After War, A World Economy Less Reliant on Middle East : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread


After War, A World Economy Less Reliant on Middle East James Flanigan

October 14 2001

Although nobody is talking about U.S. oil interests in the war on terrorism, beneath the surface serious questions are bubbling about long-term supplies of petroleum and the shape of governments in the oil-rich Middle East. Once the war is over--"once Afghanistan is stabilized," in one oilman's words--a new order may emerge.

The oil-bearing countries' relationship with the United States and other regions will change. There will be a power shift among oil producers. Major oil companies will be in a more advantageous position.

To be sure, the war today is in Afghanistan, which is not an oil producer yet. And there is no shortage of oil, as the Organization of Petroleum Exporting Countries has kept production at a high level and prices stable since Sept. 11, despite a worldwide business slowdown. But the issues of international terrorism, led by Saudi-born terrorist Osama bin Laden, and the vehement anti-Americanism of oil-producing Middle East countries are causes of concern. The United States imports more than half the oil it uses, and 28% of its imports come from the Persian Gulf region.

In the new environment after the war on terrorism, within the next two years or so, the global economy won't be held hostage to the Middle East--although it still will depend heavily on oil from OPEC nations.

It is too early to tell precisely what the new environment will be. But changes are coming in Saudi Arabia, Iraq, Iran and other countries.

Some trends already are clear. Russia, the third-largest oil producer after Saudi Arabia and the United States, has ambitions to increase its role internationally.

"Japan and China and Korea would like us to supply energy to them," says Victor Ishaev, head of administration for the vast Khabarovsk region of far eastern Russia.

After the Sept. 11 attacks, Russian Prime Minister Vladimir Putin pledged Russian energy supplies to a worried Europe, undermining any leverage OPEC might have had.

The former Soviet states of Central Asia will see development of oil and natural gas and pipelines built to carry those fuels to China and India. A new oil field called Kashagan, in the Caspian Sea area of Kazakhstan, is extremely large.

"Two wells have been drilled 25 miles apart and yet geology shows they are connected," reports Albert Anton, head of research at Carl H. Pforzheimer & Co., a New York investment bank specializing in energy issues.

"The field could hold 30 billion barrels of oil," he adds--or as much as the United States' oil reserves.

Major oil companies will see great demand for their skills to develop oil and gas in all parts of the world. BP is working on three natural gas projects in the Irkutsk area of Siberia.

Saudi Arabia has reached out to eight international companies to develop natural gas deposits. ExxonMobil, Royal Dutch Shell, BP and Phillips Petroleum are negotiating terms of Saudi gas projects worth $25 billion. Occidental Petroleum, Marathon Oil, Conoco and French company TotalFinaElf also will be involved.

The gas projects are significant because the Saudi government launched them as job development projects for the country's many underemployed young people.

Regarded 30 years ago as a place of endless riches, Saudi Arabia has seen a population boom but not an economic one in the intervening decades.

It now needs to develop a diversified economy, but is torn by conflicts within its royal family over policies toward the United States and is threatened by fundamentalist groups influenced by Bin Laden.

"The No. 1 concern is instability in Saudi Arabia," says Patrick Clawson, research director of the Washington Institute for Near East Policy and an expert on terrorism.

"Disruption in Saudi Arabia could prevent it from increasing supplies of energy to the world economy," Clawson adds.

But trouble in the Arab kingdom would not shut down the world economy as it might have in the 1970s.

There are vast supplies of oil in other countries, albeit some of them more troubled than Saudi Arabia.

Iraq, which recently discovered an oil field in its western desert, is widely regarded as having more oil than Saudi Arabia once its deposits are developed. Iraq is producing 3 million barrels a day, funneling most of it to world markets through a United Nations-monitored program that directs the proceeds to food and medicine for the Iraqi people.

But Saddam Hussein's country has been stepping out. It ships oil to Syria, which has grown newly prosperous reselling Iraqi oil. A chief customer is the United States, which likes the low sulfur content of Iraqi oil, says Nimrod Raphaeli, publisher of the Middle East Economic News, a Washington-based newsletter.

However, Iraq these days is worried about being attacked by U.S. and British forces once they are done in Afghanistan. And indeed it may be attacked, although regional experts say peaceful interventions by other countries also could stop Hussein's government from sponsoring terrorism.

Iran is working out internal conflicts over economic development. But with a population of 62.5 million mostly young, educated and ambitious people, Iran will need to join the general development going on around it.

The aftermath of war, experts predict, will see pipelines laid through Afghanistan to bring Central Asian oil and gas to Pakistan and India.

Afghanistan itself has resources of natural gas and oil to be developed, according to "Nutshell Notes on Afghanistan," a new book on the country published by Enisen Publishing in Santa Monica.

In the meantime, Russia will continue to develop its relationship with the West, which has shifted dramatically in recent weeks.

In quickly calling President Bush on Sept. 11 to pledge Russian support for the U.S., "Putin made smart moves that change Russia's economic outlook," says Joseph Stanislaw, director of Cambridge Energy Research Associates.

In Asia, Japan, China and other growing customers for oil and gas, are diversifying their suppliers to reduce dependence on the Middle East, notes analyst David Knapp, of Energy Intelligence Group, which publishes newsletters for the oil industry.

The United States, too, could reduce the threats of energy disruption, says energy economist Philip Verleger, of Newport Beach.

Introduction of more efficient vehicles, using technology already available, "could reduce motor fuel use by 3 million to 4 million barrels daily, savings that would substantially reduce the world's demand for Middle Eastern oil," Verleger says.

Whether such a saving, 16% of U.S. oil use today, will be achieved, Verleger predicts "a drastically increased focus on energy conservation."

Meanwhile the Middle East could benefit from less pressure to provide so much of the world's energy needs. The region has occupied a curious position since a dramatic rise in the price of oil changed world economies in the 1970s. Production of its resources has not given the region prosperous economies, even though countries in Asia and elsewhere have prospered.

In a postwar environment of peace--however achieved--the region and the world may enter a more productive time.


Oil Reserves and U.S. Imports

In the long term, the holders of the biggest petroleum reserves will remain critical to the global economy.


Country Oil reserves* (Billion Barrels) Saudi Arabia 262 Iraq 112.5 United Arab 97.8 Emirates Kuwait 96.5 Iran 89.7 Venezuela 77.0 Russia 48.6 United States 29.7 Libya 29.5 Mexico 28.3


* Reserves are as of Dec. 31, 2000 Source: BP Statistical Yearbook.

The United States depends on these producers for oil imports, which now comprise more than 50% of U.S. consumption.

U.S. Imports by Country (billions of barrels per day)


Supplier Country U.S. imports Saudi Arabia 1.7 Venezuela 1.3 Canada 1.3 Mexico 1.3 Nigeria 0.9 Iraq 0.6 Angola 0.3 Norway 0.3 Kuwait 0.3 Colombia 0.2


* U.S. imports are January-July 2001)

Source: U.S. Energy Information Administration


James Flanigan can be reached at

-- Martin Thompson (, October 14, 2001


Opening up Anwar would be a big help, too.

-- RogerT (, October 14, 2001.

This article is an excellent description of the "Best Case Scenario" outcome of the War on Terrorism.

-- Robert Riggs (, October 14, 2001.

interesting article, but it downplays the almost total dependence of Europe and Japan on middle eastern oil

and what the poster calls anwar would make almost no impact on any of these figures

what's even more insane is that the remaining oil is slated for more business as usual, instead of relocalizing production (ie. food) and developing renewable energy systems so that civilization will outlast the era of petroleum

-- mark (, October 14, 2001.

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