Oil And Politics

From The World Oil Politics of the Libyan Revolt

A first class look at the issue, the politics, consequent death and destruction is at The Great Game in the Holy Land

 

The World Oil Politics of the Libyan Revolt

Posted on 02/28/2011 by Juan
The question of what comes after Qaddafi became more complicated on Sunday, as rival claims to forming a provisional liberated government emerged. Former Justice Minister Mustafa Abdel-Jalil had announced on Saturday from Benghazi that he would head an interim government. But on Sunday human rights attorney Abdel-Hafidh Ghoga said from Benghazi that an interim government was being formed for all of liberated eastern Libya, and disputed Abdel Jalil’s claim of leadership. The new council will form a paramilitary to take further territory away from Qaddafi’s forces, Ghoga said.

Some 80% Libya’s developed petroleum fields are in rebel-held territory, and the Benghazi leadership is making plans to pump the oil and receive the proceeds. If the standoff with Qaddafi goes on very long, the oil politics could prove decisive. With Qaddafi’s own foreign funds increasingly frozen, and 3/4s of the country’s oil facilities idled (it ordinarily exports 1.7 million barrels a day), his cash on hand to pay mercenaries and bribe clients will rapidly decline, whereas the Benghazi rebels may reap a windfall. Reports about the situation at the oil fields are chaotic and contradictory, but it seems clear that some oil workers are pumping the oil themselves as expatriate companies flee, and it is possible that the Benghazi leadership could export by tanker truck despite the closing of the Italian pipeline.

The oil politics could also provoke NATO or other intervention. Although Saudi Arabia is pumping extra petroleum (500,000 barrels a day), it is probably not actually replacing what has been lost from Libyan production. Brent crude hit $114 a barrel on Sunday. The world is skating on the edge of petroleum prices so high that they could push the global economy back into recession. Will NATO governments really risk taking a bath in their next elections because they declined to implement a no-fly zone over Libya and bring a quick end to what is for them not only a humanitarian crisis abroad but also a potential oil crisis at home?

CBS Money Watch has a report:

The Effect of Libya and Gas Prices on the Recovery

More production may be lost, as unrest spreads in the Middle East. Iraq’s massive protests this weekend were followed by an attack on the refinery at Baiji, which closed it. The plant has a capacity of between 150,000 and 300,000 barrels a day (you see varying estimates). The spread of the protests to Oman, moreover, raised ominous questions about how much production may be lost. Not only have petroleum workers in the port of Sohar demonstrated, with 2 protesters killed, but they targeted the road used by tanker trucks. (They so far haven’t had an impact on pipeline exports, the bulk of them.) Workers in the Gulf unhappy with their lives, unlike Wisconsin school teachers, can fairly easily disrupt the economy if they choose.

Oman

Oman

Oman pumped some 860,000 barrels a day in 2010 and exported about 750,000 of it. If most Libyan production goes off line and Oman is similarly crippled, that would be a loss of about 2.5 million barrels a day– nearly 3% of the 85 million a day the world typically consumes, which is probably all the Saudis could cover even if they were willing and able to ramp up production that much for an unknown period of time. (Some critics question whether the Saudis can really pump that much extra petroleum for very long without putting strains on their equipment and infrastructure). Although a loss of 3% of export capacity may not seem very much, actually in a market where supply was just barely meeting demand, the loss could cause prices to skyrocket (especially because of the atmosphere of uncertainty the losses could provoke). The big kahuna would be disruptive protests in Saudi Arabia itself, which would certainly cause a global economic crisis.

Quite apart from production, a lot of petroleum refining is done in the Middle East, and were the world’s refining capacity to be reduced that might be more significant for supplies and prices than merely taking crude off the market temporarily. Oman, for instance, refines 200,000 barrels a day. Refineries take years to build and billions in investments. Raw petroleum is useless– it has to be turned into gasoline/ petrol, kerosene, etc., to drive vehicles– its main use. Increasing refining capacity is not nearly as easy to do in the short term as just pumping more crude.

