THE world is poised to suffer a major rise in oil prices and unpredictable hardships for commonfolks unless President Bush decides to resolve the Iraq crisis without a war. The hardest-hit will be the developing countries where oil prices are already a severe burden on their economies and their people. In Pakistan, the motor gasoline prices have already crossed the mark of Rs35 and may jump to Rs40 or beyond, at the outset, if and when the long-feared attack comes off. How costly the oil can be depends on how long Americans take to conquer Baghdad.
More than a decade ago, when the Gulf war was about to break out, the oil prices had more than doubled and came down only when the fighting was about to end. Fears about a new attack have already pushed the oil prices by about 50 per cent this year to 30 dollars a barrel, the highest since February 2001. That includes what the Washington Post recently described as “fear premium of five dollars per barrel.”
Since the key objective of the Bush administration’s Iraq campaign is more a regime-change and less a weapons’ elimination, Saddam Hussein could go to any extreme to protect his regime. One action he could take is to block oil shipments from Saudi Arabia towards the West which amount to 5 million barrels a day — and no one in the world can make up that shortfall.
Then, there is a nightmare scenario — Saddam resorts to a deadly attack on Saudi or Kuwaiti oil infrastructures, which are within the range of Iraqi Scud missiles, with an intention to create a major energy crisis for the West, though the rest of the world would equally suffer its effects. The United States will, in such an event, draw upon from its Strategic Petroleum Reserve which contains an eight-week supply. European reserves are much smaller.
Such a desperate act on the part of Saddam Hussein, though a remote possibility, could impose on the world, a crisis more catastrophic in consequences than 1973 Opec oil embargo which had rocked the post-war global order, caused four-fold rise in oil prices and slid the global economy into a prolonged recession. It was for the first time that oil was used as a political weapon by the Arab oil-producing countries against Israel and the West.
According to Jeremy Rifkin, a writer on energy issues, the story of oil gives credence to the idea that what goes around eventually comes around. Oil, the energy that helped make the West the unchallenged economic, political and cultural force in the world in the 20th century, could become its undoing at the hands of an Islamic world determined to turn the tables and restore its former status as the world’s spiritual and cultural arbiter.
Malaysian Prime Minister Dr. Mahathir Mohammad, known for his radical views, has, of late, been advocating use of oil as a political weapon by Muslim oil producers to restrain the US from committing blatant excesses against the Islamic world. He said it again when he was in Islamabad on a short visit last week. But such an action looks almost impossible now although Israel has never been so unrestrained in its savage attitude towards Palestinians, nor had the United States been so arrogant and unscrupulous in the past in humiliating its ‘Muslim’ adversaries. There are two reasons for Arabs’ passivity: the end of cold war and September 11.
The current configuration of the Middle East, according to Los Angeles Times, has its roots in treaties and understandings that grew out of the post-World War I settlement of the broken Ottoman Empire. It was based on an assumption that the Russian Revolution had removed both Russia and Central Asia from the world oil market. So the Middle East was to be the only stable source of oil for the West. But this configuration underwent a change in 1989 when the Soviet Union began to disintegrate and Russia and Central Asia came back to the world oil market. However, a traditional redistribution of “spheres of influence” among the big powers did not occur. Instead, the multinationals and the concerned countries began playing a new “great game” in Central Asia. Now Russians are competing with the Saudis for a sizable share in the market.
The recent tension between the US and Saudi Arabia owes its origin to Washington’s bid to have alternate oil sources in case Riyadh has to be abandoned for some strategic reason. In a major policy shift, the Bush administration showed its interest in developing long-term oil deals with Russia last year although Moscow’s ability to ship crude to America is meagre. The purpose behind this policy shift is to weaken Opec solidarity and control on oil supply.
The Saudi-American relations have deteriorated rapidly since the 9/11 attacks. In the event of US attack on Iraq, any Saudi move to help Washington could trigger bitter domestic opposition. At Osaka summit of Opec in September, Riyadh had spurned US requests for an increase in oil production to counteract rising prices.
The Rand Corporation’s briefing to Pentagon in the first week of August was an indication of which way the wind was blowing. In the briefing, which signalled Washington’s distancing from Saudi Royal family, Riyadh was called ‘kernel of evil’. The briefing suggested to the US to be ready for a showdown with its former ally and make no hesitation to seize its oilfields, if necessary, to meet America’s crucial energy needs. Hence, the indications are that if a unilateral US attack on Iraq becomes a reality, then one major casualty may well be the system of alliances that the United States has maintained since the World War II, in the Middle East.
A pro-American Iraq could well serve as a counterweight to Saudi oil. And it could play a vital role in diminishing the influence of OPEC. Such a development, which for Washington could mean a cherished dream coming true, raises the possibility of a new and more stable market in which oil is priced at between 18 and 22 dollars per barrel. But for Moscow, it will be a bitter pill to swallow.
Russia is wary of the consequences of a war in Iraq — and that reflects its position on the US resolution in the Security Council — because the Saddam regime owes Russia about $8 billion in debts and had recently signed a $40 billion trade deal with Moscow. President Putin wants President Bush to guarantee protection of Russian interests in Iraq after the war, if he wants his (Putin’s) support to regime-change in Baghdad. The issue has become a sticking point in negotiations between the two countries.
Russian companies are seriously worried that a pro-Washington regime in Baghdad will cancel their previously signed agreements and favour the US oil industry in a big way. Then, as the new regime would prefer enhanced oil production to raise money for reconstruction projects, the price of oil is likely to fall to even less than 20 dollars per barrel. Such a decline will hit hard Russia’s economy as it depends on oil for about 40 per cent of its export revenue. In the first week of October, both secretary of state Colin Powell and commerce secretary Donald Evans met Russian officials in Washington and Houston and gave assurances. But these have not satisfied Moscow.
America’s Saddam fever is motivated not by oil factor alone. Its true motive lies in reorganizing the Middle East geo-politics by carving out a triangle to be formed by Turkey, Israel and US-controlled Iraq. This will, in turn, enable Washington to control the oil supply and the Arab world. But such a strategy, seemingly a corollary of the Bush doctrine issued on September 17 which propounds “pre-emption” policy for the future, is fraught with serious dangers. It can aggravate tensions between the West and the Muslim world though it will merely be a clash between capitalism’s core and its peripheries and not the so-called clash between the civilizations as theorized by Samuel Huntington.