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[email protected] | TomOD.com1
Thomas W. O’DonnellThe University of Michigan
Center for Middle East and North African StudiesMichigan Center for Theoretical PhysicsResidential College - Social Science Program
[email protected], http://www.TomOD.com
| New School, NYC GPIA | Economics of Security Workshop | 17 Nov 2006 |
The Global Political Economy of
Oil &
U.S. Persian-Gulf Policy
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Motivationfor
Oil Study
Lots of theories:
- Interests & empires vs. multilateralism & liberal markets* ?
- New “Great-Power Rivalry” & “Great Game” a la WW I ? - “Resource Wars” (mercantilism) ? - One global capitalist class ? - “Peak Oil” & “End-of-Oil” ? - Rentier states or new internal markets ?
- Global warming & environment ? - Oil & Iraq War ? - Oil & Iran crisis ? - Political-Economic Basis for U.S. Persian-Gulf Policy
* E.U. Commission Green Paper, March 2006 Central question: hegemony / U.S. role
Motivations to study political-economy of oil:
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Hegemony or Empire?Niall FergusonFrom Foreign Affairs, September/October 2003
Two Hegemonies: Britain 1846-1914 and the United States 1941-2001. Patrick Karl O'Brien & Armand Clesse. Aldershot, U.K.: Asghate, 2002, 365 $84.95
Summary: Did the United Kingdom's influence in its heyday match the United States' today? Two Hegemonies provides an answer; but "empire" might be the better word.
Niall Ferguson is Herzog Professor of History at the Stern School of Business, New York University, and a Senior Research Fellow of Jesus College, Oxford. He is the author of Empire: The Rise and Demise of the British World Order and the Lessons for Global Power.
“Hegemony”, “Empire” ?
Radical categories of 1960-70s …now mainstream academic and foreign-policy debates
Motivation for
Oil Study
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Theoretical framework:
Two aspects in study of ‘oil order’:
1. In itself (economics, market, reserves, technology, …)• Actors: IOCs, Independents, NOCs, states• Market-control institutions & practices
2. In relation to other things• Domestic: Transportation & energy infrastructure, lobbies, …• Geo-Strategy: Oil hegemony brings hegemony-in-general
Corollary: States’ & companies’ interests are simultaneously:• Complementary (too often seen in vulgar-economic, voluntarist way)
• Contradictory (this often missed)
Method for
Oil Study
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Political-Economy - Generally: - Oil markets (natural resource, generating rents) have two major issues:
• Inherent volatility• Security of supplies
- Market-control institutions and practices - Used to limit competition; regulate production levels and prices; - insure more consistent profitability, reliability- Forms of control have to be consistent with:
• Existing property relations• Existing technology, communication, transport • Role of state vs. enterprises
The Old Oil Order (1890s-1970s)
The NewGlobalized Oil Order
TheoryFramework
forOil Study
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The Old Oil Order (1890s-1970s)- 2nd Industrial Revolution, Mass Production Era, Monopoly-Capitalist Era
• Vertically integrated international oil companies (majors)• Contained volatility of market within • Limited competition to ends of companies
• point of sale• finding oil fields
• Owned ‘concessions’• Standardization, efficiency, quality control
• Cartel agreements to control supplies, control price• U.S. held global surplus – the swing producer
• Used to enforce concessions and prices, for war time, etc.• U.S. energy czar, allocation and price controls• Broke up Standard Oil
The NewGlobalized Oil Order
TheoryFramework
forOil Study
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The NewGlobalized Oil Order (1980s …)• Security
• IEA SPRs• Global-north oil• Supply cushion
• Volatility• Price bands• Saudi swing state• Futures market
• Role of states• U.S. Hegemon, OECD / IEA counter-cartel, IEF(S), …
• Role of force
TheoryFramework
forOil Study
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I. POLITICAL ECONOMY
1. FACTS of oil sectorGeography | Reserves | Technology | Consumption | Price History
2. HISTORY from cartels to globalizationProperty relations | Security of supply & demand | Volatility | Cartels &
control institutions
3. CRISIS ?Projections | China & India | Productive capacity
II. U.S. PERSIAN-GULF & GEO-STRATEGY
4. THE GLOBALIZED OIL ORDER allies & “rogues”U.S. v. E.U. | Four aims of U.S. policy in Persian Gulf | Oil, war and global warming
OUTLINE:
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(Report#:DOE/EIA-0484(2002)
Absolute levels
Note:InformationRevolutionhasn’t yetrevolutionizedenergy
Oil facts:
Demand
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1. FACTS of oil sector
- WORLD ENERGY USE:What portion of the world’s energy is coal, natural gas, oil, nuclear, renewables?What regions of the world consume this energy---now and in the future?
- WORLD RESERVES:Where are most of the oil, natural gas reserves?
