No “October Surprise” Courtesy Of The Saudis - lesenswert

verfasst von CRASH_GURU, 21.04.2004, 21:50

-->International Perspective, by Marshall Auerback

No “October Surprise” Courtesy Of The Saudis
April 20, 2004
“When we first got here, we tried making friends. We did everything we could to make friends with these people. Then I started evacuating my friends (who had been killed or injured), and it wasn't cool anymore.”
- US Marine Jeremy Heidrick in Iraq, St. Louis Post-Dispatch, 19 April 2004

Worried about $40 oil? You needn’t be, if Bob Woodward is anybody to go by. According to Woodward, Saudi Arabia's ambassador to the United States, Prince Bandar bin Sultan, promised President Bush the Saudis would cut oil prices before November to ensure the U.S. economy is strong on Election Day. In an interview with CBS's"60 Minutes" about his new book"Plan of Attack" on the Bush administration's preparations for the Iraq war, Woodward, a senior editor at the Washington Post, said Prince Bandar pledged the Saudi's would try to fine-tune oil prices to prime the U.S. economy for the election -- a move they understood would favor Bush's re-election.


It sounds wonderful, but if such a pledge were ever given, Saudi actions in the past year suggest that it has been revoked, largely in response to the growing geopolitical morass that is developing in the Middle East. In the aftermath of Gulf War II, it was felt that mobilization against Iraq would give the United States a renewed opportunity to expand its power and influence in the region -- this time potentially to use its new Persian Gulf bases to establish even more bases in the ancient territories between the Tigris and Euphrates rivers in Iraq, whilst remaking a hitherto backward region into a bastion of Anglo-American liberal-democracy. More importantly, were the oil fields seized as a by-product of this invasion, many of the neo-cons who now dominate Administration thinking felt that it would give America a de facto seat in OPEC, with the control of a huge cash generating asset required to fund its massive domestic and overseas debt build-up. At the same time, it was also hoped that President Bush would use his expanded leverage to press for a comprehensive settlement of the Palestinian-Israeli conflict.

All of these blithe assumptions look questionable today, to say the least.

After the end of the Iraq invasion, the oil price fell sharply to $26 (WTI), although little of this can be ascribed to the Saudis, which has been producing at roughly the same capacity of between 8.5 and 9.4mmbd of crude oil, natural gas, and gas liquids for the past ten years, according to figures collated by independent oil analysts, Groppe, Long & Littell. At that time of the fall, the bearish consensus on Wall Street predicted a further decline in oil prices to the low $20’s or even high teens. But when long liquidation of NYMEX futures (built up by speculators in anticipation of price spikes as the invasion of Iraq loomed) was completed, crude promptly rallied above $30 a barrel, where it has stubbornly remained for over a year.

Bearish price forecasts were based on two assumptions: precautionary inventories built prior to the Middle East hostilities would be liquidated and, under the U.S. occupation, Iraqi oil would flow soon and copiously. We argued that the evidence suggested that such precautionary inventories (as opposed to speculative-long positions in the futures market) were probably small and the U.S. occupation of Iraq would degenerate into a quagmire, thereby delaying or impeding Iraqi exports.

The use of the term “quagmire” has been thrown around rather loosely in the Iraqi context, and invariably brings about ill-conceived comparisons to Vietnam. But as New York University Niall Fergusson relates in a recent NY Times commentary, a more relevant historical analogy is Britain’s occupation of Iraq during the 1920s:

“Then as now, the insurrection had religious origins and leaders, but it soon transcended the country's ancient ethnic and sectarian divisions. The first anti-British demonstrations were in the mosques of Baghdad. But the violence quickly spread to the Shiite holy city of Karbala, where British rule was denounced by Ayatollah Muhammad Taqial-Shirazi - perhaps the historical counterpart of today's Shiite firebrand, Moktada al-Sadr. The revolt stretched as far north as the Kurdish city of Kirkuk and as far south as Samawah, where British forces were trapped (and where Japanese troops, facing a hostage crisis, were holed up last week).

