The Middle East is historically known as a turbulent region with great instability and even greater Western military interventionism. Wars and conflicts in the region have been numerous. But ever since the 2003 war in Iraq, it became clear that politicians had more sinister motives than “spreading democracy” and advancing freedom. The keyword is oil: it became the focal point of Western policies. Oil became intricately related to the stability of the region, but was also identified as a matter of national security to the West, primarily the United States.
In this report we revisit the history of oil in the region and, in particular, we look at how and when oil began to shape the political strategies of the West. Although we focus on the events of the 20th Century, we can trace the change of political doctrines to the weakening of the British Empire, due to the rise of the German “Kaiserreich”. The two powers competed on expanding their spheres of influence on the world map, until they met on the battlefields of World War I. This is when Mackinder’s theory of a divided Europe and Asia, competing for control of the resource-rich region of the Heartland, began to materialize. This theory remains valid today and the 20th century bore witness to how wars were fought to gain access to one primary resource: “black gold”.
Access to oil resources and therefore petrodollars, lead to a whirlwind of militarization, which ultimately created a vicious cycle of conflicts concentrated in the Middle East and Persian Gulf region. As described by oil expert, Bertram Brökelmann, a tight pairing of oil and soldiers characterized the relationship between the Gulf oil producers and their Western partners, particularly the United States: soldiers were used to gain access to oil, oil was used to generate petrodollars, and these petrodollars were spent on military assistance and security to protect the oil fields. The focus on the Middle East region and its resources leads us to revisit Halford Mackinder’s Heartland Theory, which he devised in 1904. The “Heartland” territory is identified as “the pivot” of all the geopolitical transformations. Mackinder divided the world into the following territories:
As we introduce the Heartland theory, it is necessary to highlight the significance of the person who formulated it: Sir Halford John Mackinder was a geographer and academic and one of the founders of the London School of Economics in the late 1800s. He became its Director between 1903 and 1908. Mackinder was regarded as one of the founding fathers of geopolitics and geostrategy and served as Britain’s High Commissioner in Southern Russia in late 1919 and early 1920. His paper “The Geographical Pivot of History” (in which he introduced the Heartland Theory) helped transform foreign policy making at the time. His theory was presented in the Paris Peace Conference and highlighted the significance of Eastern Europe in paving the way to the Heartland. It did not go unnoticed, as it was incorporated in the geostrategy of Nazi Germany, as well as in America’s foreign policy during the Cold War.
According to Mackinder’s theory, the Heartland was at the center of the World Island, stretching from the Volga to the Yangtze and from the Himalayas to the Arctic. At the time, the majority of the Heartland was ruled by the Russian Empire, soon to become the Soviet Union. The World Island, according to Mackinder, contained the largest natural resource reservoirs: Whoever controlled it, would possess over 50% of the world’s resources. Numerous regional powers and empires tried to conquer the region, but all failed, mainly due to geographical impediments; the Heartland was naturally defended by sea and ice in the north, and mountains and deserts in the south.
Mackinder’s theory coincided with the changes in the international power structure at the time, particularly with the decline of the British Empire and the rise of the German Kaiserreich, with the victory of the latter in the Anglo-Prussian war of 1866. Germany’s tremendous speed of industrialization and political ambition to build a railway from Berlin to Baghdad was a direct threat to British supremacy and naval power, as the railroad would offer much faster and cheaper trade routes. This, along with frictions over territorial interests, complex and tentative alliances and rising tensions, soon spread and built up to WWI, which led to the destruction of the old monarchies of Austria-Hungary, Germany and the Russian Empire under the Tsar.
Already here we can see the beginnings of global powers competing for influence over the Middle East. And although Mackinder did not specifically stress the importance of the Middle East, according to some researchers, the discovery of the abundant oil reserves in the region, after the publication of his article, suggests that the Heartland territory could be expanded to include the oil-rich Persian Gulf .
History teaches us how economic interests and corporate benefits exert a strong influence on state and foreign policy objectives. In our previous reports we highlighted how dynastic families and their corporations had a strong impact on the direction of state policies. The history of oil shows us how achieving these objectives became of paramount importance and has gone so far as to cross state borders. With modern industrialization and technological progress, the West became more and more reliant on oil: to governments and political regimes, oil became synonymous with national security, but to conglomerates and industries (such as car manufacturing) it was an existential prerequisite. Securing access and control over oil reserves became a focal point in war strategies, and to weaken one’s opponent also meant destroying their oil supply.
