Will Muslim Nations Control the World Oil Market?

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Oil is indeed the core of the Saudi-US relationship, even if both parties pretend that the matter is more complicated; and to be sure, it is so. Nevertheless, the complication is also related to issues connected –” directly or indirectly – to oil and energy. There is no doubt about it. Throughout the history of oil, sorting out who gets access to this highly prized resource and on what terms, has often gone hand in hand with violence. At first, it was Britain, the imperial power in much of the Middle East, that called the shots. But for half a century, the US seeking a preponderant share of the earth’s resources has made steady progress in bringing the Gulf region into its geopolitical orbit. In Washington calculus, securing oil supplies has consistently trumped the pursuit of human rights and democracy. That is to explain why the US policy toward the Middle East has long relied on building up proxy forces in the region and generously supplying them with arms.

In the wake of 9/11, the US-Saudi relationship has come under considerable scrutiny , with some analysts questioning its centrality in US foreign policy. Some analyzers have thus challenged the assumption that Gulf oil remains vitally important to the United States.

Yet, the US-Saudi relationship is too much important, too much intertwined, too much rich, and too much complicated to let it being summarized and reduced to some bad reactions about terrorism, though. The interests at stake are huge compared to those prevailing between the USA and other states of the Arab region. Yet, an objective evaluation of the current situation cannot afford to ignore the ambiguous side of the relationship and the attitudes and reactions trying to demonize this side or the other of the relationship, in what we have called the construction of the enemy’s frame of mind. The point here, as in any relationship between two different entities, is that we should always consider its unseen part. To borrow the lexicon of psychoanalysis, in any relationship between two people –” let’s say a man and a woman, for instance- there is not only these two persons, but also , their father and mother, their grand-fathers and grand-mothers, their sisters and brothers, their children, etc. So that when we see two people having a relationship, we should consider what lay behind in any evaluation, according to the psychoanalysts. This is also the case for States, for the latter do not represent themselves , but all the diversity of peoples behind them. In our case, we will not have only the USA and the Saudi Kingdom, but also all those who –” for a reason or another –” identify theirs interests to one of them and claim to have the right to advise and pressure as they claim the right to support and side with or against. Hence, beyond the economic ramifications of 9/11, which –”as we see –” cannot be summarized in reactions and counter-reactions over the issue of terror funding, there are the cultural background, with its variety of religious, ethnic, social, and political hues. However, it is true that the US-Saudi relationship has experienced its worst crisis in history. Americans and Saudis alike have started to wonder about the meaning and the cost of such a cozy relationship and whether their own governments have served them well.

Oil and Security

Oil and national security concerns have combined to produce a close and cooperative relationship between the United States and Saudi Arabia for much of the past century. Since the award of the first Saudi oil concession to a U.S. company in 1933, both states have had an increasing interest, respectively, in the marketing and acquisition of Saudi petroleum supplies. As regional threats multiplied in the latter half of the century, mutual concerns over the stability of Saudi Arabia and other moderate regimes in the Arabian Peninsula engendered a significant degree of defense cooperation.

US strategic priorities made of Saudi Arabia a key-piece for American primary security interests. As shown by declassified government documents, Washington has focused for half a century on preventing hostile forces from seizing and establishing control of Gulf petroleum. That is why Saddam’s invasion of Kuwait in 1990 could not be allowed : in the eyes of the American strategists, an ambitious and ruthless dictator, hated in his own country, would be much more emboldened if he was left in control of so much of the world’s oil wealth. The lesson from the Nazi adventure was being recalled in the media, along with a hypothesis assuming that Saddam would not stop at Kuwait anyway. No wonder that even the Arab states entered the international coalition that gathered not only to liberate Kuwait, but also to warn other candidates to military expansionism –” under whatever slogans- in the Gulf or elsewhere : for the first time, the Arab states have been unified in a coalition that far from fighting against Israel, would oppose a “brother-regime”. The arab solidarity would be the first victim of such a situation created by Saddam’s agression.