So back to Libya. In newly liberated Zawiyah, half an hour drive west of the capital of Tripoli, rebels displayed their heavy weaponry– including tanks and artillery– to Western reporters and underscored their intent to take on Qaddafi’s forces. The Zawiyah liberation movement appears to be coordinating with Benghazi, now the epicenter of revolutionary politics. The city is significant because it is the site of Libya’s largest refinery.

Aljazeera English has video of Zawiya:

The dispute between Abdel Jalil and the Benghazi liberation council may signal more trouble ahead. Given that the former Tunisian prime minister, Mohamed Ghannouchi, has just been forced to resign because he served in the old, overthrown government, Abdel Jalil’s move was probably inadvisable. Even though Abdel Jalil was the first cabinet minister to resign in disgust at Qaddafi’s brutal use of force, and even though he offers some continuity at a time of upheaval, having a Qaddafi cabinet minister, especially one who had oversee Libya’s corrupt and oppressive ‘justice’ system, try to run the country now would be a recipe for further protests and upheavals. The rebels are talking about parliamentary elections within three months, which is, frankly, probably unrealistic. The pledge underlines the need for the United Nations to get officials into Benghazi to consult with the revolutionary notables about how to go forward, since the UNO has a lot of experience in these matters, which, to say the least, the leading lights of Benghazi do not.

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Rudolph: Can You Pass The Saudi Arabia Quiz?

Posted on 02/28/2011 by Juan

Jeffrey Rudolph writes in a guest column for Informed Comment

Saudi Arabia, an Islamic absolute monarchy, has enjoyed extremely close relations with the United States, a constitutional republic. This relationship highlights the gross hypocrisy of US foreign policy: fundamentalism and dictatorship in the Arab world is only condemned when it comes garbed in anti-Americanism. In fact, Saudi Arabia makes Iran—the target of sanctions and regime change by the US for over 30 years—look relatively progressive.

 

The US and Saudi governments have had a clear long-term agreement. The Saudis agree to supply oil in accordance with US needs and to reinvest the resulting revenue in US assets and arms. In return, the US provides protection to the Royal family regardless of its internal repression and extremist ideology. While mutually beneficial, this compact is also the source of one of Saudi Arabia’s great contradictions: The Saudi kings depend for their security on a country widely reviled in the Arab world as Israel’s protector.

 

Contradictions run deep in Saudi Arabia. Attempts at domestic reform have been confronted with state-sponsored extremist preachers—in fact, Saudi kings have, on occasion used their power to protect “progressives” from harsh Saudi judges. While in the foreign policy realm, uneven state support of confrontational policies concerning Iran have been coupled with attempts to moderate US belligerence in Iraq and Palestine.

 

The following quiz is an attempt to supplement the rather shallow coverage of Saudi Arabia provided in the mainstream media.

 

The Saudi Arabia Quiz

 

1. Which Middle-East country has been the US’s oldest ally in the region?

 

-Saudi Arabia. In 2008, Saudi Arabia celebrated “the seventy-fifth anniversary of U.S.-Saudi diplomatic relations, which had started with the signing of the oil contract in 1933.” President Bush attended the celebration—flying to the Kingdom after attending celebrations in Jerusalem to mark Israel’s sixty years of existence since 1948. “Abdullah took some delight in the comparative longevity of the two anniversaries, cupping his palms open in front of him, as if weighing the relative poundage of sixty or seventy-five years of friendship in the scales.” (Robert Lacey; Inside The Kingdom: Kings, Clerics, Modernists, Terrorists, and the Struggle for Saudi Arabia; Viking; Toronto: 2009; p. 301.)

-“In May 1933, Ibn Saud granted Standard Oil of California an enormous petroleum concession for less than $200,000 [a great bargain]… Later, in the early 1940s, the California-Arabian Standard Oil Company (a consortium that became known in 1944 as the Arabian American Oil Company, or Aramco) convinced President Roosevelt to help the king by including the kingdom in the lend-lease aid program.” (Juan Cole; Engaging The Muslim World; Palgrave Macmillan; New York: 2009; p. 86.)

