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June 27, 2008

As Oil Hits Another Record High, A Look at the New Geopolitics of Energy

Oil prices have jumped to yet another record high, nearing $142 a barrel in Asian trading today. The latest price surge comes a day after OPEC’s president said crude prices could reach $170 this summer. Meanwhile, Libya has threatened to cut oil production in response to US threats against oil producers. We speak with Michael Klare, author of “Rising Powers, Shrinking Planet” and Arun Gupta of The Indypendent.

Michael Klare, author of 13 books, including “Blood and Oil” and “Resource Wars.” His latest is “Rising Powers, Shrinking Planet: The New Geopolitics of Energy.” He is the defense analyst for The Nation and the director of the Five College Program in Peace and World Security Studies at Hampshire College in Amherst.

Arun Gupta, an editor of The Indypendent who has written extensively on the political economy of the global oil order.

AMY GOODMAN: This is Democracy Now!, democracynow.org, the war and peace report. That is Nina Simone singing. I’m Amy Goodman with Juan Gonzales. Juan?

JUAN GONZALES: Oil prices have jumped to yet another record high nearing $142 a barrel in Asian trading today. Meanwhile, the Dow Jones industrial average on Thursday fell to its lowest mark in more than one year and general motors’ stock prices to its lowest levels in more than a quarter- century at the close of trading on Thursday. At over $140 a barrel, oil prices and more than double from $70 since one year ago. The latest price surge comes a day after Opec’s president said crude prices could reach $170 this summer. Meanwhile, Libya has threatened to cut oil production in response to the U.S. threats against oil producers. The house recently passed a bill that would allow the justice department to sue members of Opec for limiting supplies of oil and setting prices. Meanwhile, Opec, which produces 40% of the world’s oil says speculators are responsible for pushing up crude in reaction to a falling dollar and tensions in oil-producing countries, such as Iran, Iraq and Nigeria.

AMY GOODMAN: For more, we’re joined by Michael Klare, author of 13 books including Resource Wars and “Blood and Oil” which was just made into a documentary. His latest book is called “Rising Powers, Shrinking Planet: The New Geopolitics of Energy.” He’s a defense analyst for The Nation, and the director of the Five College Program in Peace and World Security Studies at Hampshire College in Amherst. We are also joined by Arun Gupta, an editor of The Indypendent newspaper, who has written extensively on the political economy of the global oil order. We welcome you both to Democracy Now. Michael Klare, lay out your thesis in "Rising Powers, Shrinking Planet.”

MICHAEL KLARE: The title helps, which is that we are in a world where there are new players on the world stage, China, India, other developing countries, with an vast appetite for resources, especially oil at the same time that the world supply of energy in particular is shrinking. I should add there’s a third set of players, that is the older industrial countries, the United States, in particular, that don’t want to consume less. So you have a collision of demand, which is not shrinking, and a supply that is and that’s what is pushing up prices. In the competition for what’s is left, these countries are militarizing their pursuit of energy and that is leading to it geopolitical struggle around the world. In Africa, and the Middle East, and in central Asia. And I fear that unless we change our energy habits, this competition could lead to military friction, to crisis, and to war.

JUAN GONZALES: To what degree are these battles new? Aren’t battles over resources and energy, I mean, battles over resources and energy, going back through the history of all the major wars in the central role that control over energy resources have played for major powers. To what degree is this new from prior eras?

MICHAEL KLARE: Resource competition has been a central feature in world’s history, in warfare from the beginning of time. What is new is that you have not only the traditional powers, the European empires of the past, which were responsible for World War I, World War II, the Cold War, but now you have the rise of India and especially China, with a ravenous need for resources. Just an extraordinary need. This is changing everything on the planet. China is and Africa, Latin America—everywhere. This really is a new dynamic. At the same time, we see all of the sudden, all the major resources in demand beginning to shrink—oil, copper, iron ore, coal. All of these resources on which the world’s industrial economies depend, suddenly appear to be at risk. This is unprecedented. You have this extraordinary collision, which we see at the gas pump, but I think it will affect everything on the planet.

AMY GOODMAN: And yet, Arun gupta, you have the oil companies, Chevron, Enron, Exxon Mobil, the others, making more money than they ever have in history. How do you explain that?