The fear that a powerful state –” then the Soviet Union- could control the dominant share of the world’s oil supply has since 1949 pushed American policymakers to plan the destruction of regional oil facilities. “In coordination with the British government and U.S. and British oil companies, but without the knowledge of local Arab governments, President Harry Truman approved a detailed plan — described in a National Security Council directive known as NSC 26/2 and later supplemented by a series of additional NSC orders — to store explosives near Persian Gulf oil fields. As a last resort in the event of an imminent Soviet invasion, oil installations and refineries would be blown up and the reserves plugged to keep the oil out of Moscow’s hands”.[1]

Telhami reminds us that in 1957 too, “in response to increased instability in the wake of the Suez crisis, the Eisenhower administration reinforced and expanded the logic of this strategy. With many friends of the West threatened by the rise of pan-Arabism, championed by Egyptian President Gamal Abdel Nasser, the United States grew concerned that unfriendly governments would emerge in the region. This fear led Eisenhower to expand the denial policy to include not only threatening external powers, but also hostile regional regimes”. [2]

Although the US military presence is not solely about oil, oil is a key reason. In 1999, General Anthony C. Zinni, then the head of the US Central Command, testified to the Senate Armed Services Committee that the Gulf region is of vital interest to the US and that the country (America, that is) must have free access to the regions resources. Bush administration officials have, however, categorically denied oil is one of the reasons why they pushed for regime change in Iraq.[3]

Trade relationship

Saudi Arabia was the second largest U.S. trading partner in the Middle East in 2002. For that year, Saudi exports to the United States were estimated at $12.2 billion and imports from the United States at $4.3 billion. Comparable figures for Israel, the largest U.S. trading partner in the Middle East, were $12.4 billion in exports and $5.3 billion in imports. To a considerable extent, this high volume of trade is a result of U.S. oil imports from Saudi Arabia and U.S. arms exports to that country. The Saudis buy significant amounts of U.S. commercial equipment, such as machinery and vehicles, as well. Also, a Washington Post article of February 11, 2002, estimates that Saudi nationals have invested between $500 and $700 billion in the U.S. economy. [4]

Saudi Arabia has applied to join the 128-memberWorld Trade Organization (WTO) as a developing country, an arrangement that would give it a special transition period to bring its commercial procedures in line with WTO rules. The U.S. State Department notes that accession is assumed to encourage the Saudi government to initiate substantial reforms, including tariff reduction, opening up financial services (insurance and banking), allowing competition in telecommunications and other services, and better protection of intellectual property rights.

In recognition of its progress in protection of intellectual property rights, Saudi Arabia was removed from the U.S. Trade Representative’s Priority Watch List in 1996.

Oil Production

With the world’s largest proven oil reserves (estimated at 261.7 billion barrels in January 2001), Saudi Arabia provided approximately 14% of U.S. oil imports and 8.46% of total U.S. oil consumption in that very fateful year 2001. Formerly the largest foreign supplier of oil to the United States, Saudi Arabia has been exceeded in this role by Venezuela and/or Canada during recent years.

In recent years, Saudi Arabia has alternately supported cuts and increases in production as oil prices on the international market have fluctuated. Under a “gentlemen’s agreement” reached in June 2000, members of the Organization of Petroleum Exporting Countries (OPEC) established a mechanism to adjust the supply of oil by 500,000 bpd if the 20-day average price of oil moved outside a $22 to $28 price band. Members disagree, however, as to whether this mechanism is automatic or requires separate action by OPEC to implement it, and Saudi Arabia has spoken of a target price of $25 rather than a price band. Congress has approved legislation to discourage price fixing by oil producing countries.[5]

The challenges of the Muslim nations

If one of the most important consequences of 9/11 is the accentuated demand on democratization and reform in the Arab world as a way to preventing more Islamic radicalization in these societies, it is noticeable that anyway even without those tragic events, the West was still adamant on introducing some political reforms. The fact is that the GCC being involved in international trade, its connections with the western political notions have to be updated from inside. There is a reason for that. Nowadays, the terms "democracy" and "market economy" are often used interchangeably. Some kind of opening has thus to be performed. In the former East-European states, the process has conduced to joining the European Union, which was – and still remains- an economic market before it became a political project. In Russia, we see almost the same scheme, and even in China, there is an orientation towards some sort of liberalization.

However, in America some priorities that were already working in the background of the political scene well before 9/11 have hardly changed after these events, whereas others occurred in the aftermath and have renewed – or rather accentuated- the interest in the region .

In 1999, an article of the magazine "Brain Food" announces that "America will soon lose the stability the framers worked so hard to create because it is becoming wholly dependent upon inherently unstable (authoritarian) oil-producing Muslim nations".[6] Indeed, the idea is neither new nor genuinely original. Besides, it is not quite logical, either. The question that such an idea raises is : can a Superpower like America lose control over its own destiny just because it is relying for some of its energy importations on “unstable countries”? Why should the instability in some Muslim countries lead necessarily to a similar instability in the USA? For Jay Hanson, it happened over twenty five years ago that OPEC quadrupled world oil prices and plunged America into "stagflation". Yet, maybe it would be more advisable to speak of unrest instead of instability. To be sure, 9/11 caused unrest in America which has become anxious about international terrorism and radical Islamism. Either some like it or not, Islam is since then an asset in this game, and it happens that those who detain the main resources in energy are Muslim nations.