-“[O]il is not the whole story [of US interest in Saudi Arabia]: Saudi Arabia is also important because of its strategic location. Lend-Lease was extended to the nation in 1943 in exchange for permission to build and utilize an air force base in Dhahran. The location of this base later made it a useful tool for the Americans during the cold war. … The official relationship was launched at the highest level in the most dramatic of circumstances: at President’s Franklin Roosevelt’s post-Yalta meeting with Ibn Saud. … [W]ildly different notions of how the world worked…[did not] get in the way of the main bilateral issue: Saudi oil supply and American security guarantees for the kingdom.” (Stephen P. Cohen; Beyond America’s Grasp: A Century of Failed Diplomacy in the Middle East; Farrar, Straus and Giroux; New York: 2009; pp. 94-95.)

-The following link has a picture of the February 14, 1945 “landmark meeting between King Abdulaziz of Saudi Arabia and U.S. President Franklin D. Roosevelt onboard the U.S. Navy cruiser Quincy in the Great Bitter Lake segment of the Suez Canal. The…meeting was the first face-to-face contact between top American and Saudi leaders and served as the foundation for the longstanding relationship between Washington and Riyadh.”: “King Abdulaziz and President Roosevelt Meeting

 

2. Who stated the following in 1945?: “I’m sorry, gentlemen, but I have to answer to hundreds of thousands who are anxious for the success of Zionism. I do not have hundreds of thousands of Arabs among my constituents.”

 

-Harry Truman: President of the United States, 1945-1953.

-The above quote was stated by Truman at a “meeting in Washington with William Eddy, the U.S. chief of mission in Saudi Arabia, and with other U.S. diplomats to the major Arab countries. There had been widespread anger in the Arab world at the favor that America was showing toward the Zionist effort to create a Jewish state in Palestine, and the diplomats had been assembled to explain the reasons for Arab opposition. But nothing he heard appeared to change Truman’s mind. … Truman was not quite correct. The U.S. Census of 1940 showed 107,420 individuals classified ‘white’ who gave their ‘mother tongue’ as Arabic, and census analysts reckon the real count of Arab-Americans at three times that. But the president’s political point remained. By the 1940s the Jews were organized politically in America in a way that the Arabs never were… Today [2009] there are some 3.5 million Arab-Americans (a good number of them Christians), and their political clout does not begin to match that of the 6.4 million U.S. Jews. Following the hard-fought creation of Israel in 1948, every successive crisis in the Middle East would increase pro-Israeli feeling inside America—and then came the emergence of so-called Christian Zionism in the 1980s. Popular evangelists like Jerry Falwell and Pat Robertson preached that the return of the Jews to the Holy Land had happened in accordance with biblical prophecy—‘to stand against Israel is to stand against God,’ proclaimed Falwell in 1981.” “America was the ‘far Satan,’ in Osama’s eyes, because it was the patron and supporter of the Al-Saud, the ‘near Satan’ that was the ultimate target. … [F]ew Americans could see that it was through the selection of contradictory friends [i.e. Islamic extremists in Afghanistan and allying with the House of Saud while also supporting Israel at the expense of Arabs] that their successive governments had picked themselves this lethal foe.” (Robert Lacey; Inside The Kingdom: Kings, Clerics, Modernists, Terrorists, and the Struggle for Saudi Arabia; Viking; Toronto: 2009; pp. 216-7 and 228.)

-The culmination of one-sided U.S. support for Israel was the Bush Jr. administration. One of its earliest and most warmly welcomed guests was Ariel Sharon, the hardline enforcer of Greater Israel.

 

3. What was Saudi Arabia’s military expenditures for 2009 (in US dollars)? What was Israel’s?

 

-Saudi Arabia’s military expenditures: $39 billion. (Source here.)

