Minding Its Business
Saudi Arabia, which has demonstrated its willingness to use its vast oil reserves as a foreign policy tool, has not acted to aid U.S. efforts to rebuild Iraq.
Fencing in looters and saboteurs in Iraq
Too many people in and outside of Iraq are hoping to deny Iraq a better future through a campaign of sabotage and plunder of the country's neglected oil facilities. The problem, and possible solutions.
Prospects on Russia’s stance towards OPEC
In September Saudi Arabia’s de facto ruler Prince Abdullah made the first visit to Russia by a Saudi head of state in over seven decades. The future of Moscow’s stance towards OPEC is a critical question for the world oil market. Will Russia be willing to cooperate with OPEC and thus further strengthen the power of the cartel to set a price range for oil?
Energy security and liquefied natural gas
Demand for natural gas has increased as have the security vulnerabilities presented by liquefied natural gas terminals and tankers.
Under the Radar
Oil, terrorism and drugs intermingle in Colombia
Seventy U.S. Special Forces soldiers are training Colombians to protect an oil pipeline.
Japan's struggle to secure future oil supply
Energy dependent Japan looks to Iran for oil, causing tension with the U.S.
Chad-Cameroon pipeline project put to test
Will the pipeline, partially financed by the World Bank, improve the lot of Chad and Cameroon
or exacerbate existing corruption and strife?
Natural resource curse hits São Tomé
A tiny West African country illustrates a well known problem.
On the technology front
Fuel Cell Locomotive for Military and Commercial Railways
An international consortium is developing the world’s largest fuel cell vehicle, a 109 metric-ton, 1 MW locomotive.
Fuel cell power plant installed at NJ Sheraton
A stationary fuel cell will supply 250 kilowatts of electric power as well as heat to the Sheraton Edison
Hotel, accounting for about 25 percent of the hotel's electricity and hot water.
Fuel cell scooters for Europe and China
Palcan's fuel cell powered scooter is designed to address the world's need for a low-end mass transport vehicle.
U.S. Air Force
to get fuel cell bus
Fuel cell powered thirty-foot hybrid bus to be stationed at the Hickam Air Force Base in Hawaii.
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Thirty years later oil is still a big gun
Thirty years ago, on October 17, in an attempt to influence U.S.
Middle East policy, the OPEC cartel, spearheaded by Saudi Arabia,
decided to cut oil supply to the U.S. Within weeks petroleum prices
shot up by more than 300% and by the end of 1973 a gasoline shortage
was felt throughout the country. The embargo was an assault on
America's way of life, specifically its car-loving culture. Americans
were forced to curtail their driving and electricity consumption
habits, often at great inconvenience. Suburban moms mastered the art
of carpooling, the only alternative to standing for hours in
lengthening queues in service stations only to meet the sign "sorry,
no gas." Christmas of 1973 was dim. For first time the lights on the
national Christmas tree were not switched on. By early 1974 the U.S.
was hit by the worst slump since the Great Depression.
By the time the embargo was lifted, in March 1974, the global
economy was devastated. In the U.S., unemployment doubled due to the
loss of 500,000 jobs, and GNP declined 6%. Europe and Japan suffered
a similar fate. The impact on the developing world, especially the
poor, newly created countries in Asia and Africa, was even worse.
Countries completely dependent on energy imports suddenly found
themselves under heavy debt from which many of them have not been
able to recover to this day.
U.S. prestige also took a toll. In the midst of the Cold War,
America's soft economic underbelly became apparent to all. Without
oil, it was a paper tiger. Then U.S. Secretary of Defense James
Schlesinger was the first to realize that when he received a
telegram from Exxon Corporation announcing a cut off of all oil
deliveries to the Sixth Fleet and U.S. forces in Europe. At the
peak of the drama, Secretary of State Henry Kissinger indicated the
U.S. was prepared to send military forces to the Persian Gulf to
take over whatever country was needed to ensure oil supply.
Thirty years later, with U.S. relations with the Muslim
world at an all time low and at a time when our dependence on Middle E
ast oil is on the rise, how likely it is that OPEC members ever use
the oil weapon again?
Conventional wisdom says that even though some OPEC countries have an
astounding record of acting against their own self-interest, it is
unlikely that they would dare tamper with oil prices any time soon.
The reason being that those countries that initiated the embargo
ended up being its prime casualties. The petrodollar windfall allowed
countries like Saudi Arabia, Iraq and Iran to finance ambitious
building projects, shopping sprees of military articles and the
lavish lifestyle of their leaders. This brought to their decline.
OPEC countries based their economies on oil products, failing to use
their wealth to diversify their economies, build a strong industrial
base, and improve the standard of living of their populations. In
Iran, the infusion of petrodollars brought the Shah to indulge in a
fantasy of imperial grandeur and lose touch with his people until he
was overthrown by the mullahs. In Iraq, oil money allowed Saddam
Hussein to build the world's fifth largest military which he kept
hurling against his neighbors every few years. In Saudi Arabia the
oil boom fueled corruption, productivity loss and social discontent.
The kingdom per capita GDP dropped in just two decades from $28,000
twenty years ago to below $7,000 today.
To make things worse for OPEC countries, the oil crisis led the
international community to cultivate competitive sources of supply
such as the North Sea, Alaska, Mexico and more recently Russia, the
Caspian and West Africa, in an attempt to reduce dependency on the
Middle East. Additionally, the oil shock increased public awareness
to the benefits of conservation. The conservationist effort became a
national priority during the presidency of Jimmy Carter who, in
February 1977, sitting beside a gleaming fireplace and wearing a
cardigan sweater, delivered a speech on national television, saying
that reducing U.S. dependency on foreign oil, was the "moral
equivalent of war." It worked. In the next ten years after 1973,
conservation proved to be America's fastest growing energy sector.
Fuel efficiency of the average American car nearly doubled.
Electricity generation from oil dropped from 17% of the nation's
total power output to 2% today. The share of homes using oil for
heating went down from 31% to 10%. The oil shock also launched a wave
of technological innovation in the field of alternative energy and
gasoline substitutes. Energy saving patents were registered by the
thousands, and several government bureaucracies to enforce and
encourage conservation were established. As a result of all these
measures between 1979 and 1985 oil consumption in the U.S. decreased
by 15%, oil imports fell by 42% and imports from the Persian Gulf by
87%. Most importantly, OPEC's market share dropped from 70% in 1973
to 40% today.
Despite OPEC's grand setback, the widely held assumption that the oil
weapon has passed from the world is misplaced. In fact, never since
1973 have there been so many cases of Muslim leaders threatening to
use the oil saber, or at least rattle it when tension with the U.S.
has deepened, as in the past year. Last October, member countries of
the Organization of the Islamic Conference entertained the idea of an
oil embargo to stop the U.S. from attacking Iraq. Mahathir Mohamad,
the Malaysian prime minister, said: "Oil is the only thing Muslim
nations have which is needed by the rest of the world. If they can
cut back on supply, people will not be oppressive on them. [..] It
can be used as a weapon to protect the interest of Muslims." Earlier,
in April 2002, Saddam Hussein declared an oil embargo for thirty days
in response to Israeli military operations in the West Bank. Libya
immediately announced that it would follow suit if other Muslim
oil-producers imposed an oil embargo. Iran's supreme leader Ayatollah
Ali Khamenei stepped up to the plate reminding his OPEC colleagues
that if the west did not receive oil, "their factories would grind to
a halt. This will shake the world!" A day later, similar sounds came
from Saudi Arabia, holder of a quarter of the world's oil reserves.
According to the New York Times, on the eve of President Bush's
summit with Saudi Crown Prince Abdullah, unnamed members of the
Saudi royal family discussed reusing the oil weapon. The Saudis
denied the report. Palestinian leaders have also urged their Arab
brothers to show more muscle and use the power endowed to them by
Mother Nature. Farouq Al-Qaddoumi, head of the PLO political bureau
and secretary general of Fatah's Central Committee urged the Arabs
to use the oil weapon in order to pressure Europe to take a more
forceful anti-Israel position. And so it goes.
True, all these threats proved idle and OPEC countries kept supply at
a reasonable level. But the fact that key political leaders in the
Muslim world still perceive oil as potential weapon against the west
is unsettling and raises questions about the long-term future of our
energy security. If another oil embargo is not in the cards today,
this is only because of its current questionable utility for OPEC's
members who need oil revenues to sustain their growing populations,
not because they perceive the strangulation of America's economy to
be immoral. This calculus could easily change as the world becomes
more dependent on OPEC. And it rapidly does.
Since September 11 well-intentioned politicians have began pushing
for reduction of U.S. dependence on Middle East oil by rushing to
buy increasing quantities of oil from non-OPEC producers such as
Russia, Mexico, Colombia, Angola and Kazakhstan. At first glance,
this may seem to be a reasonable policy. But in the long run, nothing
could compromise U.S. energy security more. Because reserves in
non-OPEC countries are relatively small and not subjected to
production quotas, they tend to deplete faster than OPEC's. The
overall reserves-to-production ratio -- an indicator of how long
proven reserves would last at current production rates -- in non-OPEC
countries is about 15 years comparing to roughly 80 years in OPEC's.
With world oil production projected to increase by about 65% in the
next 25 years, many of today's large producers, including the U.S.,
Mexico, Norway and Russia, will reach a point in which they are no
longer relevant players in the oil market. At that point the
percentage of world oil reserves concentrated in OPEC countries will
reach 95%, and OPEC's share of total oil supply is projected to
bounce back to a level higher than in 1973.
The idea of a world in which so much oil is concentrated in the
hands of so few does not deprive sleep from many in Washington. It
should. If relations between those who need oil and those who own it
continue to worsen, as now seems to be the case, there would be
enough reasons for OPEC countries to use their economic power against
the west once they resume control over the oil market. After all,
as Mahathir Mohamad said, "angry people cannot act rationally."
This leaves us two decades to achieve one of two things, preferably
both: either dramatically improve U.S. relations with the Muslim
world bringing it to the point that the use of the oil weapon becomes
unthinkable. This would entail monumental tasks such as resolution of
the Arab-Israeli conflict, democratization of the Arab world and
suppression of radical Islam. Alternatively, the U.S. could lead
the world in the no less challenging task of reducing global demand
for oil by displacing it as a dominant source of transportation
energy. This can be done through a shift into an economy based on
fuels made from anything but petroleum.
Such energy transformation, equivalent to the shift from wood to coal
in the 17th century or the shift from coal to oil three centuries
later, is becoming increasingly feasible. Non-oil based
transportation fuels such as methanol, ethanol, biodiesel,
hydrogen and others can be derived from abundant resources
such as clean coal, natural gas, biomass, and municipal waste.
Electricity produced from nuclear, wind, hydropower could move
vehicles with similar performance and less pollution. Advanced
automobile technology using flexible fuel engines, fuel cells,
hybrid engines and powerful batteries can accommodate the new fuels
with relatively easy market diffusion.
Monumental task? Perhaps, but a worthy one considering the
alternative of facing OPEC's fully loaded weapon sometime in the
future. Or as one Chinese proverb said: If we don't change course,
we'll end up where we're headed.
Gal Luft is Executive Director of the Institute for the Analysis of Global Security.