The Oil Drum

DC: You have written "Beware Empires In Decline", referring to the United States. Generally speaking, what do the historical precedents tell us about the geopolitical behavior of such empires, particularly as regards what you have termed "senseless, self-destructive acts"? Also, please touch on why you think America is indeed in decline.

MK: The establishment and maintenance of an empire is an immensely energy-demanding enterprise. It takes enormous energy and resources to conquer foreign nations, maintain overseas garrisons, suppress rebellions, administer colonies, pay the salaries of soldiers and imperial bureaucrats, key fleets at sea, and so on. Every empire that ever was has struggled with this dilemma, and every empire that ever was collapsed sooner or later when the expense of maintaining the empire exceeded the revenues obtained from possessing the empire. For the United States, I believe, Iraq represents that turning point: before the United States entered Iraq, it was the dominant world power and possessed the strength to exercise hegemony in almost every corner of the globe; but the Bush administration vastly miscalculated the costs of occupying Iraq (now estimated at $1-$2 trillion) and that misjudgment will so deplete the US Treasury that American will never be able to undertake such a costly imperial undertaking again -- not without bankrupting the country and reducing us all to beggars. This having been said, the reality of our altered circumstances may not penetrate the thinking of our top officials, who may falsely believe that we still enjoy our pre-Iraq preponderance of wealth and power, and so undertake Iraq-like adventures abroad that will cripple this nation forever.

DC: Moving on to specific cases, let's talk about Iraq. Skipping over the reasons for the war itself, which have been thoroughly discussed, tell us what you see happening in Iraq going forward. There is apparently a civil war now in progress between the Shia' and Sunnis. You've said that something like the Dayton Accords (agreed to for Bosnia in 1995) is necessary now, Baghdad must become a neutral, international city and the Sunnis must have a share of the oil revenues. Do you think there is any chance that all or some of this will actually happen? Doesn't history tell us that such civil wars, once started, take many years, if not decades, to get resolved? Already, there is a significant refugee problem. How do the Kurds fit into the picture? Finally, the United States can not remain engaged at current troop levels in Iraq forever. What do you think will happen there?

MK: Well, it is obviously risky for anyone to make predictions about Iraq today, given the volatility of the situation there and the failure of all previous efforts to establish order in the country. However, let me begin by saying that Iraq was an invented country -- it was invented by the British during and after World War I to facilitate their exploitation of the oil in the region. They created the fictitious "Kingdom of Iraq" by patching together three provinces of the former Ottoman Empire, Mosul in the (mostly Kurdish) north, Baghdad in the (mostly) Sunni center, and Basra in the (mostly) Shiite south, and by parachuting in a fake king from what later became Saudi Arabia. To keep this patchwork together, the British relied on bribery and sheer force -- the same tactics employed by Saddam Hussein when the British were forced out. So the United States faces an existential choice: copy the British and Hussein, and use force and bribery to keep this mess together, or find some way to allow it to revert to its original condition with a minimum of bloodshed. I favor the latter as the most realistic option. This will not be easy, I know, but the other choice is now untenable. I think that once it becomes clear that Iraq will devolve into three states with an internationalized Baghdad and some provision for dividing up the oil revenues fairly (as I propose) -- and that American forces will begin leaving -- the various elites will sit down together and work out a modus operandi for making this happen. I think that this formula will also make possible the deployment of an international peacekeeping force under UN auspices that all sides can respect, instead of a US-dominated force that is a flashpoint for so much violence.

Note on Iraq: Refugees are pouring out of Iraq into Syria, Jordan and the other surrounding countries. When I asked Klare about the view that this exodus would destabilize those countries, he emphasized that many of Iraq's "best and brightest" were the ones fleeing the situation. The loss of Iraq's educated, professional classes leaves the poor at the mercy of the "thugs and crooks" taking advantage of the political chaos there.

DC: Shifting over to Iran, you are on the record as saying that you expect a military action -- specifically a "Shock & Awe" bombing strike --- in 2007. Do you still believe that will occur? Such an action would seem to imply that America has learned no lessons from Iraq, yet the fallout from such an action could be disastrous, especially in its effect on the oil supply & price. What do you think the consequences would be? Would there be spillover to Iraq and, if yes, what form might that take? Similar questions apply to Saudi Arabia and the other Gulf states.