Then, as now, the rebels systematically sought to disrupt the occupiers' communications - then by attacking railways and telegraph lines, today by ambushing convoys. British troops and civilians were besieged, just as hostages are being held today. Then as now, much of the violence was more symbolic than strategically significant - British bodies were mutilated, much as American bodies were at Fallujah. By August of 1920 the situation was so desperate that the general in charge appealed to London not only for reinforcements but also for chemical weapons (mustard gas bombs or shells), though these turned out to be unavailable.”
(“The Last Iraqi Insurgency”, 18 April, 2004 - New York Times)

The systematic attempt at sabotage has had particularly relevancy in regard to Iraqi oil production, which has been subject to repeated disruption. Oil, as a consequence, stubbornly refuses to decline and now hovers precariously close to $38 a barrel. Adds the Washington Post:

“Compounding the problem is a growing fear that insurgents will seek retribution against Iraqis working for private contractors and the occupation authority. Scores of Iraqis have stopped showing up for their jobs as translators, support staff and maintenance personnel in the Green Zone, even though there is a lack of lucrative employment elsewhere.

The security situation ‘has dramatically affected reconstruction,’ said another U.S. official in Baghdad. ‘How can you rebuild the country when you're confined to quarters, when only small portions of your Iraqi staff are showing up for work on any given day?’”

The announcement last week that the US would increase its military forces in Iraq by 20,000 implicitly concedes the validity of the foregoing assessment. In the space of two weeks, a fierce insurgency in Iraq has isolated the U.S.-appointed civilian government and stopped the American-financed reconstruction effort, as contractors have hunkered down against waves of ambushes and kidnappings. The events have also pressured U.S. forces to vastly expand their area of operations within Iraq, while triggering a partial collapse of the new Iraqi security services designed to gradually replace them. The war has certainly not been the self-financing proposition, that Paul Wolfowitz, confidently predicted last year. In fact, General Eric Shinseki’s much-derided call for at least 200,000 troops looks far more prescient than Pentagon military planners have hitherto conceded.

Until recently, guerrilla warfare against occupation forces has come almost entirely from Sunni Muslims, who make up 25 per cent of the Iraqi population. It is becoming increasingly clear that an Islamist state - perhaps along the lines of Iran - is a goal of many of the Shias, who have recently begun to revolt against the American troops as well, in effect objecting to the creation of a federal system which negates their majority role.

James Madison explained in Federalist #10, one of the greatest threats to popular government is that posed by the formation of what he called a"majority faction" -- i.e., a situation where an absolute majority unites to gang up on a minority. Madison argued in #10 that the system of checks and balances in the proposed Constitution would preserve individual and minority rights by preventing the rise of majority factions. While this system served the United States well for over 200 years, it was by no means perfect. It did not, for example, prevent the racist legacy of slavery (a classic majority faction phenomenon) from persecuting the black minority and sapping the moral strength of the American society for over a hundred years after the Civil War, nor has it cut completely the racial tentacles which continue to twist and pervert American politics to this day.


But it is important to bear in mind the context from which the American federal system flowed. It includes, among other things, the legacy of Anglo-Saxon jurisprudence (particularly the evolving character of common law), the impact of Scottish moral philosophy with its emphasis on natural rights and the primacy of the individual, the idea of inviolate private property rights which necessitated a legal system to govern the transfer of these rights, the actuating principles of moderation and tolerance, the theory of separation of church and state, and perhaps most importantly, the evolving tradition of expanding reciprocal obligations between rulers and ruled that grew out of the European (particularly the Anglo-Saxon) feudal system, beginning with the Magna Carta.


