The Oil Drum

This is a guest post by John Robb. John is an author, an entrepreneur, a blogger at Global Guerrillas, and a former USAF pilot in special operations. His book, Brave New War was published in April 2007 by Wiley, which can be purchased here. The book apparently is influential, since Robb was named one of the "Best and Brightest" by Esquire Magazine and invited to speak at a plethora of venues (the DoD, CIA, NSA, NIC, Highlands Forum, Center for Biosecurity, and many more). The book is also being used in universities from the Naval Post Graduate School to Johns Hopkins.

The run-up in oil prices over the last four years is usually framed, likely correctly, as a combination of torrential demand from developing countries (China and India), speculation, and peak supply. Other analysis indicates that production is also being damaged due to NOC mismanagement, political instability, and rapid increases in domestic consumption within oil exporting countries.

However, the rapidity and volatility of current oil prices may be due to a more narrow set of factors surrounding the production of light sweet crude: the comparative quality and scarcity of light sweet crude, world demand, and guerrilla systems disruption.

This is a guest article by David Strahan, author of The Last Oil Shock.

In a widely viewed You Tube clip, taken from a C-Span interview conducted in 1994, Dick Cheney argues persuasively that the United States was right not to topple Saddam Hussein during the first Gulf War. He cites the potential disintegration of the country and the risk of American casualties as good reasons for the decision not to take Baghdad. So what was it that changed his mind by the turn of the century? An acute awareness of impending peak oil.

In a stunning interview for the French (reference) daily Le Monde, Fatih Birol, the chief economist of the International Energy Agency (i.e. the intergovernmental body created after the oil shocks of the 70s to coordinate the West's reaction to energy crises) effectively says that peak oil is just around the corner, and that without Iraqi oil, we'll be in deep trouble by 2015:

Si la production n'augmente pas en Irak de manière exponentielle d'ici à 2015, nous avons un très gros problème, même si l'Arabie saoudite respecte ses engagements. Les chiffres sont très simples, il n'y a pas besoin d'être un expert.

If Iraqi production does not rise exponentially by 2015, we have a very big problem, even if Saudi Arabia fulfills all its promises. The numbers are very simple, there's no need to be an expert

And as long as the US occupies Iraq, production will not increase... Houston, we have a problem...

The story made it to the front page of the Financial Times (Europe's main English-language business paper) this week, so you'd think it is big news - and the headlines is nicely attention grabbing, but what's behind it?

Iraq may hold twice as much oil

Iraq could hold almost twice as much oil in its reserves as had been thought, according to the most comprehensive independent study of its resources since the US-led invasion in 2003.

The potential presence of a further 100bn barrels in the western desert highlights the opportunity for Iraq to be one of the world’s biggest oil suppliers, and its attractions for international oil companies – *if* the conflict in the country can be resolved.

Obviously, that's a pretty big "if", but it's still big news... or is it?

Dr. Michael T. Klare is the Five College Professor of Peace and World Security Studies at Hampshire College in Amherst, Massachusetts. One of the world's leading experts on the energy geopolitics, Klare is perhaps best known for his history and analysis Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum. Klare is a frequent contributor at TomDispatch, where he provides a welcome alternative to the mainstream media's spoonfed pablum concerning crucial issues like America's preemptive war on Iraq, the Iranian nuclear stand-off and the global chess game to control oil & natural gas resources.

Michael Klare

Klare's presentation at ASPO-USA is nicely summarized by Chris Vernon of The Oil Drum's United Kingdom section —please read Chris' report along with this interview. At the conference, I arranged to e-mail him some questions which he kindly took the time to answer. Subsequently, we did a follow-up interview on the phone. Both the questions and answers are presented verbatim.

The lefty blogosphere is all a-flutter after the article in the Independent about the new Iraqi oil law, which will allow foreign companies to invest in the oil sector via PSAs (production sharing agreements).

These are presented as unfair contracts, which will give the majority of the profits to the Western oil majors, and highly unusual. This is all untrue, and it obfuscates the wider truth that no major Western company will invest in Iraq (under these contracts or under any other scheme) as long as American troops are there and that a civil war is under way.

I've written about this as comments in various diaries, but it's time to have a full diary on this. So here goes.

...and from Alternet:

Even as Iraq verges on splintering into a sectarian civil war, four big oil companies are on the verge of locking up its massive, profitable reserves, known to everyone in the petroleum industry as "the prize."

I don't think it's accurate to call it a "war" anymore. It was one briefly back in 2003, and it may become a wider one again in the region. But for now the American situation in Iraq has degenerated into a dangerous, half-assed policing operation. We're not really fighting anyone, just getting in the way of factions fighting each other. A large part of our failure in this project has been our inability to get the electricity and water running properly. Any group of Americans might be equally pissed off and crazy after three years of that. [...] The purpose of our Iraq project was to stabilize the Middle East by creating a successful buffer state between Iran and Pakistan and the nations west of Iraq, especially Saudi Arabia. Why? To preserve the status quo in our oil deliveries from the region.

Captain John J. McKenna IV, USMC (Reserves)

[Update: John's Family has indicated the following charities to honor John's life]:

New York State Trooper Foundation c/o John McKenna Scholarship fund 3 Airport Park Boulevard Latham, New York 12110-1441

Injured Marine Semper Fi Fund 825 College Blvd Suite 102 PMB 609 Oceanside, CA 92057

Last week, I lost a good friend to our war in Iraq. John and I met in high school and were good friends ever since. He wanted to be a Marine all his life. John was a great guy, Eagle Scout, always wanting to make people laugh, very interested in history and very proud to be a New Yorker.

All words fail me in describing what this loss means to his family, his friends and fellow Marines and state troopers. But one phrase that I like seeing in relation to his death has been "He made the ultimate sacrifice". He did. He put himself in harm's way for all of us, agreeing to fight wherever he was sent as honorably as possible, no matter what he personally thought of the war, the President or the myriad reasons for why we are there. He wanted to serve his country. He wanted to sacrifice for us.

The [Middle East] situation clearly requires comment [and integration], as it has enormous implications both for the world as a whole and for the small but growing community of people involved in preparations for Peak Oil. Mainstream reporting seems to miss much of the context of events and, when discussing the Middle East, the geopolitical struggle for control of energy resources nearly always forms much of that context.
[...]
At the ASPO conference a well-connected industry insider who wishes not to be directly quoted told me that his own sources inside Saudi Arabia insist that production from Ghawar is now down to less than three million barrels per day, and that the Saudis are maintaining total production at only slowly dwindling levels by producing other fields at maximum rates. This, if true, would be a bombshell: most estimates give production from Ghawar at 5.5 Mb/d.