On the Political Economy of the Middle East Crisis

By Kathy Mitchell and Scott Henson
November 1990; pages 8-9; Volume 2, No. 2
Polemicist

The fear of "U.S. dependence on foreign oil" among policy makers has underwritten the U.S. invasion of Saudi Arabia and a government-corporate partnership to undermine protection of environmentally sensitive areas. The invasion itself has deflected the efforts of OPEC leaders to fit into a world oil market dominated by the U.S., and covered up the history of U.S. covert relations with Saudi Arabia. Inflammatory descriptions in the media of vast Middle Eastern oil reserves, based largely on estimates from unexplored and partially surveyed areas, lead us to believe that without unrestricted access to Arab oil we will face the downfall of civilization as we know it. The following discussion - primarily drawn from the oil and business press as well as industry sources - attempts to dispel some of the misconceptions surrounding the political economy of the Middle East crisis.

Arab Oil: The Myth of U.S. Dependence

According the World Almanac, OPEC produces 35 percent of the world's oil, but Arab members produce less than half that amount. Contrary to popular belief, OPEC is not a consortium of Arab nations. Of the 13 members, only seven are Arab. Major OPEC producers include Venezuela, Nigeria, Ecuador, Gabon, Indonesia, and Iran. The Arab states combined produce only 17 percent of the world's oil, and the Middle East produces substantially less than that.

COMPANY Total output (add 000) U.S. output (add 000) Europe Canada Middle East (and other for.) M.E. as % of total U.S. as % of total
ARCO 718.6 648.5 7.9 13.4 2% 90.50%
SHELL 508 427 81 no data available   84
BRIT. PETROL 1412 784 478 93 6 55.5
PHILLIP 218 102 88 exploratory Egypt only   46.7
CHEVRON 949 481.9 344.1 31.2 3 50.7
EXXON 6634 2634 2797 145 2 39
AMOCO 815 304 144 267 32.7 37.2
Accurate Middle Eastern output figures are very difficult to get because American oil companies do not have to report their overseas operations in any sort of detail. The above figures represent the largest possible amounts that might be coming from the Middle East. Many of the M.E. figures also include substantial African output, esp. Nigeria and Chad, because most companies combine these figures. Some companies simply categorize output under U.S., Europe, and Rest of World.

Iraq and Kuwait combined produced less than nine percent of all U.S. oil imports between January and May of this year, according to estimates from the American Petroleum Institute (API), the oil industry's primary trade association and lobbyist. The U.S. fulfills more than half its oil needs with domestic production, and imports the other 41 per cent from a variety of nations. The non-OPEC producers (U.S., Britain, Canada, China, Mexico, the Soviet Union) dominate the world's oil market. Texas alone produces 1.7 million barrels per day - twice the combined Iraq and Kuwaiti exports to the U.S. The United States is not dependent on middle eastern oil.

In addition, American companies are not now heavily invested in the Middle East. Exxon, with 5.9 million acres for exploration and drilling in Egypt and 840,000 acres for active development in Yemen, procures a mere .01 percent of company revenues from the Middle East. Shell Oil, which began last year to draw oil from 10 new wells in Syria, attributes only 0.13 percent of revenues to its total foreign assets, which include wells in Brazil, Cameroon and Malaysia, as well as Syria. Like most American oil companies, Chevron's primary foreign interests lie in the British North Sea, Indonesia, Papua New Guinea, Nigeria, Sudan, Chad, and other African nations.

Further, most oil companies have developed vertically integrated systems to cushion the fluctuations in oil prices. Since the first oil crisis in the late 70's, companies like Mobil, Chevron, Exxon, and Middle East-based companies like ARAMCO have expanded operations to include both wells and refineries. When the price of oil goes up, the wells sell oil to company refineries at the higher price and make a greater profit margin. The refineries that have to pay more and see their profits go down the same amount. Mobil illustrates the approach, called the "upstream/downstream model", in its 1990 annual report. On the page entitled "Upstream", the company claims "Higher crude prices, efficiencies raise profits 25%". Five pages later, the Downstream managers announce "Earnings off 27%, but better than in other tough years". Since the oil companies own all the facilities from production to refining to retail distribution, the upstream/downstream approach stabilizes profits over time.

The sharp rise in oil prices is a function not of the current availability of oil, but of speculation in the oil futures market since the start of the current U.S. escalation. The oil industry has suddenly incurred a higher degree of risk from the perspective of a futures buyer, and the decisions of futures speculators are used as indicators of the amounts of oil available to purchasers. In fact, other OPEC nations and non-OPEC suppliers have been more than able to fill standing orders and discover supplies for future contracts.

The American Petroleum Institute (API) estimates combined Kuwaiti and Iraqi pre-embargo oil output at 4 million barrels per day (bpd). That amount can easily be made up through other suppliers. In the September 26 Oil Daily, European Economic Community Energy Commissioner Antonio Cardosa Cunho declares the oil price rise "totally unjustified and indefensible." Oil stocks in Europe and elsewhere are at "unusually high levels," he says, and already the loss of Iraqi and Kuwaiti production "has been made up."

Other sources corroborate Cunho's assessment. As of September 10, according to Petroleum Intelligence Weekly (PIW, a right-wing insider oil magazine), Saudi Arabia had already marketed more than 1.5 million bpd "on the basis of customer requests for extra volume." In the same issue, PIW declares that "Venezuela is pulling out all the stops in efforts to add 500,000 barrels a day ... by year's end." According to the September 20 Oil Daily, "with Nigeria and other OPEC members chipping in, the OPEC level of production may reach the OPEC ceiling within three months, as all members increase production." In September PIW noted that Saudi Arabia alone "has enough surge capacity to boost output next month by a further 10%," although "all of this volume may not be saleable. "

Even Kuwait can profitably make up for the loss of its domestic supply by shifting to foreign production. The Kuwait state oil company, KPC, recently moved its overseas production subsidiary to London, alongside its London-based refining and marketing branches. KPC's U.S.-based drilling still operating normally. In fact, the company is currently increasing its output in Yemen, Egypt and Australia, and is exploring interests in Vietnam and Malaysia. According to PIW, "Confidence is high that KPI can operate profitably. Restrictions on its assets are being gradually lifted. Like other well stocked oil companies, KPI has profited from the crude oil price hike."