Iraq has no comparable historical legacy. Indeed, despotism and a tendency toward unbridled power have characterized Iraq's peculiar mix of religious, vendetta, and tribal politics for thousands of years. Ironically, the closest approximation to separation of church and state in Iraq was seen in the dominance of the dictatorial, albeit secular, Ba'ath party led by Saddam Hussein. Private property rights and the idea of an ever-evolving common law are alien concepts to the traditional tribal and religious leaders of Iraq.


A federal system of caucuses may be music to American ears, but to Iraqis it must sound like a threatening and incomprehensible orchestration imposed by alien invaders to displace their traditional religious and tribal politics.


Tensions are therefore mounting and the economic repercussions are becoming more adverse, not just in Iraq, but throughout the region. The hope was that the pacification of Iraq on the part of the Bush administration could be used to break the trouble-making qualities of the other hangovers from the Cold War - Syria and Libya - as well as reducing the reliance on Saudi Arabian oil. But policy makers in Washington seem determined to ignore the lessons of history, which is having deleterious consequences for policy today, particularly in regard to oil (one of the great unspoken rationales for America’s huge interest in the region).

Since the US occupation of Iraq began, the pipelines north of Haditha have been the targets of repeated sabotage. The result, according to GLL, is a shortage of natural gas and the inability to use all of the capacity of the refineries. Consequently, Iraq is still producing well below its current estimated capacity of 2.5mmbd of crude oil production. Equally problematic from the Americans’ perspective is the increasingly unaccommodating policy stance of the Saudis, who had hitherto been relied on to offset looming oil shortages. As it now stands, the Israel-Palestine conflict has no direct impact on Middle East oil supplies. However, it has led to a movement of solidarity among Middle East states against the U.S.’s perceived one-sided support of Israel and now had led the Saudis, fearing the “special relationship” with America to be under threat, to play the oil card in a manner highly inimical to American economic interests.

It is not as if the Bush Administration wasn’t warned: before his visit to the Bush ranch near Crawford, Texas, Crown Prince Abdullah (through his interpreter) told the press that allowing the Israeli-Palestinian conflict “to spiral out of control will have grave consequences for the United States and its interests.” On June 10th last year, the oil minister of Saudi Arabia, sent letters to the companies negotiating contracts for participation in the natural gas industry of the Kingdom. Subsequent to those letters, the following has occurred:

· July, 2003 - The Saudi government announces gas agreements with Shell and Total

· August - State visit to Moscow by Crown Prince ‘Abd’ Allah-al-Saud

· September - OPEC Minister’s adopt Saudi Arabia’s proposals to reduce quotas in spite of expectations of the maintenance of the status quo in advance of the meeting.

· January, 2004 - Saudi Arabia announces gas agreements with Lukoil, Sinopec, Agip, and Repsol

· February - OPEC Ministers adopt another Saudi proposal to reduce quotas.

Note the complete exclusion of US energy companies in prominent new Saudi energy ventures; this is hardly consistent with an ostensible pledge to flood the market with oil around October to guarantee the election of a President viewed to be fundamentally hostile to Islamic interests by the vast majority of OPEC nations. It is equally salient that the officially stated OPEC range of $22-$28 per barrel has been largely ignored - not only because higher prices can be sustained in spite of widespread “cheating” on quotas, but also because of growing opposition amongst the members to policies of the US in the Middle East. Whether one agrees with the OPEC perception is irrelevant; the effect of its current policy stance constitutes an attack on US oil interests, concomitant with higher prices for oil and likely discrimination against US goods and services. Actions clearly speak louder than Prince Bandar’s fine words to fine tune oil prices.

The new largely unarticulated high oil price strategy should be viewed in the context of Saudi promises to invest billions in the development of the Russian energy industry, and suggestions of an emerging Russo-Saudi oil alliance. Last December, the Russian government announced that its policy for production is to stay under 9.0mmbd for the next five years. Five years is also the term of the oil and gas co-operation agreement signed with Saudi Arabia on September 2, 2003, at the end of the state visit by Crown Prince ‘Abd Allah al-Saud.