"Muslim nations" writes J. Hanson " will soon control virtually all of the world’s oil exports. Since neither capital nor labor can create energy, the next round of energy-shortage-induced stagflation will leave central bankers helpless and they will seek military solutions to their economic problems. It’s the best-kept secret in Washington, Whitehall, Brussels, and Jerusalem, but it’s just a matter of time until word hits the street".[7]

The market economy receives almost 80 percent of its energy subsidies from nonrenewable fossil sources : oil, gas, and coal.[8] That makes the struggle for energy a vital issue, not only for the consumers (especially the Westerners) but also for the producers, for who the matter is most of all of political survival. That’s where the strategies of the Western states intermingle with the local struggles for power between the elites of the concerned regions, until it becomes hard to distinguish between what is a local necessity and what is a priority dictated by the foreign interests.

Oil is the highest quality energy today used throughout the world, making up about 38% of the world energy supply, according to some estimations.[9] In 1977, Richard Duncan developed a new model to forecast oil production called the "Numerate Empiric Model". In the course of his research, it seems that Duncan discovered what J. Hanson holds as the "best-kept secret", which is that Muslim nations would be able to control market economies because they will control virtually all of the oil export market. Writing to President Clinton and Senator Jessie Helms in the same year, Duncan warned them that if an "alliance of Muslim petroleum exporting nations" could see the day , this alone “could cause World stock markets to fall 50 % in one day, and crucially it could ignite both (1) a World Petroleum War, and (2) a World Holy War (called Jihad by Muslims)”.

Though these sentences are tainted with a highly emotional dramatic tone, it seems that by an irony of the hazard the events gave this apocalyptic vision some weight. Indeed, the Muslim nations did not make any alliance with the clear purpose of striking at the heart of the world economy, as Duncan imagined. Yet, what was the Desert Storm if not a little World Petroleum War caused by the failed attempt of Saddam Hussein to lay his hands on the Kuwaiti oil fields? And if one of the consequences of that war consisted in implanting and broadening the American military presence in the Gulf, what was the reaction of the local opposition (or/and dissidence gathered in the radical jihadist cells) if not starting the World Holy War (jihad) against the Westerners, as Bin Laden put it? But in 1999, when he published his article, J. Hanson could very well draw his own conclusions from the course of the Gulf War that changed a lot in the political vista of the region. Never before that time, the Saudi opposition could catch the ears and the eyes of the grand public, and we can probably say the same of all those small groups of militant jihadists which spread loosely all over the Arab region. It will be 9/11 that brings to the limelight the connection between those who are inside and those who are outside. Nothing will ever be similar after that date.

There is ally and ally

Why 9/11 changed all the conceptions prevailing about the relations between the USA and the GCC , and particularly Saudi Arabia ? Because, it raised the question not only about the credibility of the American allies in the Arab world, but also about America’s own credibility in regard of what justifies some of those alliances.

The Americans pride themselves for what they deem to be their power and influence in the modern world. Some of that power and influence is supposed to be reposing on a strong independence will. But what the Americans discovered in the wake of 9/11 is that they are not as independent as they have always figured to be. Not to be completely independent means in this dramatic context not to be able to tackle efficiently the calamity that hit America in the heart : the Islamist terrorism. The problem is grave, or at least that’s how it sounded the day after 9/11, when America discovered to its horror that 15 on 19 hijackers were Saudi citizens. Why Saudis? Why the Gulf States, which Washington has always thought to be allies and friends in the same measure that it considered itself as their protector ?

Nonetheless, behind the official message and the main stream media discourse there are the truths that are neither new nor secret, if only one could make sense of some signs that preceded those tragic events of New York and Washington.

First, when Senator Helms replied to Duncan, he did not hesitate to acknowledge that "the Commerce Department recently released a report which found that US dependence on foreign oil has become a threat to national security. The government should not have allowed its national security to be placed in such a vulnerable position" said he. That makes J. Hanson – and many others – shudder for "what if?" "The United States", writes the latter, "is physically unable to produce enough oil domestically to keep its economy alive and is forced to rely on its imports. In 1998, the United States imported 53 percent of its oil needs. This deficit is growing… and will continue to grow until the economy collapses exactly like it did twenty five years ago".[10]

