Socialist Worker

What's fuelling crisis over oil?

Issue No. 1905

Hysteria gripped the press last week over rising oil prices and the prospect of new fuel protests. JOSEPH CHOONARA looks at the politics behind the panic

A RISE in oil prices doesn't just have an impact at the petrol pumps. The effects on the Third World are far more devastating. Across Africa and Latin America millions of people will suffer as heating and cooking fuel costs rise and the price of food shoots up.

This means more disease, starvation and death for people who are already living on the brink. If the price of oil stays high, it will force some governments to borrow billions more from the World Bank and IMF to meet the rising cost of imports.

All this is a far cry from a year ago, when 'experts' predicted the war in Iraq would solve problems over oil. A year ago the Financial Times revealed what the war was really about. 'The US and UK's early achievements have made a significant dent in the price of oil, with traders expecting a short war that will do little more than temporarily halt Iraq's 2.5 million barrels a day of oil production,' said the paper. Oil prices plummeted to just $27.20 a barrel.

Yet today the chaos caused by the war and occupation, and the attack on the residential compound in Saudi Arabia, were enough to send the price of crude oil rocketing to more than $42 a barrel. The world's rulers are in a state of panic. The Economist magazine reported, 'If oil is only $10 a barrel higher than it would otherwise have been, and stays there a while, prices in general will rise, outputs and incomes will be reduced, and unemployment, at least for a while, will be raised. That vicious combination of higher inflation and lower growth-stagflation, to recall a term from the 1970s-is about the worst scenario an economic policy maker can contemplate... Make no mistake, oil still matters.'

The ruling classes remember that the 1973 war between Israel and Egypt saw oil prices quadruple. The worldwide economic slump that followed had deeper underlying causes, but spiralling oil prices were the immediate trigger. The rising price of oil was also a factor in the global recessions of the early 1980s and early 1990s.

Alexander Cockburn wrote in the US radical newsletter CounterPunch in January about connections between the war in Iraq and oil. 'One particular National Security Council document told 60 Minutes' vast audience the attack on Iraq was not about national security in the wake of 9/11,' he said. It was not about weapons of mass destruction. It was not about Saddam Hussein's possible ties to Osama Bin Laden. It was about stealing Iraq's oil, the same way the British stole it three quarters of a century earlier. The major oil companies drew up the map, handed it to their man George, helped him steal the 2000 election and then told him to get on with the attack.'

The war was also about more than oil. The wider US ruling class would not allow Bush to launch a costly and hazardous war simply to boost the profits of Chevron and Halliburton. Access to oil is of central importance to the whole economy. The US is self sufficient in, or able to produce synthetic substitutes for, almost every other raw material.

But, like most other major economic powers, the US is heavily dependent on oil imported from some of the most unstable regions of the world. Shortly after Bush came to power his vice-president, Dick Cheney, drew up a report into the US's oil needs called the National Energy Plan. The report revealed that the US consumes more than twice as much oil as it produces. This is set to rise, with the US importing two thirds of its oil by 2020. Most of the oil consumed by the US does not come from the Middle East. Four big suppliers-Venezuela, Canada, Mexico and Saudi Arabia-each provide roughly similar quantities.

But the US's rulers are painfully aware that they are increasingly dependent on oil from Middle Eastern regimes, especially Saudi Arabia. The country is the world's biggest supplier, with one quarter of the world's proven reserves of oil. It is currently the only country with significant spare capacity to increase oil supplies.

But the war has deepened the crisis in Saudi Arabia, where there is already growing bitterness over the wide gap between rich and poor. The nightmare scenario for world rulers is a terrorist attack that seriously disrupts the flow of oil from the country. Repeated wars and growing instability in the Middle East have led the US to look for alternative sources of oil.

The Bush gang backed two right wing attempts to get rid of Venezuela's elected government. It has pumped military aid into neighbouring Colombia, to ensure that oil keeps flowing from the region. And the US administration is increasingly interested in finding alternative suppliers, such as Nigeria, other parts of West Africa, and Russia. This will not diminish the importance of OPEC, the oil producers' cartel.

Currently OPEC countries supply 28 percent of the oil consumed globally, but the figure is expected to rise to 43 percent in the next 25 years. After Saudi Arabia, Iraq has the second largest reserves of oil. And it can also provide a staging post from which the US military can dominate the Middle East, keeping a watchful eye on the neighbouring Saudi regime.

Michael Klare from the radical French magazine Le Monde Diplomatique sums up the Bush gang's strategy, saying, 'An energy policy aiming to allow the US to gain access to oil reserves situated in chronically unstable regions is only realistic to the extent that the US is capable of projecting its military power in these regions.'

A report by the Project for the New American Century, the right wing core driving Bush's administration, argued for US intervention to undermine the OPEC cartel. It called for 'a concerted national trade and security policy to prevent monopolistic collusion by foreign energy producers, especially in crude oil. Why must we tolerate collusion abroad against a vital US interest?'

Oil consumption

Beating the competition

THE GOVERNMENTS of the richest countries across the world have encouraged the increased use of oil. In Britain since 1997 the cost of rail travel has gone up twice as much as car travel, and bus and coach travel has gone up by three times as much as car travel.

These costs have helped fuel the rise in air travel over short distances, which uses greater amounts of fuel and causes more pollution. The US is one of the world's biggest oil consumers, using more than Western Europe, Japan and China put together. Across the US there is widespread use of SUV gas-guzzling cars.

The US economy's current growth depends heavily on oil-US demand grew by 5 percent last year. But oil is not just important to fuel the growth of the US economy. That alone would not explain the huge level of spending required for the invasion and the continuing military presence in Iraq.

The US is acutely aware that its competitors such as Europe, China and Japan, which produce little or no oil, are even more dependent on imports than the US. Oil is central to the Chinese boom. The amount of oil used per dollar of wealth created is more than twice as high in China as it is in Europe or the US. China accounts for a third of the increase in the increased demand worldwide for oil.

Control over oil gives the US ruling class increased leverage over its economic rivals. The Bush gang want to use the US's overwhelming military power to see off any potential competitors. The 11 September 2001 attacks gave them an excuse to put their plan into practice.

But this is a gamble. The growing chaos in Iraq suggests that the risk may not pay off.

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Thu 10 Jun 2004, 00:00 BST
Issue No. 1905
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