / le departement de economie / 04 Mai 2005 * Saudis huge, yet 30 -40% spare Capacity < 2003 unique! *Iran now 2 nd * Iraq Source: IEA ‘could’ be a Saudi Arabia. coming global production peak exacerbates M. E. concentration 10 -15 yrs + $20 -40 billion (ref: US Council on For. Relations, pre-war report ). 15

l’Universite d’Alger / le departement de economie / 04 Mai 2005 ASIDE: US ‘Dependence’ on Mid East? ~50% US oil Imported US gets ~all Western Hemisphere’s oil exports … only 25% imports from Middle East Hence, fractional “dependence” = ½ x ¼ ~ 1/8 need means. to pump… 16

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Much of global reserves ½depleted, but not ME. -Non. Mideast world pumps at approx. max. rate Hubbert’s Peak: by 1971 US was ½-emptied out Hubbert’s ½-depletion peak Source: US Do. E 17

l’Universite d’Alger / le departement de economie / 04 Mai 2005 FACTS NEEDED TO UNDERSTAND THE GLOBAL OIL SYSTEM: - WORLD ENERGY USE: What portion of the world’s energy is coal, natural gas, oil, nuclear, renewables? What regions of the world consume this energy---now and in the future? - WORLD RESERVES: Where are most of the oil, natural gas reserves? - WORLD PRODUCTION CAPACITY: Which countries have the technology to pump the most oil? - WORLD SUPPLY & PRICE: How have global supply and price varied? Which countries have controlled the supply? (Can anyone? ) ORIGINS of GLOBAL OIL SYSTEM What is an “oil-price swing state”? … - ABOUT THE US: Domestic consumption, domestic sources, imports, dependence vs. independence, … US has the most oil-centric and auto-centric economy (least sustainable), biggest oil user! - ABOUT INTERNATIONAL ORGANIZATIONS (IEF, IEA, OPEC, etc. ) 18

l’Universite d’Alger / le departement de economie / 04 Mai 2005 -Oil disruptions major threat to US/ OECD economies But, point here is to illustrate huge role of ME in market, possibility of price ‘swing states 19

l’Universite d’Alger / le departement de economie / 04 Mai 2005 “Oil-price swing states” World Oil Market and Oil Price Chronologies: 1970 – 2003 From the Energy Information Administration IEA data Shows Special Saudi, Iranian, Iraqi, … ability (esp. since 1980 s) spike/drop global Price => OIL PRICE SWING STATES” Why price ~even from 19852000? OECD Sol’on. . 20

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Supply disruptions 1970’s, early 80’s. Urgent need for US / OECD* regain control. Two measures: 1. US (Kissinger) & G-7 responded with cartel of consuming OECD nations: The International Energy Agency (IEA) - Requires members to keep huge reserves (90 days) to neutralize Opec producers’ cartel 2. US also planned invasions. (British declassified, Feb, ’ 04) ___________ 1. Was immediately implemented, highly successful 2. Was consistent policy by Carter, Regan, Bush Sr. , Clinton, … till present neo-con occupation (see esp. David Harvey, The New Imperialism, chapt. 1. ) * OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations) 21

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Kissinger’s role … the planner and organizer of IEA / oil hegemony: * OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations) 22

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Kissinger’s role … the planner and organizer of IEA / oil hegemony: * OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations) 23

l’Universite d’Alger Kissinger assumptions correct: reserves of IEA consumers’ cartel tamed OPEC. IEA pressured OPEC to observe US/IEA price range by adjusting pumping rates. / le departement de economie / 04 Mai 2005 1980 -90’s: USdominated IEA Vs. OPEC as an antagonistic, subordinating relationship. Implied threat: …think what US could / would do militarily to OPEC / M. East over 90+ days if ever cut off oil again? ! 24