However, maybe the core of the problem is not that America is relying on imports for its needs of energy : would that have been really a thorny problem if those imports of oil were coming from – say – Europe, for instance ? The Europeans , in spite of their complicated controversies with the USA are allies. And so are the oil producing Muslim states . Then where is the problem? It is exactly in the cultural differences,[11] those « lines » of division and meeting assumed to be the « front » of civilization shock in the thesis of professor Huntington. Islam is a peace religion, though. Yet, what people could make of it , is another question, particularly when there is on one part and another of the globe(i.e. in the West and in the arabo-islamic world) a systematic, thorough construction of the enemy. This is not just an intellectual polemic, as passionate as it may sound to Western and Muslim scholars. This is now, and since 9/11 a matter of global challenge facing the American administration, as it is facing – but with a different tone and on a different scale – the Muslim states, either in the GCC or in the rest of the world.[12]

Well before 9/11 , and even before the two Gulf wars ignited by Saddam Hussein in 1980 and 1990, the couple "Islam and oil" has already revealed to be quite explosive : the Iranian revolution of 1979 proved it. In those not so remote days, it was not only 63 Americans taken as hostages at the embassy in Tehran, but America itself. The whole regional system set up in the Gulf since the fifties was being paralyzed. And here too, the issue was not just about oil interests, but about the social project and the cultural shock. After all, the new regime of the Mullahs did not stop pumping oil towards the West, and the West did not stop buying it. The problem was elsewhere. It was in the attitudes, the behaviors, the symbols, and to put it briefly, in the signs released by the new regime in Tehran and in their interpretation in the West.

So, does it really matter if we notice for example, following Hanson’s steps, that the Middle East alone has 64 % of the world’s proved oil reserves? Yes of course, it does. And this is not just because it is the Middle East. Nobody would care if it were the Caribbean, the northern pole, the Black Sea, or Southern America. The point is that the contemporary Middle East is mainly a region deeply influenced by two trends: religion (Islam) and nationalism. And that makes the difference. Add to that 9 % (i.e., the FSU Muslim republics, 1.7 % ; Muslim African nations, 6.7 % ; Indonesia, Malaysia, and Brunei, 1%) and the Muslim states would have roughly 73% of the total world’s proved oil reserves. Conclusion of Hanson : " By 2010, Muslim nations could control 60 percent of the world’s oil production and, more importantly, 95 percent of the world’s oil exports. In short, the Muslim exporting nations have Western economies by the throat".[13]

Special partnership

Yet, one is prone to say , the situation has not always appeared so grayish. In fact, it could even have appeared the other way round. Thus, in studying US-Gulf states relationship, one cannot help noticing the moderating influence of Saudi Arabia – the most conservative state in the Gulf. The underlying motivation behind Saudi Arabia’s friendly policy toward the United States has been “the realization that its security and government stability are inextricably tied to (1) moral and material support of the United States and her industrial allies and, (2) economic prosperity and stability of the industrial world, including the United States. The fact that the Kingdom has and will depend very heavily on US military supports for its external security cannot be overemphasized”.[14]

According to Vo Xuan Han, Saudi Arabia’s economic dependence on the outside world is no less obvious. Oil exports being her most important source of revenue, Saudi Arabia’s economic interests depend heavily on the economic conditions in the most advanced and largest industrial economies. “Also as most of the Saudis’ financial assets are held in the currencies of these industrial countries, especially the US dollar, her wealth would be adversely affected by economic recession and depreciation of these ‘hard’ currencies. Last but not least, another factor that may explain Saudi Arabia’s cautious and generally pro-Western stance has been her dependence on Western goods and technology, which she sorely needs for her industrialization and modernization efforts.”[15]

Saudi Arabia’s perception of national interest would seldom collide with the need to preserve solidarity with her exporting allies. At the height of the oil shocks in the 1970s, it was Saudi Arabia that counseled a moderation in price increases. "This kingdom had repeatedly wanted to keep the oil price down out of a sincere concern for recessions in the global economy, particularly the advanced market economies", writes Vo Xuan Han.[16] During the OPEC price negotiations in 1976-77 and 1979, “it was Saudi Arabia that had fought the other powerful militant members, such as Iran, to keep the crude price from rising as fast as they had wished. At this time, the kingdom’s position was strong and secure enough to force compromises. There was also evidence that Saudi Arabia had acted out of political consideration to please President Carter during 1976-77 when she resisted the pressure to increase oil prices from other OPEC members. In 1981 , near the peak of OPEC crude price hikes, by maintaining a high rate of production, Saudi Arabia was able to put a halt – albeit a short- lived one- to the price escalation that had started in 1979. Once again , in 1988 when the oil glut drove the price down and oil exporters wanted to control production to keep the price around $ 18 per barrel, the Saudis were accused of secretly trying to undercut the producers’ efforts and keep the price around $ 15 per barrel by such scheme as giving discount to buyers. Differences between Saudi Arabia and the OPEC members led to the most bitter confrontation at the April conference”.[17] The same author notes that Saudi Arabia’s foreign policy toward the United States “reflects a strong desire to push her own interests as far as she can without having to break away from her historic, mutually beneficial relations with the United States and other industrial powers”.[18] Saudi’s special ties to the United States , historically based on investment security (for the oil firms), has evolved through times to deeper levels ranging from oil to military security on the one hand and economic and technical cooperation, on the other. On balance, “Saudi Arabia’s oil policy has made her an invaluable ally of the industrial powers. The kingdom’s moderating influence has prevented the global oil industry from becoming an oligopoly dominated by one firm."[19]