-Israel’s military expenditures: $14 billion. (Source here. )

 

4. Why, despite spending billions on military equipment, is the Saudi state unable to defend itself?

 

-“Even after Saudi oil was fully nationalized in 1980, Washington’s politico-military elite maintained their pledge to defend the existing Saudi regime and its state whatever the cost. Why…could the Saudi state not defend itself? The answer was because the Saud clan, living in permanent fear, was haunted by the spectre of the radical nationalists who had seized power in Egypt in 1952 and in Iraq six years later. The Sauds kept the size of the national army and air force to the barest minimum to minimize the risk of a coup d’état. Many of the armaments they have purchased to please the West lie rusting peacefully in desert warehouses. For a decade and a half in the late 1970s and ‘80s, the Pakistan army, paid for by the Saudi treasury, sent in large contingents to protect the Saudi royal family in case of internal upheavals. Then, after the first Gulf War, the American military arrived.” (Tariq Ali; The Duel: Pakistan on the Flight Path of American Power; Scribner; New York: 2008; p. 265.)

-“Relatively small in number, in order to minimize the domestic risk of a republican coup d’état of the kind that brought down monarchies in Egypt, Iraq, and Libya, it [the Saudi military] is impressively armed with equipment bought at prohibitive prices in what has proved to be a bonanza for Western cannon merchants. Thus, for a population four times the size of that of neighboring Jordan, the Saudi kingdom has barely twice as many personnel in its armed forces, but it spends thirty-three times what the Hashemite kingdom spends on its own military budget. … Much of Riyadh’s most advanced weaponry is ‘pre-positioned’ so as to be available for eventual use by the U.S. troops… It is an open secret that the huge airport at Jeddah is not designed merely for the transit of pilgrims to Mecca.” (Gilbert Achcar; Eastern Cauldron: Islam, Afghanistan, Palestine, and Iraq in a Marxist Mirror; Monthly Review Press; New York: 2004; pp. 71-72.)

-“The original function of the [Saudi National] Guard was to enlist the loyalty of the tribes to protect the royal family against any threat… The Guard was founded at a time of suspected military coups, so its first bases were sited close to Riyadh and the major cities. The idea was that the Guard could block hostile forces coming from the more distant army and air force bases on the borders. Its anti-aircraft weapons were designed to shoot down Saudi fighter planes. Its antitank rockets had to be good enough to take on the Saudi Army.” (Robert Lacey; Inside The Kingdom: Kings, Clerics, Modernists, Terrorists, and the Struggle for Saudi Arabia; Viking; Toronto: 2009; p. 184.)

-Note that the respective populations of Israel and Saudi Arabia are 7.6 million (75% are Jewish) and 25.7 million (including 5.6 non-nationals). Therefore, Saudi Arabia has the population to more than match Israel’s military.

 

5. Which country is the largest provider of crude oil to the US?

 

-Canada. “The top five sources of US crude oil imports for November [2010] were Canada (1,975 thousand barrels per day), Mexico (1,229 thousand bpd), Saudi Arabia (1,119 thousand bpd), Venezuela (884 thousand bpd), and Nigeria (806 thousand bpd).” Source here.

-While the US does not rely on Saudi oil, according to Noam Chomsky "What has been central to [US] planning [concerning Middle East energy resources] is control, not access, an important distinction. The United States followed the same policies long before it relied on a drop of Middle East oil, and would continue to do so if it relied on solar energy. Such control gives the United States 'veto power' over its industrial rivals, as explained in the early postwar period by influential planners, and reiterated recently with regard to Iraq: a successful conquest of Iraq would give the United States 'critical leverage' over its industrial rivals, Europe and Asia, as pointed out by Zbigniew Brzezinski, an important figure in the planning community. Vice President Dick Cheney made the same point, describing control over petroleum supplies as 'tools of intimidation and blackmail'—when used by others. He went on to urge the dictatorships of Central Asia, Washington’s models of democracy, to agree to pipeline construction that ensures that the tools remain in Washington’s hands." (Source here.)

-The issue of “control of oil” is fundamental. It is why the US accepts Saudi Arabia being China’s principal supplier of crude oil and why it accepts Russia-Saudi joint ventures connected to oil.

-Saudi Arabia has the world's largest oil reserves and is the world's largest oil exporter. Oil accounts for more than 90% of exports and nearly 75% of government revenues, facilitating the creation of a welfare state. (Source here.)

 

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Bahrain: US Naval Base or Iranian Asset?

Posted on 02/16/2011 by Juan

What is at stake for Americans in the Bahrain unrest?