- WORLD PRODUCTION CAPACITY:Which countries have the technology to pump the most oil?
- WORLD SUPPLY & PRICE:How have global supply and price varied? Which countries have controlled the supply? (Can anyone?)
- ABOUT US:Domestic consumption, domestic sources, imports, dependence vs. independence, …US has the most oil-centric and auto-centric economy (least sustainable), biggest oil user!
- Facts about international organizations (IEF, IEA, OPEC, etc.)
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Precondition for hegemony …natural concentration - M.E.
more so…
Oil facts:
Reserves
tar sands bump
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60+%worldreservesMideast:
90% Persian Gulf
Hegemony possible
Oil facts:
Reserves
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Field distribution by sizeAnother form of concentration: Gulf oil mostly in “super giants” / “elephantine” fields
By: Matt Simmons@ Rice U. conf, 2004.
Source: Professor Steven Dutch, University of Wisconsin - Green Bay.
Oil facts:
Reserves
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1. FACTS of oil sector
- WORLD ENERGY USE:What portion of the world’s energy is coal, natural gas, oil, nuclear, renewables?What regions of the world consume this energy---now and in the future?
- WORLD RESERVES:Where are most of the oil, natural gas reserves?
- WORLD PRODUCTION CAPACITY:Which countries have the technology to pump the most oil?
- WORLD SUPPLY & PRICE:How have global supply and price varied? Which countries have controlled the supply? (Can anyone?)
- ABOUT THE US:Domestic consumption, domestic sources, imports, dependence vs. independence, …US has the most oil-centric and auto-centric economy (least sustainable), biggest oil user!
- ABOUT INTERNATIONAL ORGANIZATIONS (OPEC, IEA, IEF, etc.)
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Source: EIA
- Biggestproducers:1.Saudi A.2. U.S.3. Russia4. Iran5 Mexico(1, 2, 3 vary)
- M. East biggest region
-US / Russiapump fast on small reserves
N. Hemisphere½-depleted,but not ME.- Non-Mideast pumps at ~max. rate (Hubbert’s Peak: US was ½-emptied out by 1971)
Oil facts:
Production
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Source: IEA
* Saudishuge,yet30-40%sparecapacity< 2003 unique!
*Irannow2nd
* Iraq ‘could’be 2nd
SaudiArabia.10-15 yrs + $20-40 billion (ref: US Council on For. Relations, pre-war report ).
Global-north depletion willexacerbate M. E. concentration
Oil facts:
Production
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ASIDE: US ‘Dependence’on Mid East?
~ 60% US oil Imported
U.S. gets all Western Hemisphere’s oil
From Mideast: 2000: 21%, 2005: 17% (10-12% of total demand)
Hence, U.S. fractional “dependence” very low
means.topump…
Oil facts: U.S.
Imports
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I. POLITICAL ECONOMY
1. FACTS of oil sectorGeography | Reserves | Technology | Consumption | Price History |
2. HISTORY: From cartels to globalizationProperty relations | Security of supply & demand | Volatility | Cartels & control institutions
3. CRISISProjections | China & India | Productive capacity
II. U.S. GEO-STRATEGY
4. THE GLOBALIZED OIL ORDER allies & “rogues”U.S. v. E.U. | Four aims of U.S. policy in Persian Gulf | Oil, war and global warming
OUTLINE:
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The NewGlobalized Oil Order (1980s - …)• Security
• IEA SPRs• Global-north oil• Supply cushion
• Volatility• Price bands• Saudi swing state• Futures market
• Role of states• U.S. Hegemon, OECD / IEA counter-cartel, IEF(S), …
• Role of force
History:howglobalizedorder wasslowlyestablished
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3rd oil shock
Average IEA Crude Oil Import Price
Projections:DoE EIA AnnualEnergy OutlookFeb. 2006
$ 95
$ 50
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Five Phases of the Global Oil OrderWorld Oil Market and Oil Price Chronologies: 1970 – 2005
IEA data
1937–1956 1957 – 1973 1974 – 1986 1986 – 2000
WWII 1947 1951
1967
Oil Shock I Oil Shock II Oil Shock III
1979 1990
| Carter | Reagan | Bush | Clinton | Bush
2001 -
1997-98
First oil shock:
-1973 Arab OPEC Embargo
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OIL SHOCK 1973/1974
- Previous embargoes never worked when US opposed (WWII, 1956, 1967) Role of U.S. surplus was key
- Texas Railway Commission- West Texas as “Saudi Arabia” of pre-1971 era.
- Hubbert’s Peak for US 48 states.Role of U.S. state organizationally (from FDR’s oil board/ H. Ickes)
- Prices rise over 4x- OPEC states enforced nationalization of “concessions”
Ended colonial vestige in property rights- - Undermined vertically integrated monopolist enterprises - - Undermined Great Cartel (more later)
* OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations)
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OIL SHOCK 1973 - Urgent need for US / OECD* regain control.
