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Crude Politics – The Weapon of Oil and the World War III

crude-politics

Hardly a month had passed since the gruesome attack on Peshawar’s Army Public School that another crisis hit the nation. This time it was a severe shortage of petroleum products that paralyzed most parts of the Punjab province. During this 12-day crisis, people had to wait in long queues to get some litres of fuel. The black marketeers fleeced people as a litre of petrol was sold at as high as Rs. 200. It is being alleged that a few thousand people made millions of rupees while nearly a dozen individuals amassed billions during this crisis. An acute shortage of furnace oil also soon followed and led to increased power cuts across the country. Ironically, all this has happened when the price of oil in the international market is touching new lows. The oil, which cost $150/bbl in 2008, is being priced at $53/bbl as these lines are being written. Nevertheless, this has put Pakistan in an advantageous position because by reaping the benefits of the falling oil prices, Pakistan can save forex worth billions of dollars on import bill annually.

Historically, natural gas and oil have been of vital importance to the world economy, finance, trade and commerce as well as politics, especially during the past 115 years. It is to be noted that the world’s first natural gas well, specifically intended to obtain natural gas, was dug by William Hart in 1821, in Fredonia a village in America’s New York State. Similarly, world’s first oil well was drilled in Titusville, in Pennsylvania, USA in 1859 and was named as the “Drake Well” after its driller Edwin Drake.

crude-politics-1In the territories that make today’s Pakistan, the first well for oil was drilled at Punjab’s Kundian village in 1887. Some experts opine that if we had dug oil wells in Taftan and Mirjaveh — the areas we gave to Iran during Ayub Khan regime — we would have been self-sufficient in oil today because as per international laws on exploration and extraction of oil, if a country discovers oil in areas close to its borders with another country, the latter cannot rig oil from several hundred kilometres of its own land near the borders.

Coming back to the point, unlike oil, which was discovered decades before the creation of Pakistan, natural gas was discovered in the country for the very first time at Sui in 1952 however the commercial exploitation of the field began in 1955 leading to what should be called a spendthrift use of this wealth for the next forty years.

Estimates place the total number of producing oil and natural gas wells around the world at 950,000 with nearly 3200 of them located in Pakistan. At present, Pakistan’s oil reserves stand at 1180 million barrels – a barrel contains 149 litres – while those of gas at 766 billion cubic feet. World’s daily oil production averages 7.5 million barrels of which Pakistan imports nearly 290600 barrels a day. At present, there are 6 oil refineries working in Pakistan.

With the dawn of the 20th century, industrial development and international trade and commerce activities sped up. Since oil and gas were basic requirements to run the factories and also vehicles and planes, these energy resources got immense importance not only in international trade and industrial activities but also in the world politics. That’s why soon after the defeat of Ottoman Empire in the World War I, European countries, especially United Kingdom, France and Italy along with the United States began putting their claws on the oil-rich Arab region and some non-Arab Muslim countries. During the WWI, in 1917, the Communist Revolution took place in Soviet Union however the large oil reserves of Russia and Central Asia remained under Soviet control. On the other side, after the Second World War (1939-1945), although colonialism gradually diminished, yet during the ensuing Cold War, oil-producing Muslim countries cam under an unending influence of the US, UK and other European countries.

Another crucial phase in this ‘quest of oil’ was the First Arab-Israeli War of 1946 that broke out immediately after the creation of the State of Israel on May 14, 1948. Israel inflicted huge losses to the Arab coalition in this war. Later, during the Six-Day War of 1967, Egypt, Syria and Jordan were trounced by the Israelis. By the time the UN-brokered ceasefire came into effect on June 10, Israeli forces had driven Syrian forces from the Golan Heights, snatched control of the Gaza Strip and the Sinai Peninsula from Egypt, and repelled Jordanian forces from the West Bank. And, the Israelis got a complete control over Jerusalem. Israel launched a series of simultaneous attacks on Egyptian, Syrian and Jordanian airfields and trampled them and destroyed the aircrafts parked there. Following this defeat, the then president of Egypt, and a popular leader of the Arab world, Colonel Gamal Abdel Nasser tendered his resignation, a move that evoked strong public response as millions of Egyptians held massive popular demonstrations calling for his reinstatement. Later, after he withdrew that resignation, President Nasser, in what was said to be a bold step, asked Russians to either provide Egypt with surface-to-air missiles (SAM) — most sophisticated missiles of that time — or to leave Egypt to align with any other country for the sake of its defence. Surprisingly, Egypt got these missiles. President Nasser was making strenuous efforts to build Egyptian prowess, but he died of a cardiac arrest on 28th of September 1970 to be succeeded by one of his very close confidants, Muhammad Anwar El Sadat.