Yet, when 9/11 broke out, it was as if years and years of this partnership vanished off the records and were almost erased from men’s memory, letting the way open to paranoid suspicion and mutual accusations.

Conclusion:

Neither Saudi Arabia, nor any great oil exporter can today stop the evolution towards new kinds of energy. This is a matter of historical process much resembling to the mutation from steam to coal, and from coal to electricity and oil. The oil producers from the Arab region should better take Mr. Bush’s speech as a reasonable advise for themselves. The American dependence on oil may be ended the day new valuable sources of energy are put at the disposal of the mass consumers. That day is perhaps not as remote as we deem it to be. Meanwhile, oil is still the main source of energy for the industrial countries and the main source of funds for the exporters. As nobody can guarantee today that alternative energy will be as available and cheap for the developing countries as it is supposed to be for its developers in the West, the Third World will be trapped again. If there is penury of oil, there will be also penury of funds in the countries that appear today wealthy and in “good health”. This is not a matter of speculation, but a matter of time. Soon or late, there will be a mutation in energy sources. The Arab oil exporting countries should better think about it and prepare themselves for facing a world where oil is no longer the unique source of energy.

Notes: :

[1]. Shibley Telhami, Does Saudi Arabia still matter? Differing perspectives on the kingdom and its oil, Foreign Affairs, November/December 2002.

[2]. Idem.

[3]. “Nonsense” Defense Secretary Ronald Rumsfeld told 60 minutes Steve Kroft in mid-December 2002. “It has nothing to do with oil, literally nothing to do with oil” !

[4]. Alfred B. Prados, Saudi Arabia, Current Issues and US Relations, August 4, 2003, CRS Issue Brief for Congress.

[5]. Idem.

[6]. Jay Hanson, The Best-Kept Secret In Washington, Brain Food, Third Quarter, 1999.

[7]. Idem.

[8]. They are called nonrenewable because , for all practical purposes, they’re not being made any more. The reason they are called fossil is because they were produced by nature from dead plants and animals over several hundred million years.

[9]. Studies show that nothing can replace oil : a recent review of the future prospects of all alternatives has been published. The summary conclusion reached is that there is no known complete substitute for petroleum in its many and varied uses.

[10]. Idem. This was written in 1999.

[11]. See about this topic, Dispassionating the Debate about Modernization and Westernization, Hichem Karoui, 11/15/03: http://www.hichemkaroui.com/archives.htm

[12]. We can talk of construction of the enemy each time we notice that the discourse is based on a series of elementary dichotomies , such as : good/evil, just/unjust, guilty/innocent, rational/irrational, civilized/uncivilized, which can be defined as floating (or empty signifiers). These floating signifiers have no fixed meaning, but they are (re)articulated before, during and after the conflict and placed in a chain of equivalence. Both sides claim to be rational and civilized, and to fight a good and just war, attributing responsibility for the conflict to the enemy. The construction of the enemy is accompanied by the construction of the identity of the self, clearly in an antagonistic relationship to the enemy’s identity. In this process not only the radical otherness of the enemy is emphasized, but the enemy is also considered to be a threat to ‘our own’ identity. In this fashion the enemy’s identity becomes a constitutive outside, supporting the identity construction of the self.

[13]. Idem.

[14]. Vo Xuan Han (associate professor of Economics at Winthrop University, Rock Hill, South Carolina) , Oil, the Persian Gulf States, and the United States, Praeger Publishers, Westport, Connecticut, London, 1994. P. 113.

[15]. Idem.

[16]. Vo Xuan Han. Op. Cit. P. 114.

[17]. Idem.

[18]. Idem.

[19]. Idem.

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* The author is publishing a book about some of the topics of this article: L’immuable et le mutable dans la culture, la société et la politique saoudiennes (Immutable and Mutable in the Culture, the Society and the Saudi politics ); under print in Paris, 2006, l’Harmattan.

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