Assault on the Environment: The Hidden Agenda

When policy makers talk about our "dependency on foreign oil," suspect a hidden agenda. The major oil companies and their industry lobbyists have long used the "dependency" argument to combat environmental and labor constraints surrounding domestic oil production. President Bush's call for an immediate increase in domestic oil production gives the companies the perfect opportunity to abolish those constraints. According to PIW "the White House may also push for quicker action with federal agencies that are blocking new energy production for environmental or other reasons."

Within days of the initial troop deployments, Charles DiBona, President and CEO of API, appeared before Congress to lobby for the immediate opening of a large domestic rig off Santa Barbara. API, the oil companies' primary industry group, declares that the best "short term" solution to the "latest energy crisis" is "opening the Point Arguello field off the California coast." DiBona told Congress that the Chevron-owned rig could be brought on line immediately and produce 100,000 bpd. PIW reports that the Department of Energy has already followed API's lead, using the crisis to pressure California environmental regulatory agencies to open the rig.

According to Santa Barbara County's Water Agency manager, Rob Almy, however, Chevron will require at least six months to begin pumping oil, and another 18 months to reach full production levels. Further, the pipeline currently in place would only carry a maximum of 40,000 bpd. A larger production would require tankering the oil, and Chevron hasn't yet received its tankering permit, which is being contested over potential violations of toxic emissions in three California air basins. "Absent some form of national emergency that supersedes state and federal law, Chevron must follow county permit regulations," said Almy.

The Middle East crisis has been used by Chevron and the industry lobby to try and override local control concerning environmental issues. A Santa Barbara group called Get Oil Out! and the Energy Division of the Santa Barbara County Resource Management Office had succeeded in preventing production until safe transportation of the oil could be guaranteed. According to Kelly Quirke of San Francisco Greenpeace, a pipeline already exists from the Point Arguello field to Chevron's refining facilities in El Segundo. But because Chevron is a "vertically integrated" oil company (see above), it prefers to tanker its oil to the refinery rather than pay the All-American Pipeline Company for transportation costs.

Tankering the oil would not only increase the risk of a Valdez-style oil spill at Point Arguello, but the 136 tanker trips per year that would be required to transport the oil would release hundreds of tons of toxic air emissions in three southern California Air Basins - Santa Barbara, Ventura, and Los Angeles - all of which already violate federal clean air restrictions. Quirke says to his knowledge, Chevron has been the only oil company in California that has actively tried to manipulate the Middle East crisis to open up environmentally sensitive areas for production.

California Governor George Deukmejian, during a press conference on education, insisted that "environmentally sensitive" offshore drilling should begin immediately instead of risking rushed implementation during a national crisis.

But the California coast isn't the only environmental target under assault by the oil industry. API also advocates a "long term" strategy to reduce "dependence" on oil imports, again concentrating on dismantling environmental protection statutes. For the past decade the oil industry has explicitly linked the need to lower "dependency" on oil imports by increasing domestic production under the rubric of "national security."

The nuclear industry exploits the Middle East crisis
The nuclear industry exploits the Middle East crisis

A 1987 discussion paper by the American Petroleum Institute entitled "Petroleum Production on the Arctic National Wildlife Refuge Coastal Plain and the National Interest" lays out this critique explicitly, complaining bitterly that the U.S. imports oil from "unstable" regions. The paper states: "This single factor - the concentration of a large fraction of free world reserves in a politically unstable area - is a key source of national security risks. While this risk cannot be averted entirely, the associated costs can be reduced and delayed by policies which encourage domestic petroleum exploration and production and a reduced dependence on imported oil. Development of the petroleum resources of the ANWR [Arctic National Wildlife Refuge] coastal plain could make a significant contribution to reducing import dependency by the early 21st century."

In this vein, API now advocates "opening the Arctic National Wildlife Refuge coastal plain to oil and natural gas operations and making more of the federal outer continental shelf available for petroleum development" as a "long term" solution to petroleum "dependency." Obligingly, according to PIW, ''The Department of Energy is expected to recommend reopening the Arctic National Wildlife Refuge to oil exploration as a partial solution to the problem of growing import dependence."

The day after Iraq invaded Kuwait, Senator Frank Murkowski (R-Alaska) amended the Defense Authorization bill to include a clause directing the President to open federal lands to oil exploration and drilands to oil exploration and drill 50 percent of consumption. The President would be required "to prepare a schedule under which exploitation of these lands would go forward, substantially exempt from other federal laws," according to the Bodega Bay, California Local Government Coordination Program bulletin. "At the top of this hit list would presumably be the Arctic National Wildlife Refuge."

Not only the oil industry but also the nuclear lobby has taken advantage of the crisis for its own ends. Advertising campaigns around the country by nuclear lobbies like the U.S. Council For Energy Awareness have focused on escalating the use of nuclear power. Claims one ad: ''This excessive dependence on foreign oil could poison America's economy and our national security. One-hundred twelve nuclear plants will not be enough to meet our rapidly growing demand for electricity. We need more plants. Importing so much oil is a danger America must avoid." Such opportunism ignores the reality of the sources of America's oil supply, and manipulates the current crisis for particularistic interests. The rhetoric of oil dependence underwrites not only militarism abroad, but environmental destruction at home.