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The story of the world's most valuable commodity
The politics of oil

January 25, 2002 | Pages 6 and 7

"IS THERE any man, is there any woman, let me say any child here, that does not know that the seed of war in the modern world is industrial and commercial rivalry?" Those were the words of none other than former U.S. President Woodrow Wilson in a 1919 speech.

Since Wilson asked this question, no commodity has been fought over more fiercely than oil. "Oil is the world's biggest and most pervasive business," wrote author Daniel Yergin--and he might well have added one of the most common sources of political and military conflicts.

In 2000, the five biggest oil companies operating in the U.S.--ExxonMobil, ChevronTexaco, BP Amoco-ARCO, Phillips-Tosco and Marathon, which together control more than 60 percent of the retail market--raked in more than $40 billion in after-tax profits.

But oil isn't just profitable. It's also of vital strategic importance in the world economy--which is why governments have been prepared to fight brutal wars to control it.

Here, PHIL GASPER looks at how the politics of oil have played out through history--and how they remain crucial to the U.S. "war on terrorism" today.

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OIL FIRST became a major industry soon after the first successful well was drilled in Pennsylvania in 1859. For the next several decades, there was a huge demand for the product for use in kerosene lamps and as an industrial lubricant.

But the price of oil fluctuated wildly in these years--with a cycle of overproduction followed by a collapse, followed by more overproduction. A Cleveland refinery owner named John D. Rockefeller decided that the best way to make money in the industry would be to establish a monopoly that could control prices and even out the ups and downs.

In 1870, he set up the Standard Oil Co.--and set about taking over or destroying his competitors. Standard Oil made secret deals with railroad companies for cheaper rates and then bought out many of its struggling rivals. Those who refused to sell were given "a good sweating"--as Standard cut prices below its own production costs until the smaller refiners cracked.

When that didn't work, Rockefeller resorted to other tactics. On one occasion, he organized a "barrel famine" to break a competitor. On another, a rival refinery in Buffalo was dynamited after Standard Oil bribed the chief mechanic.

By the end of the century, Rockefeller had used his control of oil to amass a personal fortune of $200 million--which soon grew to $2 billion. "Mr. Rockefeller has systematically played with loaded dice," wrote muckraking journalist Ida Tarbell in a famous exposé, "and it is doubtful if there has been a time since 1872 when he has run a race with a competitor and started fair."

If oil was the basis for ruthlessly acquired personal fortunes in the 19th century, it assumed an even greater importance in the 20th as it overtook coal as the most important source of power.

The strategic value of oil became clear during the course of the First World War, when it was used to power everything from motor vehicles to battleships. The British government had already used its military power to gain control of Iranian oil, which had been discovered in 1908. This eventually gave it a crucial advantage in the war. As British Foreign Secretary Lord Curzon put it, "The allies floated to victory on a wave of oil."

Following the war, Britain and France carved up the Middle East between them in the expectation that more oil would be found. At first, they tried to exclude the U.S. from access to the region, but after a bitter trade dispute, they were forced to relent. A consortium of British and U.S. oil companies was organized to control oil production in most of the Middle East, with local rulers given only a small proportion of the profits.

By the time of the Second World War, oil was even more important. "The Japanese attacked Pearl Harbor to protect their flank as they grabbed for the petroleum resources of the East Indies," wrote Daniel Yergin. "Among Hitler's most important strategic objectives in the invasion of the Soviet Union was the capture of the oil fields in the Caucasus. But America's predominance in oil proved decisive, and by the end of the war, German and Japanese fuel tanks were empty."

Victory in the war left the U.S. in a position of military and economic dominance. "We must set the pace and assume the responsibility of the majority stockholder in this corporation known as the world," said Leo Welch, former chair of Standard Oil of New Jersey.

A central part of U.S. postwar strategy was maintaining control over oil resources, particularly the huge reserves that had been uncovered in the Middle East. A State Department document described them as "a stupendous source of strategic power, and one of the greatest prizes in world history."

Control over the flow of Middle East oil meant not just huge profits for U.S. oil companies, but an important strategic advantage for the U.S. over its main rivals in Europe and Japan. Washington declared control of Middle Eastern oil to be one of its "vital interests"--and has been prepared to defend those interests for more than half a century.

In 1948, the state of Israel was established with Washington's support, and it has received tens of billions of dollars of aid to protect U.S. interests in the region. But the U.S. government has been ready to intervene itself when this was necessary.

In 1953, after Iran's moderate nationalist prime minister, Mohammed Mossadegh, attempted to nationalize the country's only foreign oil company, he was overthrown by the U.S. and Britain, who then divided the Iranian oil industry between themselves. The coup restored the Shah of Iran to absolute power, ushering in a quarter-century of brutal repression, torture and human rights abuses, all fully backed by Washington.

Between 1956 and 1958, the U.S. tried to overthrow the Syrian government twice, sent 14,000 troops to Lebanon to prop up a client regime and attempted to assassinate Gamal Abdel Nasser, the nationalist president of Egypt.

But the biggest U.S. intervention in the Middle East came in 1991, following Iraq's invasion of neighboring Kuwait. The U.S. called on the United Nations to impose sanctions on Iraq and sent half a million troops to the region, claiming that it was defending democracy and self-determination.