Kissinger proposed two U.S./OECD measures:
1. Invasions to seize MENA oil fields .British declassified, Feb, ’04
Later: 1980 U.S. abandon Nixon Doctrine for Carter Doctrine. Reagan, Bush Sr., Clinton begin stationing
U.S. troops & material / bases … today
* OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations)
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OIL SHOCK 1973 - Urgent need for US / OECD* regain control.
Kissinger proposed two U.S./OECD measures:
1. Invasions to seize MENA oil fields .British declassified, Feb, ’04
2. Counter-cartel of consuming nations: “change the objective conditions” Kissinger
International Energy Agency (IEA) Members keep 90-day Strategic Petroleum Reserves (SPR)
See
Immediately implemented, highly successful for embargo nullification … but organization lagged.
OECD policy: let Inflation eroded price gradually. (Yergin)
3. Develop new N. Hemisphere oil
* OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations)
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1980-90’s: US/OECD’s IEAVs. OPEC“confrontational”relationship.
Kissinger plan worked: strategicreserves (SPR) ofIEA counter-cartel negatedembargo weapon Implies threat:… what mightUS/OECDdo militarily over 90+ days if embargoagain
An added SPR role:… IEA pressuredOPEC to observeUS/IEA pricerange by adjustingpumping rates.
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Kissinger’s role … the planner and organizer of IEA:
* OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations)
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Kissinger’s role … the planner and organizer of IEA / oil hegemony:
* OECD: Organization of Economic Cooperation and Development (AKA the “First World” nations)
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IEA data
1937–1956 1957 – 1973 1974 – 1986 1986 – 2000
WWII 1947 1951
1967
Oil Shock I Oil Shock II Oil Shock III
Themes:1. OIL PRICE SWINGSTATES”2. ;US Vs. GB & France3. US-OECD Vs. OPEC4. US Surplus till 1970
1979
1990| Carter | Reagan | Bush | Clinton | Bush
2001 -
1997-98
World Oil Market and Oil Price Chronologies: 1970 – 2005
IEA data
1937–1956 1957 – 1973 1974 – 1986 1986 – 2000
WWII 1947 1951
1967
Oil Shock I Oil Shock II Oil Shock III
1979 1990
| Carter | Reagan | Bush | Clinton | Bush
2001 --
1997-98
Second & Third shocks:-1979 – IEA organized
-Business model …-Spot & Futures mkt
-1985-Recog’d OPEC-“New World Order”
-Collusion begins: 1st Price Band slide
Five Phases of the Global Oil Order
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Source: Brad Bourland, CFA, Chief Economist, Samba. At NY Energy Forum, June 2006
Two IEA-OPEC price-band agreements:
- 1986: $17 (+/- ~4) G H W Bush & King negotiated
- 2000: $27 (+/- ~5) Sec. Richardson / London mtg.
- 2006: ?? third agreement ? ?
?
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Four Phases of the Global Oil OrderWorld Oil Market and Oil Price Chronologies: 1970 – 2005
IEA data
1937–1956 1957 – 1973 1974 – 1986 1986 – 2000
WWII 1947 1951
1967
Oil Shock I Oil Shock II Oil Shock III
1979 1990
| Carter | Reagan | Bush | Clinton | Bush
2001 -
1997-98
Confrontation Confidence building - New OPEC generation - Gulf War coalition - Vienna deal IEF begins - US Sec. Energy Richardson - 1997-1998 Asian crisis-2000
swings “bad for business” - 2000 London mtg. price - IEF upgrade proposed Osaka
by Prince Abdullah… then crises 2001
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I. POLITICAL ECONOMY
1. FACTS of oil sectorGeography | Reserves | Technology | Consumption | Price History |
2. HISTORY from cartels to globalizationProperty relations | Security of supply & demand | Volatility | Cartels & control institutions
3. CRISISProjections | China & India | Productive capacity
II. U.S. GEO-STRATEGY
4. THE GLOBALIZED OIL ORDER allies & “rogues”U.S. v. E.U. | Four aims of U.S. policy in Persian Gulf | Oil, war and global warming
OUTLINE:
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The new, globalized system is facing
a potential “energy” crises
U.S., IEA, OPEC et al forced
to “reinvent” the system, or lose it
What are these crises which drive Washington, London et al?
