Iraq and oil: economic and political dimensions

Oil and the U.S.

In his 2006 State of the Union Address, President Bush stated the obvious: "Keeping America competitive requires affordable energy. And here we have a serious problem: America is addicted to oil, which is often imported from unstable parts of the world." The Bush administration denied that oil had anything to do with the decision to invade Iraq in 2003. Defense Secretary Donald Rumsfeld defended this official position vehemently, repeatedly telling the press things like, "This has nothing to do with oil in my modest opinion," (Sample 2003). However, three years later no one in the administration could avoid more frankly addressing the oil-related motives in the Iraq war. The Iraq imbroglio and the outrageous amount of taxpayer money being spent on it were and are in fact very much due to petroleum. As the world's oil resources vanish, past what is known as "peak oil," market demand continues to rise worldwide. The United States currently remains the planet's biggest consumer of petroleum resources but fast-growing nations like China stand poised to surpass American consumption due to burgeoning industrial development.

Regardless of what the rest of the world is doing, the United States has done little to nothing to reduce its dependence on oil. Dependence on oil in itself creates significant environmental policy problems and practical problems like pollution. However, dependence on foreign sources of oil results in severe political, military, and humanitarian problems like the current crisis in Iraq.

Imported oil accounts for about two-thirds of U.S. consumption," (CIA). In past years, the United States has imported nearly half of its consumed oil ("What is Petroleum and History of Oil"). Therefore, the United States has a vested interest in the sources of its foreign oil, and a definite interest in securing those sources. With a GDP greater than that of any other nation and a military budget to boot, the United States can well afford to devote resources to secure its most crucial commodity: oil.

Historically, Iraq has never been a top source for oil imports to the United States. Canada, Saudi Arabia, Mexico and Venezuela export more to the United States than Iraq, especially since trade embargoes against Iraq were instated during the first Gulf War (Churchill 2000). However, Iraq and its oil reserves provide potential future resources as the world's total supply of petroleum dries up. Scott (2003) points out that "Iraq's proven oil reserves are 113 billion barrels, the second largest in the world after Saudi Arabia, and eleven percent of the world's total. The total reserves could be 200 million barrels or more." Moreover, Iraq's oil is "relatively easy and cheap to extract," (Scott 2003). When it invaded in 2003, the Bush administration saw in Iraq the opportunity for increased access to these potentially lucrative and productive oil reserves. Moreover, Iraq would offer the United States a strategic outpost from which to control the Middle East's collective petroleum resources. "Washington's War on Iraq is the lynchpin to controlling Persian Gulf Oil," (Renner, cited by Scott 2003).

Access to Iraq's oil wells serves a more direct economic function. A member of the Organization of Petroleum Exporting Countries (OPEC), Iraq is a key to crude oil pricing. Interestingly, OPEC was founded in Baghdad in 1960, proving the centrality of Iraq in the American quest for oil. In the 1970s, OPEC declared an embargo and proceeded to control the production of oil as a means to control its price per barrel. As a result, OPEC has been frankly described as "a cartel with the purpose of maximizing the price of wholesale petroleum to world markets," (State Department Watch). The United States therefore sought the means by which to interfere with OPEC's pricing strategies to regulate the oil market to its own needs. Those needs reflect OPEC's goals and objectives: to regulate the price of oil. Motivation to invade Iraq for oil-related reasons was obvious soon after Bush took office, when Iraq produced about 11% of OPEC's 27.5 MBPD. An American presence in Iraq would "deny OPEC and the Saudi leaders the ability to dictate marginal changes in world oil supply. Developing Iraq's vast potential in the medium term can only increase the American leverage over world oil prices," (Stinivasan 2002)

The Bush administration is peopled by individuals with personal and financial connections to the oil industry. Since the 1950s, the Bush family has been openly linked to oil interests; Vice President Dick Cheney was the CEO of one of the world's biggest oil companies, Halliburton; and Condoleezza Rice served on Chevron's Board of Directors and in fact Chevron named one of its tankers after Rice (Cave).

The Bush administration therefore seemed eager to pounce on the Middle East before September 11. For instance, "As soon as it took office in 2001," the Bush administration commissioned a special Task Force on energy, which concluded "that the U.S. is increasingly dependent on imported oil and that it may be necessary to overcome foreign resistance in order to gain access to new supplies," (Scott 2003). A senior analyst for Washington's Center for Strategic and International Studies stated before the invasion, "Regardless of whether we say so publicly, we will go to war, because Saddam sits at the center of a region with more than 60% of all the world's oil reserves," (cited by Scott 2003).