l’Universite d’Alger / le departement de economie / 04 Mai 2005 How this global system has worked. . . A. Enforcing price by negating OPEC producers’ cartel with counter cartel Balanced OPEC Made Saudis de facto US/IEA instrument via acrimonious relationship, hegemonic pressure - Used “oil price swing states”, esp. Saudis’ ~ 30% spare capacity to generally adjust world price as required. 25

l’Universite d’Alger / le departement de economie / 04 Mai 2005 How this global system has worked … B. “Cheap Oil!” key US policy, US as the global cheap-oil pusher - Price band rationale: - Low enough so alternatives uncompetitive - High enough so productive capacity maintained * - Cheap oil keeps world addicted - Remakes rivals’ economies in US economy’s image (e. g. , EU, China, India, Japan) - Other / alternative sources more expensive, technically still problematic. - Price of oil (transportation) enters into all commodities and services. An objective economic pressure towards oil. - Other reasons: automobile industry/infrastructure/tech. skills needed for military prowess (China, India); promotes consumer society. - Cheap oil ensnares all economies, the US cheap-oil pusher also protects and maintains the global system for the addicted Enforcing price … * Prince Saud repeated this price-band rationale in Wall St. Journal interview, 27 April ‘ 04 26

l’Universite d’Alger / le departement de economie / 04 Mai 2005 US as global cheap-oil pusher / hegemon But, now hegemony-system has gathering “energy” crisis … US forced to “reinvent” the system, or lose it What is this crisis which drives Washington / London? 27

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Recall: oil’s % forecasted constant natural gas up, coal down … 1 stworld efficiencies, but remainder growing … Quess: Where is the expansion? … 28

l’Universite d’Alger / le departement de economie / 04 Mai 2005 China demand huge factor … surpassed Japan ’ 03, & US by 2020 has gone auto-centric; economic & military reasons. … being reduced to historical dilemma of Japan, Germany Four aspects to US solution (an oil offensive)… very precarious choice – must import any additional oil! Middle-class sizes ~determine relative growth potential 29

l’Universite d’Alger / le departement de economie / 04 Mai 2005 1 st aspect of solution: Expand old-fashioned US “penetration” Recall where the oil is In how many countries does the US have first place? 30

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Unparalleled military-political hegemony over global oil resources USA Second aspect of solution: Increasingly U. S. Yukos/Lukoil crisis 40%Russian state income = oil$. N. B. : Putin’s measures against US ownership, contention w/ US 31

l’Universite d’Alger / le departement de economie / 04 Mai 2005 2 nd aspect of solution: Expand pumping capacity & investments everywhere: Special Saudi role: Market % growing 2 nd aspect: Spare capacity Mitigate disruption New: foreign investments forced already, under Clinton 32

l’Universite d’Alger / le departement de economie / 04 Mai 2005 3 rd aspect of solution: New means of transport crucial. Cheney says: Source: V. Pres. D. Cheny’s White House Energy Report 2000 33

l’Universite d’Alger / le departement de economie / 04 Mai 2005 4 th aspect of solution. Reinvent IEA-OPEC relationship: Entirely new level of energy globalization, of market economic-control institutions - IEA-OPEC began evolving acrimonious relationship into “collusion” of the willing under Clinton’s Sec. of Energy, Bill Richardson. - Collusion/co-operation - OPEC ‘gave up, ’ formed: 1. joint IEF in early-1990 s, 2. IEF Permanent Secretariat, May 2003, in Riyadh 34

l’Universite d’Alger / le departement de economie / 04 Mai 2005 4 th aspect of solution. Reinvent IEA-OPEC relationship: - IEA-OPEC evolving acrimonious “hegemony” relationship into “collusion” of “the willing” hegemony. (WSJ July 29, 2003, p. 1 A) - Finally, OPEC formally ‘gave up’ colluding in joint IEF in 90 s, and now the “standing” IEF Permanent Secretariat, May 2003, in Riyadh - But, European and Russian consternation: Note: the US dominates the IEA … subordinates EU within it … US is ‘ protector’ (alpha-male) within the IEA developed-states’ cartel: “Some in the West fear the IEA is getting too close to OPEC. The European Union's energy chief, Loyola de Palacio, is pushing for creation of additional oil stockpiles that Europe could use to drive down prices if it felt this was necessary but the IEA said no. (The IEA -- in keeping with the free-market thinking of its dominant member, the U. S. -- can't use the oil to manage prices. ) ‘We need to be masters of our decisions, ’ says Gilles Gantelet, a spokesman for Ms. {Loyola de) Palacio. …” (ibid, WSJ. Emphasis Added, T. O’D. ) 35