crude-politics-2On 6th October 1973, when the Jews were celebrating their religious Yom Kippur festival — the holiest day in Judaism — the Arab coalition comprising Egypt, Syria and Jordan launched a surprise attack on Israeli positions in the Israeli-occupied territories. Through this campaign, which was named as Yom Kippur War, the Arabs wanted to wrest the control of the territories they had lost to Israel during the Six-Day War. In this war, Egyptian army took positions on one bank of the Suez Canal while on the other side were the Israelis. At this critical time, the US, under “Operation Nickel Grass,” delivered huge arms supplies to the besieged Israel through overt strategic airlift operation. In retaliation, Organization of the Petroleum Exporting Countries (OPEC) used oil as a weapon and declared an oil embargo on the countries e.g. the United States, Japan, the Netherlands, Canada and the United Kingdom, as they had supported Israel in the Yom Kippur War. Soon after the ceasefire went into effect in 1973, the then US President Richard Nixon asked the US Congress to approve for Israel an emergency aid of 2.2 billion dollars — a huge amount in aid at that time. This move infuriated Libya and other Arab countries and the OPEC put an embargo on oil supplies to the US and the whole Europe, plunging them deep into a crisis. The oil prices started to soar at an unprecedented pace.

Here, entered the then US Secretary of State Mr Henry Kissinger, a cunning, sly diplomat, who under President Nixon’s orders, moved Arab and Israeli leadership to resolve the Palestine crisis; he had even convinced Israel to evacuate Arab territories which it did by evacuating the Sinai Peninsula.

Iranian King Raza Shah Pahlavi, believed to be the guardian of American interests in the region, too supported the hike in petroleum prices. During an interview with the New York Times, he said:

“If you can raise the prices of wheat up to three hundred percent, you can raise the prices of sugar and cement, then we also have the right to increase petroleum prices.”

In 1974, the second summit of the Organisation of Islamic Conference (OIC) — first in Pakistan — was held in Lahore whereby the leaders of Muslim countries in a rare show of unity, for the very first time, took some momentous decisions. Oil prices, that were hovering around $3 a barrel in 1973, reached the $12 a barrel mark in March 1974 thus making a four-fold increase in the revenues of the oil-producing countries.

As the revenues of OPEC countries started to rise because of the decisions taken at the Lahore summit of the OIC, the process of development in oil-producing countries started. Nearly 3.5 million people from Pakistan only had migrated to Arab countries till 1976 in a quest to earn 10 to 20 times more than they could earn in their homeland. Hence, Pakistan got a new, stable and sustainable source of foreign exchange and people belonging to middle and lower middle classes availed them of huge opportunities to grow and prosper. This also effected positive socio-political changes in the Pakistani society.

Owing to the oil crisis, and its use as a weapon by the Arabs, the US and Western European countries drew up a three-pronged strategy, the implementation of which began with the installation of puppet governments in the oil-producing countries. On the other hand, they started discovering and developing new energy sources as an alternate to oil and natural gas and sinisterly plotted to weaken the alliance of OPEC countries. The world saw that the political leaders, who advocated unity among OPEC countries, were assassinated after 1973, while political crises in these countries also intensified resulting into unending civil wars.

In search of an alternate to oil, first the kinetic and solar energy were focused, and then hundreds and thousands of atomic power plants were established to produce electricity from nuclear resources. In the recent years, huge reserves of shale gas have also been discovered in the US and their use has started as well.

Moreover, the West and the US were afraid of the rise of Communism. After the end of Cold War in the 80’s, Mikhail Gorbachev took over as the head of the Soviet Union. He introduced policies namely Glasnost and Perestroika. But, they not only proved counterproductive but also caused the demise of the communist ideology. Soviet Union broke as the regions and territories of the former Soviet Union were declared independent, autonomous or semiautonomous. Moreover, in Eastern Europe’s communist countries — Poland, Czechoslovakia, Yugoslavia, Romania, Hungary etc. — capitalist regimes started to replace the Communist ones.