But some commentators at the time were more honest. "If Kuwait grew carrots, we wouldn't give a damn," said Lawrence Korb, assistant defense secretary under Reagan.

As New York Times columnist Thomas Friedman summarized: "The United States has not sent troops to the Saudi desert to preserve democratic principles. This is about money, about protecting governments loyal to America and about who will set the price of oil."

During the Gulf War, the U.S. carried out the most intensive bombing campaign in history, even though Iraq had already begun to withdraw from Kuwait. Tens of thousands were killed, and Iraq's infrastructure was destroyed.

The destruction of electrical, water and sewage-treatment systems, together with the continuation of sanctions since the war ended, has resulted in more than 1 million more deaths, the majority of them young children.

There is no other way to describe this carnage than genocide. And it was carried out in the interest of oil profits.

What Big Oil wants from Washington's war

Washington says that it has justice on its side in its war in Afghanistan. But just as in the Gulf War, oil is the underlying motivation for U.S. intervention.

George W. Bush says that the defeated Taliban was "the most repressive regime in the history of the world." But this was the very government that Washington helped to bring to power. According to journalist Ahmed Rashid, "The United States encouraged Saudi Arabia and Pakistan to support the Taliban, certainly right up to their advance on Kabul [in 1996]."

When the Taliban took power, State Department spokesperson Glyn Davies said that he saw "nothing objectionable" in the Taliban's plans to impose strict Islamic (or Sharia) law. "The Taliban will probably develop like the Saudis," said another U.S. diplomat. "There will be Aramco [an oil consortium], pipelines, an emir, no parliament and lots of Sharia law. We can live with that."

The reference to oil and pipelines is the key to understanding U.S. actions. Since the collapse of the USSR at the end of 1991, U.S. oil companies and their friends in the State Department have been salivating at the prospect of gaining access to the huge oil and natural gas reserves in the former USSR republics in Central Asia that border the Caspian Sea. The reserves are worth an estimated $4 trillion--making Central Asia "the Middle East of the 21st century," in the words of Middle East Economic Digest.

The Bush administration is plenty familiar with this reality. While he was still CEO of Halliburton, the world's biggest oil services company, Dick Cheney told other industry executives, "I can't think of a time when we've had a region emerge as suddenly to become as strategically significant as the Caspian."

Afghanistan itself has no significant oil or gas reserves. But it's an attractive route for pipelines from the Caspian region to the Indian Ocean.

In the mid-1990s, a consortium led by California-based Unocal Corp. proposed a $4.5 billion oil and gas pipeline from Turkmenistan through Afghanistan to Pakistan. But this required a stable central government in Afghanistan--at a time when the country was controlled by corrupt and quarrelling warlords.

Thus began several years of tacit U.S. support for the Taliban--in the hope that the Islamist hard-liners would provide that stability. Unocal Executive Vice President Chris Taggart argued that "if the Taliban leads to stability and international recognition, then it's positive."

This attitude continued until 1998, when Washington blamed Osama bin Laden for the bombing of U.S. embassies in Kenya and Tanzania and retaliated by launching cruise missiles at alleged terrorist training camps.

But according to the recent French book Bin Laden, La Verité Interdite (Bin Laden, The Forbidden Truth) by intelligence analysts Jean-Charles Brisard and Guillaume Dasquie, friendly negotiations with the Taliban were resumed when the Bush administration came to office last year.

In May, the U.S. government gave the Taliban $42 million to support its anti-opium policy. Brisard and Dasquie claim that FBI Assistant Director John O'Neill (who later died in the World Trade Center attack) resigned in July after the administration blocked an investigation into the Taliban's support for terrorism. "The main obstacles to investigating Islamic terrorism were U.S. oil corporate interests and the role played by Saudi Arabia in it," O'Neill is quoted as saying.

There's certainly good reason to believe that the Bush White House was following policies favored by Big Oil. After all, Bush and Cheney are both former oil company executives, and National Security Adviser Condoleezza Rice was once corporate counsel for Chevron.

But whether or not the book's allegations are true, the Bush administration has used the September 11 attack as an opportunity to revive its regional oil interests. According to a recent report in the New York Times, "The State Department is exploring the potential for post-Taliban energy projects in the [Central Asian] region, which has more than 6 percent of the world's proven oil reserves and almost 40 percent of its gas reserves."

Secretary of State Colin Powell estimates that U.S. oil companies could invest $200 billion in Kazakhstan over the next five to 10 years. Meanwhile, in Afghanistan itself, Hamid Karzai, the interim head of the new government handpicked by the U.S., was himself formerly a consultant for Unocal.

And on December 31, Bush appointed Zalmay Khalilzad as his special envoy to Afghanistan. Khalilzad was Unocal's chief consultant on the Afghan pipeline project in the 1990s. "Afghanistan could prove a valuable corridor for [Central Asian] energy as well as for access to markets in Central Asia," Khalilzad wrote in Washington Quarterly.

The Bush administration certainly has other reasons for its brutal war on Afghanistan. The U.S. wants to demonstrate its willingness to use overwhelming force, set up military bases and project U.S. power into countries that it previously couldn't reach--in an area that borders both Russia and China, its most feared rivals. And the war has been a cover for pushing through its right-wing agenda at home.

But above all, this is a war about defending and enlarging the U.S. empire that today controls and exploits much of the globe, including its oil resources.

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