l’Universite d’Alger New IEF “Permanent Secretariat” In Riyadh / le departement de economie / 04 Mai 2005 US, EU, IEA, OPEC and oil majors, all joined, enthusiastic for this Its rules, structure and mission are being worked out Parallel government & corporate tanding committees Required oil investments require transparency--first step was unified global data. This is major new level of energy-globalization. It is a new, global ‘economic-control institution. 36

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Aside: The Wall Street Journal says … 1. Calls OPEC the oil producers’ cartel, and IEA the oil consumers’ cartel. 2. Laments they now “collude” through the new, joint, IEF: the International Energy Forum, -to keep prices in IEA/US dictated range. (Formalizes US ‘arrangement’ with SA. ) Before both Iraq invasions they “colluded” to stabilize prices on threat of IEA-reserve release, i. e. : MANAGEMENT of global system falls to hegemonic power. “They're currently at the high end of the cartel's range: about $27 for the OPEC benchmark and $30 for the U. S. standard. …” “To some on both sides, the message in such volatility (1998 & 2000 price swing) was clear: The IEA and OPEC needed to make peace, to avoid future radical fluctuations. Price stability appeals to both consuming nations and producers, because it permits confident business planning. It also averts both the ultra low prices that can stop investment and the ultra high prices that can fuel alternatives to oil. ” (WSJ, ibid. emphasis added -T. O'D. ) 3. Avoiding development of alternative fuels is crucial. Like a methadone, alternative fuels might free oil-addicted states from the US pusher, end the whole oil-hegemony game … but why was war launched in 2003 …immediate reasons? 37

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Why seized Iraq now? 1. Immediate reasons Mainly about “Central bank of oil” … Saudi Arabia Crisis in Saudi Arabia pre- and post-9 -11 threatened the entire US oil system. _____ • Wolfowitz: US withdrew troops from SA to diminish tensions. This “really best reason” for the war, not the “bureaucratic excuse” of WMD. (Vanity Fair, July 2003). Walter Russell Mead, Sr. Fellow on Foreign Relations, Brookings, says same thing (C-Span, Wash. Journal, 27 Aug 93) “The ruling family” according to Saudi officials, “could more easily sell potentially unsettling reform if it appears to be less dependent on the Americans” (NYT, Eric Schmidt, “US to Withdraw All Combat Units from Saudi Arabia”, April 30, 2003). Mo Mowlan also says due to S. Arabian instability (Guardian, Op. Cit. T. W. O’Donnell, Agenda, “Why Bush Jr wants war, a crisis about Saudi Arabia” ** Since Iraqi war “Anti-American sentiment is pervasive now … these feelings represent a sea change. ” in Saudi Arabia. Saudi American relationship started to take a potentially irreversible plunge with the Sep. 11 attacks…” (NYT, Sarah Kershaw, US-Saudi Ties Frayed Over Mideast Tensions, April 30, 2003) 38

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Why seized Iraq now? 2. Long-term reasons: Make Iraq 2 nd-largest ``oil-price swing state'‘ - Will take 8 -10 years to build up the Iraqi potential to be another Saudi Arabia - Plan for $40 b in modernization/expansion of Iraqi production. SEE - Does NOT require “democracy”, though would be preferable. … just obedience to US / IEA pumping-rate & price bands 39

