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Oil prices hit a record $50.47 a barrel on Sept. 28. Light crude settled at $49.64 a barrel on the New York Mercantile Exchange, after touching $50.64 dollars--the highest intra-day price since futures began trading in 1983.

World events seemed to be conspiring to drive prices up. That same day, Royal Dutch/Shell Group's Nigerian venture closed a pumping station and evacuated staff at installations in the Niger River delta as guerillas threatened output in Africa's largest oil-producing country. Simultaneously, oil output in the Gulf of Mexico fell nearly 30% from 1.7 million barrels as a result of damage from Hurricane Ivan.

Trying to be plucky, US Treasury Secretary John Snow called the price spike a "short-term" phenomenon. Saudi Arabia, the world's top crude exporter, pledged to raise its daily oil output to 11 million barrels within weeks to help hold down soaring prices.

But the leader of the Organization of Petroleum Exporting Countries (OPEC) admitted that the oil cartel is powerless to curb prices. "At the meantime, there is nothing that OPEC can do to drive down price," said OPEC president and Indonesian oil minister Purnomo Yusgiantoro. "We have no plan to move forward our meetings." (Xinhuanet, Sept. 28)

Yusgiantoro said OPEC is prepared to increase oil output by a further 1.5 million barrels per day, but new supplies may not lower prices. He pointed out that OPEC had already made the "psychological move" to increase output by one million barrels per day and "prices did not budge." (AFP, Sept. 28)

On Oct. 1, under pressure from Nigerian President Olusegun Obasanjo, two rival militias from the Ijaw ethnic group--the Niger Delta People's Volunteer Force and the Niger Delta Vigilantes--signed a ceasefire and disarmament agreement. But now the groups must work out a power-sharing agreement with both each other and the central government. Violence has left some 500 dead in the Niger Delta since August. (AFP, Oct.4)

Chaos in the Russian oil industry also adds to the uncertainty. The scandal-plagued Russian major Yukos is threatening to cut shipments as it struggles to cope with $7.5 billion in tax bills and penalties. (Bloomberg, Sept. 24)

Then, of course, there's the ongoing chaos in Iraq--the motor that really drives the price spiral. The northern oil pipeline was again shut down by guerilla attacks Sept. 14. Ten days later, a senior official of Iraq's North Oil Company--one of the para-statal entities left over from the Saddam era--was assassinated in an insurgent attack on his convoy in Mosul. (NYT, Sept. 15, 24)

Some voices indicate that the price hike may prove permanent--that the Iraq adventure and the market phenomenon are both driven by fundamental dynamics of the industry.

On Sept. 20, the Toronto Star ran an excerpt from Canadian political commentator Linda McQuaig's forthcoming book It's The Crude, Dude: War Big Oil, And The Fight For The Planet (Doubleday Canada, 2004). The book appears to include some telling quotes. Fadel Gheit, oil analyst at the Wall Street firm Oppenheimer & Co., tells McQuaig: "The cheap oil has already been found and developed and produced and consumed. The low-hanging fruit has already been picked." With one notable exception: Iraq.

"Think of Iraq as virgin territory... This is bigger than anything Exxon is involved in currently.... It is the superstar of the future. That's why Iraq becomes the most sought-after real estate on the face of the earth."

McQuaig writes that Gheit smiles at the notion that oil wasn't a factor in the invasion of Iraq. He compares Iraq to Russia, which likewise has large undeveloped oil reserves--but also has nuclear weapons. "We can't just go over and...occupy [Russian] oil fields," said Gheit. "It's a different ballgame." The irony is that Iraq was invaded precisely because it didn't have weapons of mass destruction, Gheit claims. It also provides an ideal location for an ongoing military presence, from which the US can control the entire Gulf region. "Think of Iraq as a military base with a very large oil reserve underneath... You can't ask for better than that."

McQuaig also points to a map that was studied by senior Bush administration officials and a select group of oil company executives meeting in secret in the spring of 2001, detailing Iraq's oil infrastructure and "Exploration Blocks." This was one of the documents studied by the secretive energy task force headed by Vice-President Dick Cheney, and was only released under court order after a legal battle by the public interest group Judicial Watch. Another task force document released under court order is a two-page chart entitled "Foreign Suitors for Iraqi Oilfields." It identifies 63 oil companies from 30 countries, specifying which Iraqi oil fields each company is interested in and the status of the company's negotiations with the ousted Saddam Hussein regime. Among the companies are Royal Dutch/Shell of the Netherlands, Russia's Lukoil and France's Total Elf Aquitaine, which was identified as being interested in the 25-billion-barrel Majnoon oil field. Baghdad had "agreed in principle" to the French company's plans to develop this huge field. Interjects McQuaig: "There goes the filet mignon into the mouths of the French!"

McQuaig also points to a confidential 100-page document on Iraq, drawn up by the US Agency for International Development and Treasury Department, which laid out a wide-ranging plan for a "Mass Privatization Program...especially in the oil and supporting industries." This was apparently the plan being followed in the fall of 2002, months before the invasion, when the Pentagon retained Philip Carroll, a former CEO of Shell Oil Co. in Texas, to draft a strategy for developing Iraqi oil.

McQuaig admits that Carroll's plans were shelved after they met stiff opposition in Iraq. But oil industry veteran Robert Ebel, now of Washington's Center for Strategic and International Studies (CSIS). Ebel, told McQuaig that while it is up to Iraq to make its own decisions, US oil companies would prefer that Iraq privatize its national companies. "We'd rather not work with national oil companies," Ebel said, noting that the major oil companies are prepared to invest the $35 to $40 billion to develop Iraq's reserves in the coming years. "We're looking for places to invest around the world. You know, along comes Iraq, and I think a lot of oil companies would be disappointed if Iraq were to say 'we're going to do it ourselves'."

McQuaig also raises the specter of so-called "peak oil" approaching in our lifetimes--a once-fringe concept gaining credibility among industry insiders. Since the dawn of the oil age in the 19th century, we've used up roughly half of all the oil on the planet. Long before the oil runs out, it will reach its production peak. After that, extracting what remains becomes far more difficult and expensive.

The notion that oil production has a "peak" was first advanced in 1956 by geophysicist M. King Hubbert. He predicted that US oil production would peak about 1970--which was dismissed at the time. But US oil production did peak in 1970, and has been declining since. Geologist Colin Campbell estimates the world's peak will come as soon as 2005. "There is only so much crude oil in the world," Campbell told McQuaig in a telephone interview from his home in Ireland, "and the industry has found about 90 per cent of it."

Campbell warns that for every new barrel of oil we find, we are consuming four already-discovered barrels Even as the discovery of new oil fields slows, the world's consumption is accelerating--a dilemma Cheney highlighted in a speech to the London Petroleum Institute in 1999. While different oil regions will reach their production peaks at different times, the Middle East will almost certainly peak last--underlying Cheney's point that the region is where "the prize ultimately lies."

Concludes McQuaig: "Whoever controls the big oil reserves of the Middle East will then be positioned to, pretty much, control the world." (Toronto Star, Sept.20)


Judicial Watch on the Cheney Energy Task Force documents concerning Iraq

Association for the Study of Peak Oil (ASPO)

Hubbert Peak of Oil website

See also WW3 REPORT #99

(Bill Weinberg)

Special to WORLD WAR 3 REPORT, Oct. 4, 2004
Reprinting permissible with attribution

Reprinting permissible with attribution.