It's the oil, stupid

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Paul Rogers
24 March 2005

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The Iraq war launched by a United States-led coalition two years ago this week is still causing intense embarrassment to its two main protagonists. In Britain, there is continuing controversy over the legal advice given to Tony Blair’s administration on the eve of war by the government’s senior legal officer, the attorney-general. In the United States, Washington politicians and commentators point to the Iraqi elections and a decrease in insurgent activity as evidence for optimism, but these cannot conceal the enormous human and financial costs of the war, especially at a local level.

In two years of war and insurgency, over 1,500 US troops have been killed and 11,500 injured, and many thousands more returned to the homeland because of accidental injury, physical or mental illness. Even in the context of a slight post-election decrease in the pitch of the insurgency, 222 troops were injured in the first three weeks of March, 82 of them seriously.

The Bush administration has been assiduous in downplaying these deaths and injuries, and the national media rarely pays much attention (a few papers, such as the Washington Post, are notable exceptions). At the same time, local newspapers across the United States do cover the intimate stories of young men returning in coffins or having slowly to recover from serious injuries (see Brian Knowlton, “U.S. toll in Iraq war starting to hit home”, International Herald Tribune, 19 March 2005).

The official US view about the war’s justification remains firm: that Saddam Hussein was an increasing threat, that his overthrow has brought democracy to Iraq, and that the regional consequences of the war across the region are positive. This perspective conveniently downplays other elements of the historical record, such as US support for Saddam Hussein against Iran during the Iran-Iraq war and his most brutal assaults against the Kurds. In 1988, for example, the US navy’s destruction of most of the modern facilities of the small Iranian navy in the Persian Gulf occurred close to Saddam’s Anfal campaigns against the Kurds in northern Iraq.

The argument that the war has helped spread democracy across the middle east equally involves a revision of the historical record. Donald Rumsfeld, US secretary of defense, this week stated that the Iraq war would have been much easier for the United States if Turkey had allowed military access to US forces; but the refusal was decided by the elected Turkish parliament. Indeed, there is endemic suspicion in the middle east that if a cluster of states there really did embrace fully democratic processes that were free of US pressure, its electors’ choice would be demands for wholesale US withdrawal from the region and a cessation of its support for Israel.

The black gold thirst

The most important factor that illuminates the contrast between rhetoric and reality over the war, however, is one that is discussed in the middle east far more often than in the United States and Britain. In the Gulf states especially, there is a near-universal view among academics and policy analysts that the fundamental element in the developments of the past three years, far more important even then the US commitment to Israel, is oil.

When Bill Clinton was campaigning for the White House, his advisors were so convinced that the election would be won or lost on “pocket-book” issues that they prominently displayed a slogan on the campaign-room wall: “It’s the economy, stupid!” Substitute “oil” for “economy” and this is the view that echoes increasingly loudly the further you travel from Washington and the closer you get to the Gulf states.

It is both striking and curious that this view contrasts so strongly with those of many western analysts, although this may be starting slowly to change (see Michael Klare, “Scraping the Bottom of the Barrel”, Asia Times, 23 March 2005) But if the “oil factor” does move closer to the centre of political discussion in the west, two different aspects of it, short-term and long-term, must be distinguished in order to understand what really motivates US policy in the region.

A strong argument proposed by anti-war voices in 2002-03 was that the war’s purpose was to allow US oil companies to seize Iraqi oil fields and reap huge rewards in the process. The huge lobbying power of transnational oil companies in search of short-term gain or “plunder” was seen as a key motivator of US strategy.

Whether or not direct lobbying had an effect, the result of the Iraq war has certainly been “good” for the oil industry. Oil-related companies like Halliburton have found Iraq immensely profitable, and the oil companies themselves are currently enjoying exceptional profitability.

At the same time, the oil companies’ financial successes relate only indirectly to Iraq and follow a pattern well-known during the 1973-4 and 1989-90 oil price surges. In any period of suddenly rising oil prices, the big transnational companies are adept at quickly passing price increases to consumers. The practice is to transfer “well-head” price increases to consumers within, at the most, a month of those increases taking effect. The companies have perhaps a hundred days of supply at the old prices as the black gold gushes through the complex system of tank farms, oil-tankers plying the sea routes, refineries and final distribution; profit-taking from sales while prices remain high is the order of the day.

Such “bull” market conditions – periods of rising pricing when the market is expanding – are almost always good for resource industries. But the key consideration in the Gulf region is not cyclical but structural: a long-term trend towards the progressively greater reliance of the world economy on Gulf oil. This is measured in terms of decades, not months.

The Gulf region has nearly two-thirds of all the world’s known oil reserves, and more keeps getting found – in contrast to oil fields in the United States, the North sea and elsewhere that are in decline. Moreover, Gulf oil is high quality, easy to extract and very cheap, much more so even than the far smaller reserves of the Caspian basin. In the short term, intense exploitation of reserves in Africa and central America, coupled with drilling in Alaska, may ease US import demands, but the long-term trend is all in favour of the Gulf.

Moreover, it is not just the United States that needs the oil – Europe, China, the east Asian “tiger economies” and increasingly India are huge oil importers; they will require even greater resources from the Gulf as it becomes the key oil-exporting region of the world. This kind of thinking has prompted Iran’s recent long-term deals with China and India (see “Iran’s nuclear politics, 2 December 2004 ), and makes these countries (along with Japan) deeply concerned over their increasing energy dependence on Gulf oil.

This kind of assessment suggests that any talk of US commitment to democracy is peripheral, and only relevant if it ensures increasing US influence, backed by powerful military forces. It sees Washington as engaged in a long-term struggle for indirect control of the region, at a time of intense competition with China and India for leverage over the world’s oil resources. The outconme will be crucial to the project of a “new American century”.

Perhaps, by the end of this decade, the view that the Iraq war of 2003 was essentially motivated by oil will become routine among western analysts – and the fact that it was close to academic heresy at the time of the war forgotten. If so, it will be a case of the west’s opinion-formers catching up with views embedded in the middle east, whose own experts have long since recognised that this indeed is the “great game” of the early 21st century.

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