While all this was happening, Russia was grappling with acute economic and financial crises and its rouble, which once valued slightly higher than a dollar, started to fall to reach as low as 450 roubles for a dollar. When Boris Yeltsin succeeded Gorbachev as the Russian president, the situation deteriorated further and the severity of crises intensified. However, with the coming of Vladimir Putin at the helm, the country has been steered out of these crises. Russia had the largest reserves of oil and natural gas but, despite this long crisis period, the US and Europe could not exploit those. Then, the end of 2004 witnessed a rise in serious conflicts between Russia and its neighbouring Ukraine. Interestingly, prior to 1990, no bilateral conflict existed between these two countries, and the 77% Ukrainians had been living peacefully with the people belonging to Russian ethnicity — nearly 22% of the Ukraine’s population. Nonetheless, at present, the region has not only become a war zone, the payment of billions of dollars of outstanding oil and gas bills that Ukraine owes to Russia is also becoming another serious issue.

Here the dots connect and bring a complete picture of what is going on in the world today!

During the 1973 Arab-Israel War, the OPEC countries raised oil prices by putting an embargo on oil supplies to Europe. Today, the US, in collaboration with its allies, is doing the same but in an altogether different manner. This time the prices have been lowered, not raised; and that too with a 3-4 fold increase in crude supplies.

Today, the US is the biggest consumer of mineral fuels i.e. coal, oil and natural gas, and the world’s biggest importer of oil. Its average consumption of crude oil is 7.5 million barrels a day while it is the biggest producer of natural gas since 2010. With effecting a continuous increase in its crude production, the US is poised to surpass Saudi Arabia by 2019 as its daily average production may reach 13.1 million barrels till that time.

It may be hard to deny that today the US is using oil as a weapon but, interestingly, the use of this very term has been lacking in the public discourse. It is being portrayed as if the recent massive increase in crude oil production and the resultant decrease in prices is a work of law of demand and supply. However, the reality is altogether different as oil is being used as weapon through machinations based on the investment or loss of billions and trillions of dollars keeping in view the open market mechanism. When the oil-producing countries used oil as a weapon in 1973, they got an immediate benefit to the tune of billions of dollars, while in the long-run they got a perpetual benefit in form of four-fold increase that would boost their revenues for many years to come.

Today, the United States has not only increased its shale and natural gas production but has also enhanced that of the crude oil to such an extent that it can now export it. Its allies too have almost doubled their oil production. Saudi Arabia surpassed Russia in oil production during 2013 but the data for 2014 has not been made public yet. Iran is unable to export oil due to UN sanctions; Iraq and Libya have been tangled in civil wars in their territories; and Kuwait, Qatar and Oman are toeing the American line. This makes the web of intrigues even more complicated.

Oil marketing companies assert that it would not be possible for them to go on with the production of oil — or more rightly rigging of wells — if the prices fall below a level of $45/bbl. However, it seems that Saudi Arabia will continue increasing its production until it leaves Russia and Iran far behind. Many internationally renowned economists believe that Saudi Arabia’s foreign exchange reserves stand at more than $800 billion threshold. The country is producing one-third of world’s total oil production and can enhance its production when needed. It is also being expected that during the next eighteen months, oil prices will once again bounce back to $100/bbl.

The point here is that at present many countries including Yemen, Syria, Iraq, Afghanistan, Russia and Ukraine are in a perpetual state of war. Moreover, the recent Lebanon-Israel conflict also has the potential to blast into a full-fledged war with heightened apprehensions that this war may spread its tentacles to Iran, Saudi Arabia, United Arab Emirates, Central Asia and India, in near future. It is also to be kept in mind that Russia and Ukraine have already expressed their apprehensions that America’s political and economic manoeuvring may lead to the World War III. In recent weeks, on one hand, the grievous state of affairs in Yemen and Iraq near Saudi borders has been perplexing for the Saudi leadership, while on the other, Kurds have also brought Turkey on the verge of war. Transnational tensions and hostilities among Afghanistan, Pakistan and India could also flare up.

Since 2011, tensions caused by ethnic, racial antagonism and international rivalry have resulted in the civil war in Ukraine and the state of affairs is so perilous that the country seems on the verge of an all-out war. Russia’s gas supply to Europe, which fulfils the continent’s  80% energy needs, is routed through Ukraine. In 2005, a conflict rose between Russian and Ukrainian oil companies on the issue of royalty of oil pipelines located in Ukraine. The conflict kept on brewing and resulted in a cut-off of supply to Europe. Russian company is said to have borne a loss of $101 billion while the European countries too have fallen prey to economic and financial meltdown.

Believe it or not, today, after nearly 40 years of the 1973 oil embargo, America is using oil as a weapon albeit differently.

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