MK: Yes, I do believe that the US will conduct air and missile strikes against Iran in 2007, unless Ahmadinejad capitulates to Western demands and abandons uranium enrichment, which I don't see happening. I think Bush did learn something from Iraq: If you're going to invade a country because of suspicious WMD behavior, FIRST EXHAUST ALL DIPLOMATIC OPTIONS before your resort to force, so you can claim you had no choice in the matter. Bush was criticized because he rushed into Iraq before allowing the diplomatic process to run its course, making America look like a trigger-happy cowboy state and sparking anti-Americanism around the world. This time, he will not act until the Europeans say "We've tried eveything, and nothing worked," and UN sanctions haved proved to have zero impact. Then he can say to Congress and the public: "Look, I did it their way. I exercized Job-like patience. But the national security of America is at stake here, and I can wait no longer." In the meantime, he will fill up the Strategic Petroleum Reserve to deal with an oil crisis and station more U.S. forces in the Gulf to deal with various imaginable forms of Iranian retaliation. I still think there will be chaos, but I don't think that this will deter Bush from going ahead with an attack on Iran.

Note on the fallout of an attack on Iran:

Klare assumed that any U.S. bombing attack would include plans to take out Iran's conventional missile batteries, thus hampering their ability to disrupt shipping in the Strait of Hormuz.

The Persian Gulf and
the Strait of Hormuz

Klare therefore anticipated an asymmetric Iranian response—for example, mining the Strait and attempts to sow chaos in all the Shiite regions of the Middle East, including Southern Iraq and Saudi Arabia. This would lead to U.S. countermeasures and further escalation of conflicts in the region.

DC: In the last few months, there has been a steep decline in the oil price, partly attributed to the lifting of the "risk premium" regarding fears of major supply disruptions in the Middle East or other regions. Yet, it would seem in your view that the risks have not gone away and, in fact, the geopolitical situation is deteriorating, not getting better. How do terrorist acts against oil & natural gas production facilities -- for example, Ras Tanura in Saudi Arabia -- affect the risks? Please comment on the oil price decreases and how you calculate the current geopolitical risk premium on price.

MK: Well, the fear premium was half driven by a possible war with Iran and half driven by fears of another hurricane season like 2005, with Katrina and Rita. Obviously, neither of these occurred. Had either occurred, the premium would have been justified. So what is the probability that we will go through another year with (a) no major crisis in the Middle East and (b) no big hurricanes? I can't imagine it's very low. And the fact is, there is very little spare capacity in the international oil equation, while demand is rising steadily. So we have to assume that from now on we will remain just one major crisis or hurricance away from another spike in prices; and if we get both of those together, we'll have a super-spike.

Note on Terrorism: I asked Klare about the geopolitical importance of terrorist attacks against oil production facilities. He emphasized that the word "terrorism" is a bit of a misnomer in many cases. In fact there is a wide spectrum of such groups running the gamut from ideologically motivated jihadist terrorists to quasi-criminal organizations to political reformers, any of whom might carry out such attacks. For example, FARC and ELN in Columbia often act like criminal organizations using blackmail. Seeking "protection money", these groups threaten to blow-up oil pipelines unless they are paid off. In Iraq, Klare spoke of so-called "insurgents" working with oil facilities security organizations in a kind of "revolving door" arrangement whereby the people blowing up the pipelines are sometimes the same people protecting them. Again, this resembles organized crime more than it does jihadist terrorism. On the other hand, MEND, operating in Nigeria's Niger delta, may lie closer to the political reform part of the spectrum.

Klare observed that Osama Bin-Laden's original organization has been largely broken up. Al-Qaeda is now decentralized and not as "professional" as before. Nevertheless, Klare expects continued attacks or threats on oil production facilities like Ras Tanura by terrorist groups.

DC: Tell us your thoughts on China -- a large and rapidly growing consumer of the world's oil & gas -- and Russia -- now the world's largest oil producer and, via Gazprom, the preeminent gas reserves holder & supplier. What is the strategic geopolitical relationship between these two countries? Do you see "Energy Blocs" coming about in the future? If yes, what would these look like? For example, you noted that Japan has cast its lot with American energy interests. Please comment.

