Saturday, March 26, 2011


Oil on fire

March 27, 2011
9:49:17 AM


Gautam Sen

Courtesy: Daily Pioneer and Gautam Sen

West Asia and North Africa produce more than a third of the world's oil, but the turmoil in the region threatens to unsettle this arrangement. As the US, France and Britain bomb Libya and oil prices touch new heights, one wonders if the world is headed towards another energy crisis

Virtually no one predicted the dramatic political wildfires spreading across West Asia and North Africa from a solitary spark in Tunisia. Its final destination is not yet in sight and its eventual shape hard to anticipate. In the final analysis, the world at large may care little for the fate befalling its people, just as it blithely ignored the nearly six million dead in the Congo over the past decade. But the oil riches of West Asia and North Africa make developments in the region impossible to ignore. In retrospect, a thoughtful observer might have noticed powerful underlying forces of change were incubating a political tsunami. The rapid growth of population and mass youth unemployment especially were threatening a political earthquake. And it was virtually impossible for the region’s ruling oligarchs and monarchs to stem the swelling tide of discontent that inevitably ensued.

As one recent observer put it: “As demographic transition unfolds in the countries of the Maghreb and West Asia, thus creating a youth bulge (a high share of the 15 to 29 years old in the total population), we observe what can happen when those social, economic and political institutions are not in place: A potential dividend turns into a curse. Young and educated people fail to find meaningful jobs and with it the capacity to become independent. As a consequence, unemployment is increasingly perceived as tantamount to social death.” All the brute force, the secret police and vacuous ideological blandishment could not suffice to repress it. And unbelievable misgovernment despite the existence of pharaonic wealth in some of the affected countries guaranteed popular revolt.

It was the unhappy fate of much of Arabia and North Africa to emerge from Ottoman tutelage to immediately become prey to Anglo-American and French neo-colonial machination. Their geopolitical location and oil wealth were too important to permit meaningful sovereignty and autonomous socio-economic evolution. The creation of Israel added a further explosive dimension to their destiny.

From Algeria to Egypt and Iraq to Jordan, Anglo-American manipulation became the norm everywhere. Ibn Saud of the Nejd had been implanted by the British, with the British intelligence agent, Harry St John Philby, father of master spy Kim Philby, disingenuously proclaiming him the greatest Arab since Prophet Mohammed! Saddam Hussein, like the monumentally incompetent and greedy contemporary Ben Ali of Tunisia, was once a CIA employee. President Hosni Mubarak of Egypt was also a creature of US imperialist designs and stole from his impoverished country on a scale that shocks even hardened observers.

And now one witnesses the neo-fascist posturing of a Libyan tribal warlord unleashing fighter aircraft against the women and children of his own country. In the meantime, another potentate fabricated at Britain’s Sandhurst crouches fearfully in Amman, no doubt praying his tribal Bedouin brethren will unleash another bloody Black September to sustain him in power if the need arises.

Almost 60 per cent of the world’s known oil reserves are located in West Asia and Persian Gulf. The US, the pre-eminent political and military presence in the region, imports almost a quarter of its oil from it, mostly from Saudi Arabia, virtually a protectorate whose regime could not survive without US guarantees. It might be remembered that Osama bin Laden moved to Afghanistan to launch jihad, first and foremost against the Saudi monarchy’s alleged apostasy, after it prevented him from staging anti-US political protest within the kingdom. The US was only an ancillary target and on that poignant political episode hangs a momentous tale of global terror and mass murder.

The US remains determined to dominate West Asia politically in order to prevent control over oil supplies falling into the hands of a potentially hostile third party that might use it politically and withhold supplies. The issue is not really about the pricing of oil in the end. The loss of control over oil supplies was a critical factor in the defeat of the redoubtable Field Marshall Rommel in North Africa and the disarray of retreating German forces on the eastern front. Indeed an important reason for India’s Partition was Britain’s perception that is would need Karachi harbour to overawe its erstwhile West Asian neo-colonies since Jawaharlal Nehru seemed unlikely to oblige with requisite good grace and Indian ports.

In any case, the oil market is highly politicised whatever the prevailing price due to demand and supply. Oil producers themselves have reasons to limit supply, for example, if they lack the capacity to absorb resulting revenues, as with the Saudis, by extracting as much oil as technically feasible. Fresh discoveries of conventional oil fields have almost ceased and newer sources like shale are too expensive, only sustained by government subsidies though price levels do determine what type of sources become economically viable.