ARUN GUPTA: That has to do with the rising prices. I think there are other factors at play, supply and demand are somewhat of an issue, but speculation is an enormous issue. We’ve seen oil prices rise by nearly six fold from 2003. Yet, no gas lines. Oil inventories are at a eight-year high. Gasoline stock are at three year highs. You cannot say it is the supply and demand issue fundamentally. It has much more to do was speculation. But the speculators could not be doing this if the supplies were not tight. We need to ask, why exactly are supplies tight? Michael’s book is enormously informative and insightful, but I want to take issue with the notion of shrinking planet because I do not think it is actually supported by the data that is out there. One of the most important concepts to understand is what’s known as the reserve to production ratio. That is, what is the total global proven reserves of oil and how many years will that last at current production rate? If we look of the last 20 years, it’s basically unchanged. Global proven reserves keep actually rising year after year. They’re now at 1.24 trillion barrels according to latest B.P. statistical review. You can also say the same about natural gas. There’s about 60, 62 years of natural gas supplies, that’s also virtually unchanged since 1987. During the 1990’s, this went a little and it is gone down a little recently, but this has to do with the legacy of the late 1990’s. In the late 1990’s there was an absolute collapse in the oil industry and oil prices when it went down to $10 a barrel, following the Asian financial crisis. What you had was all of these oil wells going offline. You had all this oil exploration grounding to a halt. You had an enormous loss of human know how as engineers and technicians went out of the industry. It takes 7-10 years to bring mega projects online. In a way, we’re reaping the legacy of that collapsed and exploration. It is only in the last year or two that you’re starting to see a rise in exploration. There’s a good article in the times about what is known as drill ships. These are the ships that do offshore exploration, which has increased dramatically. Offshore exploration now accounts for about a third of global oil production. In the previous six years, only eight drill ships came on to the market. This year alone, 16 drill ships are coming on to the market. What it means is, finally, oil exploration is beginning to ramp up. I do now to suggest that is a good thing, but the fact of the matter is, there is a lot of oil out there. There’s also the factor of U.S. foreign policy that in 2003, what is known as the excess global capacity, collapsed and that was because of two big factors. Venezuela, we supported the 2002 coups, then we supported the oil sector strike later that year. Their oil industry virtually collapsed and are still 1 million barrels below their daily production. Then we invaded Iraq. You saw excess global production capacity shrink from 6 million barrels a day to about 3 million barrels a day. Then in 2006 to 1 million barrels a day. And that’s how the speculators are able to take advantage of this.

AMY GOODMAN: Michael Klare?

MICHAEL KLARE: I agree that there’s been times when the rate of exploration dropped, but with all the money that is being spent on exploration, they’re coming up empty and the few new wells that have come on line like off the shore of Brazil, are going to be far more costly to develop than any in history. The one big new field that has been discovered, the Kashagan field in the Caspian sea, has been an unmitigated disaster. So yes, there is more oil in the world, but it’s of the tough oil variety, extremely hazardous and difficult to produce. My basic thesis that the supply of oil is increasingly inadequate to satisfy the needs of the rising powers, and the older powers, I think is correct. It is in this environment of tight supplies that any crisis that emerges, the fighting in Nigeria, the fighting in Iraq, the possibility of a hurricane season that is upon us, and the possibility, more than anything else, of a U.S. Strike on Iran, which I think is more than 50% likely—that is what is fueling this speculative frenzy that everyone has been speaking about. The speculators believe that more crises, more chaos in the middle east is likely. That’s what is lifting oil prices.

JUAN GONZALES: I would like to ask about that in particular. Obviously, you’re rasising the issue of not just a total supply of oil, but how easy and cheap it is to get to it. The other issue is, who controls that oil? Isn’t that the issue here at hand? There could be a lot of oil in the world, but if the United States or Europe control it, then the question of the price, the supply is an issue.

MICHAEL KLARE: Yes, indeed. Especially in that the major producing countries in the Middle East and Africa are run by state owned companies and I’m sure Arun could say more about this, they do not have the same incentive to produce, produce, produce and get it on the market. They want to keep producing for as long as possible, that’s their only source of wealth. They want to keep it in the ground as long as they possibly can and that is another reason why supplies are not as adequate as they might be.

AMY GOODMAN: You talk about the global assault on Africa’s vital reserves. Lay out the picture of Africa.

MICHAEL KLARE: Africa is important, not because of the magnitude of its supplies, but because it is the one area in the world that has growth potential. And in a world of shrinking resources, anywhere that has growth potential is going to be a magnet for oil companies and oil consumers. So you have the Europeans going in there. You have the U.S. flocking to Africa. And now China is going into Africa as well. Because this is an area of instability, all these countries, but a especially the U.S. and China, are seeking to secure this oil by also providing arms and military assistance as a way of cementing their ties. So there is an arms race underway in Africa fueled by this pursuit of energy.

JUAN GONZALES: Arun, in terms of energy, Michael talks a lot about this in his book, in terms of the role of Russia, Michael talks about this in his books, that it produces enough oil for itself but increasingly seeking to dominate supplies in other parts of the world.

ARUN GUPTA: A lot of that has to do with natural gas production. The former Soviet Union, when include countries like Kazakhstan and Azerbaycan, they’re actually at a peak. Russia’s oil production is looking like it will probably decline a bit. This has to do with investment. The important thing, there are not these absolute natural limits. These have to do with relations of production. There’s a lot of cheap, easy oil out there. We have to remember that it is locked up in Iran and Iraq because of U.S. foreign policy. Both these countries could be massive producers. Again, not that that is a good thing, but there is lots of oil out there. There’s also a lot of other countries apart from Africa that can bring back a lot of oil on line. Canada is developing the Athabasca tar sands in Alberta. They just releasing a report expecting a daily production to increase by 2 million barrels per day. It’s got awful and highly destructive, but they’re receiving a tremendous amount of investment. Brazil projects it will become an oil producer. Angola is increasing its oil production. The Saudis just brought a new field online. It will be up to 12.5 million barrels per day and 15 million barrels per day in a few years.

AMY GOODMAN: We are going have to leave it there. We thank you both very much for being here. Anrun Gupta is an editor at the The Indypendent and Michael Klare’s latest book is “Rising Powers, Shrinking Planet: the New Geopolitics of Energy.”

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