MK: There is no doubt that China will need a great deal of energy in the years ahead, and that it will be competing with the United States for access to overseas supplies of oil and gas, especially in Africa, the Middle East, and Central Asia. I think that the Chinese would like to compete with the USA on something approaching equal terms, as one big consumer vs. another - with each side brandishing their giant energy corporations - but I fear that Beijing has become paranoid that the USA is out to limit their access to global sources of supply and so they see themselves being pushed willy-nilly into Russia's embrace. This, at least, is the lesson I think they took from the Unocal fiasco, which I think was a terrible mistake because it suggested that the USA will not allow China to compete with us on equal terms in the global energy market, leaving them no choice but to rely increasingly on Russia and other friendly states like Iran, and to try to seek advantage in places like Sudan, Kazakhstan, Venezuela, and Nigeria, where they see an opening. So yes, I do see "energy blocs" emerging, and I do not think it is a healthy development for world affairs, insofar as it could so easily lead to military blocs, as in the period before World War I.

Note on Japan: In the context of "Energy Blocs", Klare brought up the recent experience of Japan, whose Inpex Holding Inc. had invested $2 billion toward developing Iran's Azedegan field. After signing on in 2004, Inpex could not attract any investment partners from the EU. Under additional pressure from the United States, Inpex was unable to proceed with its Azedegan plans, which finally resulted in Iran cancelling the contract as reported by Rigzone, who also tell us that "Japan is Iran's largest foreign oil customer, purchasing 581,000 barrels of crude a day last year, or 14% of Japan's total oil imports." Before the action, Bloomberg had reported that:

Japan, which imports almost all its oil, needs the $2.5 billion [Azedegan] project to help boost overseas oil assets to 40 percent of imports by 2030. Iran is trying to ward off sanctions demanded by the U.S. for its nuclear development program and may strengthen ties with countries such as China and Russia by allowing greater access to the oilfield, said energy researcher Tomomichi Akuta.

"China and Russia are freer to act against what the U.S. says, while it's hard for Japan to," Akuta at UFJ Institute Ltd. said by phone today. "From Iran's point of view, countries such as China have more credibility when it comes to implementing oil projects under the current circumstances."

DC: Nigerian production has been subject to large disruptions for some time now through the operations of MEND in the Niger Delta. Angola is increasingly an important oil exporter, especially to China. Overall, the Gulf of Guinea is now, and will remain for some years to come, a key regional production center for light sweet crude oil. Will the West intervene militarily in West Africa? Would this bring it into open conflict with Chinese interests there and elsewhere in Africa?

MK: Bear in mind that "military intervention" typically occurs along a spectrum, beginning with the transfer of arms, followed by the deployment of military instructors and advisers, then the use of special forces attached to local irregular forces (e.g., the Northern Alliance in Afghanistan), and only then, in the final stages, regular combat troops. It may be some time (if ever) before the USA reaches this final stage in Africa, but it has already commenced the early stages (arms transfers and instructors) and there have been reports of US special forces operating against extremist Islamic groups in the Sahara region, so I would say that the process of intervention in Africa is well under way. The Chinese are also engaged in indirect forms of intervention, most notably in Sudan, where they have assisted the northern government in its efforts to suppress the SPLA in the oil regions in the south. I do not believe that this will ever lead to a direct clash between US and Chinese forces, but I certainly anticipate other forms of friction between the USA and China in Africa. Indeed, this has already begun: for example, the US has sought to isolate the Sudanese government at the UN Security Council, while China has resisted such efforts.

DC: Finally, will you comment on the likelihood of fossil fuel resource wars in the future? Here, I have in mind actual military conflict. Perhaps you could also touch on some regions I haven't mentioned above such as the FSU countries in and around the Caspian Basin, the South China Sea, etc.

MK: I assume you're distinguishing here between civil wars over the allocation of resource rents, like those now under way in Iraq and Nigeria, and full-scale war between the major powers over access to oil-producing areas. Wars of the first kind are happening now, and I would expect more of them in the future. As for the second, I think we have to consider the problem of "unintended escalation." I do not think that any of the major powers will deliberately choose to provoke a war over oil, as when Japan invaded the Dutch East Indies in 1941 (and bombed Pearl Harbor as a preemptive move against likely American retaliation), but I do think that they may engage in provocative behavior that could lead to accidental escalation under conditions of panic, confusion, and over-reaction (as in the circumstances that triggered World War I). A possible flashpoint for such a scenario is the East China Sea, where both China and Japan have deployed military ships/planes in a disputed energy zone and employed them in a threatening manner, risking potential panic fire and escalation to actual war - a situation that could get out of hand quickly and lead to full-scale war. So yes, in this sense, I think war over oil and gas is entirely possible.

I wish to thank Michael Klare for taking time to talk to The Oil Drum. Clearly, geopolitical events have the power to trump more pedestrian supply & demand calculations in the future.

Dave Cohen
TOD Contributor
davec@linkvoyager.com