To achieve its strategic goals in the Middle East, the United States has continually coveted conservative regimes sympathetic to American financial interests (Shalom 1993). It is well-known that the United States supplied Saddam Hussein with weapons and intelligence aids during the Iran-Iraq War. A photo of Donald Rumsfeld shaking hands with Saddam Hussein underscores the extent of the administration's involvement with Iraq prior to September 11. When it became clear that Hussein was going to be far from cooperative with the United States and nationalized its oil supplies, the need to invade became immanent.

American dependence on oil and especially on foreign sources of oil skyrocketed after the Second World War. Even before the rise of Detroit and the domestic automotive industry, though, the United States cultivated direct investments in Gulf oil. During the 1920s, the United States and Great Britain vied for access to Middle Eastern oil (Shalom). However, it was not until the 1950s that oil would become the "political weapon" it is today (Shalom). Chief objectives regarding Gulf oil sources remained clear throughout the 20th century: to prevent populist movements in Middle Eastern nations. Nationalizing oil resources would vastly reduce oil profits for multinational energy corporations like British Petroleum. Therefore, when a democratically elected government in Iran did just that, the United States and Great Britain reacted with a fervent trade embargo and an instantaneous regime change not wholly unlike what has occurred recently in Iraq. In Iran during the 1950s, the United States and Great Britain propped up the Shah in a nefarious attempt to maintain global hegemony. Since then, destabilizing the Middle East through the support of military dictatorships has been the modus operandi of multinational oil companies and of the national governments that support them.

Such a strategy seems counterproductive on the surface but really is sensible from the American perspective. A stable socialist government can easily thwart U.S. access to its domestic reserves, driving prices up and down in accordance with its needs. Moreover, a stable and democratically-elected socialist government threatens American political and economic hegemony in a world market dominated by oil. The repercussions of such a scenario would be dramatic, as oil is not only necessary for automotive fuel but for the factories that produce the bulk of the world's commercial goods and the transportation services that deliver those goods worldwide. Legitimate Iraqi control of its own oil would have put a major dent in the American economy and might also have diminished overall U.S. political clout. Saddam Hussein provided the perfect scapegoat for the United States, an ideal impetus for another regional regime change. The Bush administration cared less about Hussein's crimes against humanity as it did the dictator's self-interest in reaping the profits of Iraqi oil. Limiting domestic oil production in Iraq was one way Hussein thumbed his nose at the United States. An administration as oil-dependent as Bush's could not help but want control of Iraq's estimated 112 billion barrels of extractable oil, which was being frustratingly under-produced by the Hussein regime.

The Bush administration is fooling no one at this point. Now that the original justification for invasion, WMDs, has been disparaged there are few who would attempt to show that the invasion of Iraq was due to anything but oil. A survey of Middle East residents revealed that a shocking 80% cited oil as the primary factor for the U.S. invasion of Iraq (Telhami 2003).

Indeed, some analysts claim that the Bush administration's invasion of Iraq was nevertheless conducted in the interests of national security. Stinivasan (2002) notes, "Islamist terrorism is financed and spread by revenue earned from petroleum exports. So the Bush strategy is to control Iraq, break OPEC's stranglehold on oil markets, force oil prices down, and thus deny Islamist terrorism access to petroleum financing." This argument makes some sense in light of the role OPEC plays and the presumed ties between terrorist regimes like Al Qaeda and oil. In fact, Bin Laden's brother was a stakeholder in President Bush's own Arbusto Oil Company (Wiles 2001). Bin Laden is also believed to have "made a massive profit from trading in oil and gold as well as shares on the eve of the [September 11] suicide attacks blamed on his followers," (Sherwell 2001).