1. Bahrain is a major center for the refining of crude petroleum, refining some 270,000 barrels a day. This amount is not large, but given tight petroleum supplies and a price of over $100 a barrel for Brent Crude, an outage there would certainly put up world prices.

2. Bahrain hosts a naval base for the US Fifth Fleet, important to the US security architecture for the Persian Gulf (the Arabs say Arabian Gulf). Nearly 2/3s of the world’s proven petroleum reserves and 45% of the world’s natural gas reserves are in the Gulf region.

3. Bahrain is an important finance center.

The Shiite majority is attempting to assert itself there. A Shiite-dominated government in Bahrain might well demand a closure of the US naval base. It would not be an Iranian puppet, insofar as Arab Shiites are jealous of their independence and most Bahraini Shiites don’t follow ayatollahs; but it would certainly have warm relations with Tehran. A Shiite victory there would politically embolden other Gulf Arab Shiites, in Kuwait, Saudi Arabia, and the United Arab Emirates (Shiites are a minority in all three). Insofar as Iran enjoys soft power with the region’s Shiites, the net result would certainly favor Iran and at least somewhat disadvantage the United States, which already shot itself in the foot by helping install a Shiite government in Baghdad that has excellent relations with Iran. For the Bahrain government to become more democratic and more Shiite-influenced would annoy the Wahhabi Saudi state, which now sees the Sunni Bahraini king as a strategic asset.

Persian Gulf

Gulf

Thousands of Shiite demonstrators came out yet again in Bahrain on Tuesday. They are demanding that prime minister Sheikh Khalifa bin Salman Al Khalifa step down. An uncle of the king, Sheikh Khalifa has been appointed PM for four decades. The Shiite protesters want an elected prime minister who would reflect their demographic dominance.

The killings of two demonstrators, one on Monday and another on Tuesday, have helped to galvanize the crowds. In an unusual concession, the king, Hamad Al Khalifa, apologized Tuesday for the deaths and promised that the shooters would be brought to justice.

The demonstrators thronged into the downtown Pearl Roundabout, and some are insisting on spending the night there. The main Shiite political party, with 18 seats in the lower house of 40 seats, is Wifaq. It suspended its participation in parliament on Tuesday in protest against the killings of the two demonstrators.

Bahrain has a little over 1.2 million people, of whom 54 percent are expatriate guest workers, nearly half of them from India. I can remember, on the occasions I was in Manama, the way signs in Malayalam festooned the market and the money-changer stalls. The other 568,000 are Bahrainis. Of these, social scientists think about two-thirds, or about 374,000, are Shiites. In turn, about 100,000 of these are Ajamis, i.e. Shiites of Iranian heritage who are now Arabs. The rest are Baharna or indigenous Bahraini Shiites, who mainly adhere to the conservative Akhbari school that does not believe in following ayatollahs. Many of them live in rural villages outside the capital.

The other 187,000 or so are Sunni Bahrainis, the community to which King Hamad Al Khalifah belongs. He has reigned as king since 2002 (having come to power as emir in 1999).

Bahrain

Bahrain

In the Gulf, typically guest workers cannot vote and don’t have permanent residency or a path to citizenship, though it is rumored that the Sunni monarch, King Hamad Al Khalifa, has bestowed Bahraini citizenship on some expatriate Sunnis in a so far vain attempt offset the indigenous Shiite majority.

The Bahrain constitution lets the Sunni king appoint the 40 members of the upper house of parliament. The lower house also has 40 members, and in the 2010 election only 18 of them were captured by the Shiite religious party, Wifaq, led by cleric Ali Salman. The other 22 went to Sunnis of various stripes.

Ali Salman

Ali Salman

So, in a country where citizens are probably two-thirds Shiite, Shiites have little representation in the senate and are a minority even in the elected lower house. Not only can the Sunni-dominated upper house veto measures passed by the lower house, but the king himself can veto legislation at will and can prorogue parliament whenever he likes.