The longer historical trend in oil supply has been the decline in OECD production that had come on stream in the early 1980s and a corresponding rise in demand from industrialising Asia. China’s imports of oil are a prominent feature of the current oil market, accounting for a third of the increase in total global demand. By contrast, it used to be a net exporter in the early 1990s. India’s oil imports have also been rising because higher growth rates are stimulating increased consumption of all types of fuel. However, the US and Europe remain the major consumers and there is competition over oil extraction rights and anxiety about who controls them. Ultimately, demand is growing faster than supply, which implies prices will continue rising. It might also be noted that political crises tend to create price spikes that impact economic stability. The current sharp rise in prices owing to political events in West Asia and North Africa is threatening a fragile global economy struggling to overcome recent financial mismanagement.

India is in a peculiarly vulnerable situation and its energy import planning efforts are mostly long term and on paper. It has little political clout in the world oil market and is charged a couple dollars more per barrel than rich countries because that is how OPEC does business. India is a powerless consumer that takes prices as given and hopes that it will not face politically-motivated interdiction of supply and ingratiates itself earnestly to the Arab world to insure against such an eventuality. And, of course, India’s hapless migrant workers in the Gulf remit prodigious amounts to pay for its massive dollar denominated oil import obligations. Should they have to return home indefinitely owing to the troubles, India will face difficulties with its balance of payments. Politicians of all stripes and Indian voters themselves compound their vulnerability and unnecessarily transfer additional sums to oil exporters by refusing to pass on international price increases.

India has also embraced urban automobile transport without any heed to its fundamental irrationality today. Nor is there any systematic effort to improve the efficiency of oil dependent production and engineering units and the ONGC itself has been a rather dismal manager of India’s offshore oil assets. Long-term planning for energy and comparable issues is evidently beyond the capacity of the Indian polity. The idea that nuclear energy will eventually become a major contributor to Indian consumption is sufficiently in the distant future to embolden all and sundry to talk confidently of it, either as a panacea or certain disaster. In the aftermath of the exposure of Japan’s folly in planning and managing nuclear installations, it remains to be seen if India’s bankrupt political class will do any better!

US administrations may differ on some things, but efforts converge where international energy policy is concerned. In West Asia and adjacent North Africa, which impacts its politics, the intention is control through surrogates. After a typically Obama moment of hesitation, familiar policies and instruments swung into action. The US, with French help, sought to finesse the Tunisian revolt by trying to shepherd Ben Ali’s venal cronies into power, unconvincingly blaming one greedy family, formerly a valued ally, for all the evils that beset the country. An unfolding similar ruse has a better chance of succeeding in Egypt since its armed forces are a tainted instrument of US diktat and, in any case, Egypt is too important to be cast adrift.

Evidently, the Saudis and neighbouring monarchical satraps have been given the green light to crush revolts. And the horrifying violence instigated in Algeria by Western powers during the 1990s, resulting in 300,000 dead and conveniently blamed on FIS Islamists remains a solution of last resort. There was also a cynical Anglo American conspiracy afoot to get into the ground floor with whoever might secure power in Libya. Colonel Muammar Gaddafi wasn’t written off immediately, though it seems a decision has subsequently been taken to replace him with a weak surrogate, beholden to Europe and the US for help to gain power. Nevertheless, someone is likely to end up with a string of honorary doctorates from August Western academies, a novel instrument of modern diplomacy confirming Libya’s oil reserves are larger than hitherto recognised.

China is watching events attentively but, evidently, not prepared to take action that might be perceived as interference against vital Western economic and political interests. Its policy is palpably simple, a jackal waiting for leftovers once the big game are sated. But China acts surreptitiously as well when Western resolve weakens to offer succour and invest politically for the long run. It has adopted Pakistan wholesale and is well on the way to becoming the major patron of Iran’s clerical regime and will likely bide its time for an opportunity to assist other potential clients in the region. Yet, West Asia and North Africa threaten to become an embittered standoff that will translate into even greater terrorist violence should expectations be disappointed if self-serving collaborationist elites re-group under renewed Western patronage.

Already Islamists are moving swiftly to impose their medieval barbarism at the first opportunity, committing acts of violence against women and minorities even in supposedly liberal Egypt and Tunisia. And an intensification of the Shia-Sunni cleavage, with much of the region’s oil resources located in areas populated mainly by Shias, enlarges the scope for sectarian tensions that will be exploited by foreign interests, as they have done in Iraq. The US capture of Iraq now only requires the overthrow of the highly unpopular Iranian clergy to consolidate a historically unprecedented alliance with Shia groups who happen to have such a disproportionate presence in oil rich provinces. It will enable the US to play the Sunnis and Shias off against each other since they both accord higher priority to their own historic sectarian dispute than any other issue. The Saudi monarchs will be totally cowed and a final settling of accounts for 9/11 will have taken place.

How it will affect India’s interests is unclear, though like the best laid plans of mice and men that often come to naught, the American reverie may fail. History has surely not ended.

-- The writer taught international political economy at the London School of Economics and is the co-author of the book, Analyzing the Global Political Economy (Princeton University Press, 2009)


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