That this alliance has huge ramifications for the oil market lies in the fact that in 1998, the value of Russia’s oil exports was a mere $16bn. In 2003, the value of Russia’s exports was over $63bn - second only to the $80bn worth of exports by Saudi Arabia. This increasing cohesion of Russian and Saudi energy policy is occurring against a backdrop in which the oil supply/demand balance is tighter than usual at this point in the economy and 2) long-term depletion rates are much higher than is generally recognized. Although Saudi Aramco (the state oil company) has historically done what is required to offset declines in existing fields and maintain estimated capacity of approximately 10mmbd through new projects, higher production required to generate a sharp fall in oil prices cannot be achieved without more personnel and investment, according to both GLL and Houston-based oil analyst, Matt Simmons of Simmons & Co, who has recently undertaken an extensive study of the Saudi oil fields.

In fact, given that most OPEC members are already producing close to full capacity (and well in excess of official quota figures), without significant new discoveries in Russia, the effects of more rapid depletion dynamics will manifest itself much earlier than currently envisaged by the market. From a peak of 11.06mmbd in 1988, Russia’s actual crude production in 2003 was a little less than 8.0mmbd, according to GLL. Much of the new technology introduced to develop Russia’s energy fields will accelerate rates of depletion in existing fields, leaving remote areas of Siberia as the key variable in determining whether the Putin administration can achieve its publicly stated goal of 9.0mmbd production, let alone get anywhere near the peaks sustained during the late 1980s.

As two of America’s largest oil suppliers, the effects of the Saudi-Russo alliance cannot be overestimated. In early 2003, Saudi Arabia facilitated the invasion of Iraq by temporarily increasing oil production. All actions subsequent to the June 10th decision to end negotiations with US companies on the development of the Saudi natural gas fields have been consistent with a broader Saudi reassessment of its respective relations with both the US and Russia.

In 2002, the OPEC oil ministers met 4 times. In 2003, they met 7 times. Thus far in 2004, they have already met twice. The significance of the increased frequency of these meetings is that it has allowed the OPEC member states to better minimize the risks of overproduction relative to quota allowances. Monitoring of overproduction can be more accurately calibrated with an increased frequency of meetings, note Groppe, Long, & Littell. In fact, GLL argue that OPEC has in effect moved closer to the old model of the Texas Railroad Commission, which still sets monthly allowances for production in Texas. As GLL note: “The genius of the monthly meetings of the Railroad Commission is that the commissioners did not have to depend on their ability to forecast accurately. Any mistakes made - and some were - could be corrected at the next meeting.”

The goal here appears clear: limit overproduction and keep oil prices high, not flood the market with cheap oil. And with the Saudis clearly not playing ball on oil, one can only surmise that their hitherto almost reflexive move to recycle petrodollar surpluses back into the dollar has likely dissipated as well, removing an important marginal bid in the bond market, at a time when inflationary pressures are intensifying and 10-year bond yields have headed north of 5 per cent. The broader economic and geopolitical implications are enormous: the House of Saud, which has cultivated a special relationship with successive US administrations since the days of FDR, has effectively decided that politically and economically distancing itself from the American government provides a much better means of ensuring its long term survival.

All of which implies an increasingly precarious backdrop for US financial assets and the dollar, the rallies in which do not fully reflect today’s deteriorating geopolitical and economic variables. Consumers have reached debt saturation with short term rates at 1 per cent. What happens as rates rise and the oil price explodes? A further price spike in energy could well exacerbate growing inflationary psychology now predominant in the credit markets, which in turn could undermine the Fed’s recent efforts to “talk down” yields on long term interest rates. An oil shock is the last thing the debt-saturated economy, embarking on expensive overseas ventures, needs right now. Even a well meaning internationalism (if that is truly what is on offer in the Middle East) can degenerate over time into a form of imperialism that breeds resentment against the United States around the globe, eventually endangering U.S. national security and US economic interests. That appears to be where we are today, the consequences of which are not yet fully reflected in the markets.

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