Many Shiites in rural areas are poor, despite Bahrain’s riches, derived from its small petroleum industry, its vital finance sector, and strategic rent from the US for the US naval base for the Fifth Fleet. Wifaq not only seeks more equitable representation for the Shiite majority but also a better economic deal for the poor.

Aljazeera English has video on Bahrain:

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Pressman: The Cyclical vs. the Fundamental in U.S. Policy

Posted on 02/02/2011 by Juan

Jeremy Pressman writes in a guest column for Informed Comment

The Cyclical vs. the Fundamental in U.S. Policy: Suddenly both are in flux

If you run Washington, how best to maintain the flow of Persian Gulf energy supplies at a reasonable price, protect Israel, and – choose your era – block the Soviets or undermine al-Qaeda? While U.S. policy on the Gulf side of the Mideast has long been fluid and ever-changing, the Egyptian protests have suddenly challenged a different and seemingly fixed guideline: Washington can rely on pro-U.S. dictators and not push hard for democratic regimes.

U.S. Gulf policy has been in constant flux, moving between self-reliance and reliance on some combination of Iran, Iraq, and Saudi Arabia: The two pillars in the 1970s (Iran and Saudi), the Rapid Deployment Force and U.S. CENTCOM, the tilt to Iraq during the Iran-Iraq War, Operation Desert Shield/Storm, dual containment, alliances with the Gulf Cooperation Council states, and regime change in Iraq culminating in the 2003 invasion. Of course such shifts were not random but rather often came about as a response to events like the Iranian revolution or the Iraqi invasion of Kuwait.

What is the right analogy for this aspect of U.S. Gulf policy? Maybe it is like a mountain climber on Mt. Everest. After each tough section, the climber reaches the next camp and rests. Sometimes there are moments of stability. But come morning, the climbing party will have to set out again. Nothing stays calm for long and it could all fall apart whether due to one’s own shortcomings or larger factors beyond one’s control (see Into Thin Air.

Yet in contrast, the U.S. approach across the entire Mideast has been straightforward and stable: being pro-American trumps being democratic. Insert Mubarak’s Egypt, the al-Saud dynasty, the Hashemites in Jordan or the like. Even George W. Bush, despite protestations to the contrary now by his acolytes], never pressed Saudi hard and let things slide with Egypt by the second half of term two. Bet on the stability of autocrats rather than the complexity of democracy. As time went on and the U.S. face (and aid) was so intimately tied to these regimes, the odds that democracy might unleash anti-American or, at a minimum, neutral politics increased.

Thus, what we have witnessed in the last decade has largely been unsettling and familiar until Tunisia and Egypt. The United States invaded Iraq with an insurgency supplanting rose petals. Iran sought to fill the power vacuum as it meddled in Iraq, pushed nuclear research, rhetorically attacked Israel, and continued siding with Hamas, Hizbollah, and other U.S. rivals. In short, U.S. Gulf policy was again in shambles with the U.S. ally (post-Saddam Iraq) in turmoil and the U.S. adversary (Ahmadienjad’s Iran) seemingly ascendant. Back to the drawing board – AGAIN! – on the Gulf.

But what Tunisia and Egypt have challenged is the enduring guideline of U.S. foreign policy, that while theoretically risky, endless short-term commitments to autocrats would never come unraveled. (A bet, by the way, that the United States has made many times in many countries around the world.) Suddenly, there is a hint of democracy, the possibility that Arab leaders and parties who express popular preferences will not only emerge but also create space between their foreign policies and U.S. foreign policy.

This hint of democracy is a double threat for Washington. It means dictators will not last forever, and it means democrats, should they follow, may not be reflexively pro-American (what should be an obvious point when they replace a pro-American, anti-democrat). I would agree that the general concern about the changing balance of power in the Gulf since 2003 and what that means for the region is important to consider. But I would also suggest it is part of the cyclical U.S. challenge of advancing its interests in the Persian Gulf. It has been decades of ups and downs. In contrast, Tunis and Cairo shake up the static part of U.S. policy in a fundamental fashion and challenge – or possibly force – Washington to engage in a fundamental rethink.

Jeremy Pressman
Alan R. Bennett Honors Professor
Associate Professor
Department of Political Science
University of Connecticut

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