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Cumulative Investments (billion $US) Why seized Iraq now? 2. Long-term reasons: 2030 2020 2010 Production (million barrels/day) Restoration of production capacity IEA Reference Scenario Slow production expansion Rapid production expansion Very similar graphs were made by: Council on Foreign Affairs pre-invasion commission; (included later occupation official Jas. Garner, …) another by PFC Energy consultant at Rice University (Huston) conference, in talk on “Oil Hegemony” 40 (Source: IEA Energy Investment Conf. late ‘ 04)

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Why seized Iraq now? 2. Long-term reasons: Best Case Scenarios This model assumes that there will be no commercial or logistical constraints on companies. In other words, within 12 to 18 months contracts would be signed and companies would find the necessary equipment to ramp up operations in an aggressive manner Source: Fareed Mohamedi, Chief Economist, PFC Energy “The Geopolitics of Energy to Energy and Nanotechnology Conference, Houston, Texas May 3, 2003

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Conclusions – The Global Oil Hegemony System: Classic imperialist war/offensive to control the most important resource. Requires oil addiction, which requires cheap oil, which requires expanding world production by 2/3 to offset Chinese demand from driving prices up; which requires massive private investment everywhere. And US didn’t trust Hussein with new $billions and hand on “global spigot. ” 42

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Conclusions – The Global Oil Hegemony System : Classic imperialist war/offensive to control the most important resource. Requires oil addiction, which requires cheap oil, which requires expanding world production by 2/3 to offset Chinese demand from driving prices up, which requires massive private investment everywhere, and didn’t trust Hussein with new $billions and hand on spigot. Not mainly for own use, but for hegemony over main US-rival economies: EU, Japan, China (i. e. , very oil-poor consuming states). U. S. is the most energy-self-sufficient big power. 43

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Conclusions – The Global Oil Hegemony System : Classic imperialist war/offensive to control the most important resource. Requires oil addiction, which requires cheap oil, which requires expanding world production by 2/3 to offset Chinese demand from driving prices up, which requires massive private investment everywhere, and didn’t trust Hussein with new $billions and hand on spigot. Not mainly for own use, but for hegemony over main US-rival economies: EU, Japan, China (i. e. , very oil-poor consuming states). U. S. is the most energy-self-sufficient big power. Rationalizes, explains seeming illogical/irrational consequences: - War, misery in producing nations, ignoring depletion of oil - Refusal to fight global warming, pollution, build mass transit, … 44

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Conclusions – The Global Oil Hegemony System : Classic imperialist war/offensive to control the most important resource. Requires oil addiction, which requires cheap oil, which requires expanding world production by 2/3 to offset Chinese demand from driving prices up, which requires massive private investment everywhere, and didn’t trust Hussein with new $billions and hand on spigot. Not mainly for own use, but for hegemony over main US-rival economies: EU, Japan, China (i. e. , very oil-poor consuming states). U. S. is the most energy-self-sufficient big power. Rationalizes, explains seeming illogical/irrational consequences: - War, misery in producing nations, ignoring depletion of oil - Refusal to fight global warming, pollution, build mass transit, … The fight for peace and against wars of aggression should be seen as one with the struggle to defend the global environment* 45

l’Universite d’Alger / le departement de economie / 04 Mai 2005 Conclusions – The Global Oil Hegemony System : Classic imperialist war/offensive to control the most important resource. Requires oil addiction, which requires cheap oil, which requires expanding world production by 2/3 to offset Chinese demand from driving prices up, which requires massive private investment everywhere, and didn’t trust Hussein with new $billions and hand on spigot. Not mainly for own use, but for hegemony over main US-rival economies: EU, Japan, China (i. e. , very oil-poor consuming states). U. S. is the most energy-self-sufficient big power. Rationalizes, explains seeming illogical/irrational consequences: - War, misery in producing nations, ignoring depletion of oil - Refusal to fight global warming, pollution, build mass transit, … The fight for peace and against wars of aggression should be seen as one with the struggle to defend the global environment* 46

l’Universite d’Alger / le departement de economie / 04 Mai 2005 The end (No, Iran …) 47