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Four Phases of the Global Oil OrderWorld Oil Market and Oil Price Chronologies: 1970 – 2005
IEA data
1937–1956 1957 – 1973 1974 – 1986 1986 – 2000
WWII 1947 1951
1967
Oil Shock I Oil Shock II Oil Shock III
1979 1990
| Carter | Reagan | Bush | Clinton | Bush
2001 -
1997-98
Crises: 1.1990s- 2001 Saudi crises, in “Central bank of oil” 2. 2003 Demand up + no cushion data
Requires: - FDI (IEA: “$5 T by 2030) - Better market control (IEFS, JODI, …) - ‘Iraq & Iran online’ but not ‘rogues’ ->
invasion & confrontationTwo views:Multilateralism & liberal markets vs. nationalism & empires ?
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Globalized order
New characteristics:– Demand-crisis & low buffer threatens “cheap oil”
• Demand up 60% between 2001-2030
– Requires huge oil investments (e.g., ‘Cheney’ Plan) $5T, mainly in nationalized Middle East oil
– “Consumer-Producer Dialogue.” Economic-control Institution (Bush Sr. / Clinton / Richardson)
data
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Recall:oil’s % forecastedconstant
In spite of1st--world efficiencies …
where is theexpansion? …
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China demand huge factor … surpassedJapan ’03,& US by 2020
has goneauto-centric; economic& military reasons. …being reduced to historicaldilemma of Japan, Germany
very precariouschoice – must import anyadditional oil!
Middle-class sizes ~determinerelative growth potential
US solution:an oil offensive…
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Globalized order
• IEA + OPEC IEFS, Institutionalized in RiyadhFeatures:– Parallel standing Secretariats (ministers & majors)– Market information (JODI) in tight-market volatility– Transparency of proven reserves, cost, production rates, …– New MENA, perhaps Mexico, FDI laws.– Global meetings, 92 energy secretaries
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U.S. Persian-Gulf Policy:
– Multi-lateral order, fungible oil, open market, FDI, …– No ‘rogue’ oil states
– Historical high absorbers
– Persian-Gulf States as protectorates• Sanctions on
– FDI from ba’athists (13 yrs)– FDI from Iran clerics (11 yrs now)
• Political-economic basis:– Growth in Persian-Gulf importance– Eliminate high absorbers’ behavior WHY?
– Implementation• Iraq War• U.S.-Iran crisis• open Caspian for investment• FSU pipelines to go south, etc.
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Pumping now mainly from sates with ½-depleted reserves… trajectory
Energy/Oil Basic Facts:
Supply
Persian-Gulf states’ importance
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Energy/Oil Basic Facts:
Supply
Persian-Gulf states’ importance
U.S. & Russia #2 & #3 producers-- unsustainable –
Gulf States’ production%
will grow
What are Iraq/ Iran’simportanceto global system?
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Iran Iraq
Energy/Oil Basic Facts:
Supply
Iran & Iraq’s importance
U.S., E.U.,IEA, programfor developmentM.E. oil …
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Spare capacity
mitigatedisruption
Foreigninvestmentsalready,under Clinton
market% growing
SpecialGulf role:
Expand pumping capacity / Foreign Direct Investments (FDI) push:
From “Cheney Energy Plan”:
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Why Iraq (Iran)? Much pressure to develop fields:
Restoration of production capacityIEA Reference Scenario
Slow production expansionRapid production expansion
(Source: IEA Energy Investment Conf. late ‘04)
Cum
ulat
ive
Inve
stm
ents
(bi
llion
$U
S)
Production (million barrels/day)
2010
2010
2010
2020
2030 2020
2030
2030
Very similargraphs weremade by:Council onForeign Affairspre-invasioncommission;(included later-occupation official Jas.Garner, …)
2020
N.B.
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Source: V. Pres. D. Cheney’s White House Energy Report2000- Iran and Iraq importance …
Cheney says:
New directions for pipelines – Now to go south vs. north into FSU
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Political-Economy of U.S. Iraq (& Iran) policy:
• Persian-Gulf oil importance will continually rise
• U.S. must remain the Persian-Gulf hegemon
• Regional hegemony brings global hegemony-in-general • That is. over rivals (E.U. & China examples)• Not, about U.S. home market – wants oil fungible• Not merely about U.S. IOCs – trumped by geo-strategy
Iranian clerical regime now most significant threat to this U.S. Gulf hegemony (with Saddam’s demise)
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U.S. strategic assessment on Iran:
- If Iran were allowed to absorb some $30 to 50 billions in FDI, clerical regime would become rich and powerful actors in the Region and OPEC.
- Same U.S. assessment of Iraqi ba’ath from 1991.
- Would use oil against Saudi, Kuwaiti, UAE royals, new Iraqi state, disrupting U.S. regional hegemony.
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U.S. strategic assessment on Iran:
Hence, block with sanctions… but sanctions not sustainable (e.g., Iraq ).
Hence, regime change:- Iran & Iraq as U.S. protectorates as rest of Gulf
- Then permit to become oil-rich too
Implementation: