The March English edition of Le Monde Diplomatique has an in-depth story on the state of the world’s oil industry, “Hydrocarbon nationalism: States claim back their energy reserves,” which sheds much light on the underlying imperatives for the Iraq adventure. The critical point: Outside of the US and northern Europe, oil production is now generally 60% or more state-owned. Russia was manipulated down to 30-odd percent under Yeltsin, but Putin (by rather draconian means) has boosted it back over 50%. This is one reason Iraq is so crucial: if the US still gets its way somehow, it will be the first significant reversal of this trend. Relevant passages:
Among the four groups involved in prospecting and exploiting the world’s oil and gas reserves, the balance of power is tilting dramatically. The five surviving, mostly Anglo-Saxon, majors, ExxonMobil, Royal Dutch Shell, BP, Total and Chevron, control barely 9% of fields. The new giants are the national oil companies (NOCs) of the member countries of the Organisation of Petroleum Exporting Countries (Opec), 10 of which have the security of knowing that they control 53% of reserves.
Far behind them, the other NOCs (many from countries such as China, India, Brazil or Malaysia, where demand is increasing at the same spectacular speed as economic growth) control 16% of reserves. Finally there are the smaller independents, which are mostly private companies and often, but not exclusively western; they control 20% of worldwide hydrocarbon reserves.
Apart from Opec, the other groups face an uncertain future as the reserves that they own diminish inexorably. The decline is alarming for the independents (34% of world production against only 22% of reserves), but also for those NOCs who do not belong to Opec (25% against 16%) and the majors (13% against 9%).
Three of the four groups find themselves in the uncomfortable position of pumping out more oil than they are acquiring through new discoveries or purchases from other companies. In industry jargon, they are “in deficit” since they are unable to maintain their reserves. If they fail to acquire new reserves fairly soon, their future is in question, especially those groups which are quoted on the stock exchange. Their share prices could plummet even faster than their reserves, making them vulnerable to hostile takeover by a competitor. Hence the tendency to deliberately overestimate reserves. In 2004 Royal Dutch Shell was forced to admit that it had massaged up its estimates by 20% to present a more rosy picture to its shareholders.
According to PFC Energy, an influential international consultant, 77% of the world’s hydrocarbons are owned by NOCs, therefore by the public sector. From a geopolitical perspective, companies in consumer countries tend to be located to the north and east, while the reserves are to the south. Negotiations have to take place between the former, the international oil companies (IOCs) and the governments of exporting companies. These negotiations are becoming difficult.
Under the traditional concession, companies owned the oil fields. But since the 1970s that model has disappeared outside the United States and a few European countries such as Britain, the Netherlands and Norway. Elsewhere, in Colombia, Thailand and the Gulf, the last contracts that granted concessions before the great wave of nationalisations during the 1970s have ended or are about to end. In Abu Dhabi, the authorities have already notified the majors that three concessions, due to expire in 2014 and 2018, will not be renewed.
After the second world war a new system developed to replace the concession: the production sharing agreement (PSA). The idea is simple: a contract between the state and a foreign company sets the conditions for the exploration and development of resources for a set period and within a determined area, the minimum investment in exploration, and the tax framework. The investor pays an entry fee, the bonus, and accepts the risk that it will not discover anything; if successful, it shares the production yield with the state. It also meets the costs of exploring and developing the field, reimbursing itself out of production.
A clear advantage
PSAs are more profitable than concessions and present a political and legal advantage: since unanimous public opinion—right and left, nationalists and Islamists—in oil states now demands that natural resources remain national property. The most recent demonstration of this was the miscalculation by the majors in Iraq: the US had no difficulty in rewriting the occupied country’s constitution to suit itself, but all its attempts to overturn the 1972 law that nationalised oil and revert to a system of concessions have so far failed.
But (as we have noted) they are still trying. The article then goes on to note the “new wave of nationalism” in Latin America, with Venezuela and Bolivia at the forefront (as we have also noted), Putin’s effort to re-extend state control over Russia’s gas and oil (ditto), and the scramble underway for Central Asia’s hydrocarbons (ditto). The discussion of one up-and-coming production zone sheds much light on why the Pentagon has just created an Africa Command:
Africa presents two advantages: contracts there are reasonable and national oil companies, unlike those in the Middle East, lack the financial means to buy up the shares of the majors as Putin did in Russia or Chavez in Venezuela.
This drives home once again how we are through the proverbial looking glass in this post-ideological age. We have to turn to fora for intra-elite dialogue like Le Monde in order to find some analysis rooted in an understanding of struggles for control of resources—the thing leftists used to be primarilly concerned with. More and more of the anti-war left, meanwhile, follows the xenophobe nationalist right in poo-pooing the notion of a war for oil in favor of war-for-Israel conspiracy theories. Growing numbers of supposed “leftists” chase the coat-tails of reactionary nationalists like Mearsheimer and Walt, who write: “Some Americans believe this was a ‘war for oil,’ but there is hardly any evidence to support this claim.” One blogger, ambiguously called Xymorpha, goes so far as to call the oil war thesis a way “for Zionists to find some reason for the unpopular attack on Iraq other than the only obvious one” (i.e. Jewish “influence”). These petro-skeptics repeat like a mantra that if US elites wanted Iraq’s oil they could just buy it, or if they wanted to keep it off the market to hike prices, they could have just enforced the embargo—indicating that they don’t understand the critical difference between access and control, or the high stakes here for the maintenance of US or even Western global primacy.
None are so blind as those who will not see…
See our last posts on Iraq and struggle for control of oil.