However, CATO institute analysts deny a connection between international terrorism and oil money: "The fundamental problem with the argument is that terrorists don't need oil revenues...terrorists don't rely on oil revenues." (Taylor & Van Doren 2006). Conflicting theories regarding the connection between terrorism and oil aside, the American addiction to oil has undoubtedly motivated the decision to invade and occupy Iraq. Indeed, the lack of any established connection between the Iraqi government and the Al Qaeda terrorist attacks illustrates to what length the Bush administration has gone to bolster support of the occupation. The invasion of Iraq was purported to be based on the presence of WMDs and a direct link between Saddam Hussein's regime and Al Qaeda. Further intelligence reports and investigations have failed to substantiate either of those official claims, and therefore the invasion is highly likely due to Iraqi oil and its strategic position in the Middle East. "Other rogue states have been much closer to acquiring nuclear weapons than was Iraq in early 2003, and others have had more extensive ties to anti-American terrorists," (Duffield 2005). The least credible version points to purported concern for the Iraqi people, but "Saddam's repression against his own, especially the Kurds, has been known for years and tolerated by the U.S.," (Buzzanco 2002). For example, the United States poured aid money into Iraq during the Iran-Iraq war. Buzzanco (2002) remarks: "Once the war ended, Saddam killed many thousands of his own Kurdish population with chemical weapons. Meanwhile, U.S. economic aid to Iraq increased." Concern for the Iraqi people and the "liberation" propaganda touted by the Bush administration during the invasion seem like ridiculous excuses in light of historical fact.

A thorough understanding of the current crisis depends on an investigation of Iraq's modern history as a fabricated nation-state. The United States' only real ally in the invasion of Iraq was Great Britain. Great Britain and the United States were almost single-handedly responsible for the creation of Iraq in the first place. Formerly a part of the vast Ottoman Empire, modern Iraq was created by the United States and Great Britain after the First World War. A report by the Environmental Literacy Council (2007) explains how the "division of spheres of interest in that region were heavily influenced by the potential of oil in the region." This should illustrate the long-standing interest those two nations have had in the region and their mutual attempts to control its oil in the 21st century.

Oil was discovered in Mesopotamia in 1908. However, the importance of Iraq and its oil reserves became did not become fully apparent until the end of World War One. The United States produced more than half of the world's oil until as late as the 1940s (Environmental Literacy Council 2007). Before the First World War, oil was a relatively unimportant commodity used for a blossoming but relatively small automotive industry. An American, Colonel Edwin Drake, drilled the first successful oil well in Pennsylvania in 1859 and at that time, petroleum was used mainly as a source of kerosene for home lighting until the invention of the light bulb.

The United States produced what it needed even during the early decades of the automotive industry. During World War One, though, oil enabled the use of tanks, submarines, planes and other oil-driven heavy artillery. Changes in the global marketplace including the increased demand for fuel-intensive vehicles and machinery led to a radical transformation in the oil industry that placed Iraq and other Middle Eastern nations at the forefront of ensuing political and military quagmires. Buzzanco (2002) notes that "by 1944 American corporations controlled over 40% of Middle East oil reserves, and by 1955 U.S. companies were producing over 50% of oil from the region, and providing Europe with over 90% of its oil imports."

American oil addiction is just a matter of too many SUVs, although gas consumption is a major factor. Oil addiction is due to broader macroeconomic forces such as the hegemony of the American dollar. As "the grease that makes capitalism go," oil forms the backbone of the American economy (Cave 2001). Because the American dollar is the benchmark currency against which all others are traded, it is reasonable to say that the global economy as a whole depends on the oil market. Scott notes, "the present value of the U.S. dollar, unjustified on purely economic grounds, is maintained by political arrangements, one of the chief of which is to ensure that all OPEC oil purchases will continue to be denominated in U.S. dollars." Dollar hegemony depends on continued control of the world's oil reserves. More importantly from an economic perspective, dollar hegemony enables the United States to get into as much debt as it has during the Bush administration.

Another reason why macroeconomic forces explain the American addiction to oil has to do with the fact that major U.S. trading partners are actually more dependent on Gulf oil than America is (Duffield 2005). The United States maintains an emergency oil reserve and continues to produce oil domestically, which is why the bush administration pushed for increased exploration of oil fields in Alaska. Furthermore, the United States enjoys friendly political and trade relationships with oil-producing nations like Canada Dominion of the oil industry means not only the regulation of crude oil prices but also of ancillary market forces, as a large number of traded goods and services depend on oil too. Before the invasion of Iraq, its relatively plentiful oil reserves were under-tapped. This was due mainly to a lack of investment in Iraqi infrastructure due to the embargo against the Hussein regime, and to Saddam's own desire to control the supply of Iraqi oil. The under-production of oil as it reaches its peak production globally presents significant economic setbacks for the entire world market. A successful invasion of Iraq meant that the United States and its commercial interests could jump-start production of OPEC's second-largest source of oil. As a result, oil prices would better reflect a realistic supply-demand curve. Oil reserves would also be controlled by U.S.-friendly corporate interests rather than potentially volatile state interests.