The origins of today’s economic system can be traced back to a handful of key families in the finance business. These families have created large conglomerates, which played a major role in the development of the international economy of the 20th century. These dynasties that dominated the markets for decades include the Rothschilds, the Nobels, and the Rockefellers and their investments and interests encompass nearly all economic sectors. They were the pioneers that recognized the full potential of oil and they foresaw how far-reaching its impact would become, as a source of energy that would support the growth of industries, as well as state power. By investing in the oil sector and expanding their business, these families paved the way for the creation of the multinational oil conglomerates that we know today.
An illuminating example is that of Standard Oil. The company was established in Ohio in 1870 by the industrialist John D. Rockefeller, and through initially horizontal and later vertical integration, it shaped and eventually dominated the global oil industry. After the oil boom of 1863, Rockefeller quickly recognized the enormity of the potential profits in the oil sector and thus he prepared the ground to guarantee the success of his business with two important strategic moves. First, he consolidated smaller refineries into one large oil giant managed by him and second, he entered into a secret alliance in 1968 with the railroads company, Lake Shore Railroad, which gave him lower transport rates than his competitors. By wiping out the competition, Rockefeller did not only end up controlling the American oil industry, but by 1879, he also controlled 90% of the world’s oil refining industry. Standard Oil was to transform the American economy. However, across the Atlantic, other ambitious corporate families began to emulate the business model across the world.
Such was the case of the partnership between the Nobel and Rothschild families who were interested to invest in Caspian Sea oil development in the 1870s. To take this oil to the global market, they partnered with a shipping company with routes to the Far East, M. Samuel & Co. This company shipped their Nobel-supplied Caspian oil, through the Suez Canal, to East Asian markets. In 1897, “M. Samuel & Co.” became the Shell Transport and Trading Company.
Iran also appeared on the radar in the turn of the century, as millionaire William Knox D’Arcy negotiated a concession agreement with the Shah of Persia in 1901, which gave him the exclusive right to prospect for oil in the country. After seven years of failed attempts, finally he struck oil. He partnered with Burmah Oil and together formed the Anglo-Persian Oil Company (known today as British Petroleum), which was to oversee production of Persian oil. The British government controlled 51% of the company’s shares.
Meanwhile, the Middle East was experiencing great transformations as a result of the changing British strategy towards colonialism, on top of which, came the Sykes-Picot agreement between Britain and France during World War I. In this agreement, the Middle East was divided into spheres of influence between the two parties, a manifestation of “divide and conquer”. The Western powers drew the borders to serve their interests, a move that the Arab world viewed as a betrayal. The Persian Gulf was not part of the agreement, as the British were the dominant foreign power in the region for more than a decade. But after the success of the Anglo-Persian Oil Company and the oil discovery in the coastal states, British attention shifted to the mainland.
All the aforementioned oil conglomerates had their eyes set on the Middle East region, competing to gain control of the oil supply. Standard Oil Company of California signed concession agreements with Bahrain in 1929 and Saudi Arabia in 1933, forming the California-Arabian Standard Oil, later to be joined by Texaco (now a subsidiary of Chevron Corporation). In 1944, the company name was changed to Arabian American Oil Co. (Aramco), and in 1948 Standard Oil of New Jersey and Socony-Vacuum Oil (both now ExxonMobil) purchased a combined 40%, while they were also holding shares in Iraq Petroleum Co. In Kuwait, the Kuwait Oil Company (KOC) was established in 1934, a joint enterprise between the American “Gulf Oil” and the British “Anglo-Persian Oil Company”, which later signed its own exclusive concession with Qatar. Meanwhile, in the United Arab Emirates the Petroleum Development (Trucial Coast), a subsidiary of Iraq Petroleum Company (founded by the Anglo-Persian Oil Company and Shell, among others, and currently owned by BP, ExxonMobil, Shell and Total) also signed a 75-year long concession agreement.
The need to reduce external spending due to local economic pressures caused the British government to eventually withdraw from the Gulf by 1968, while maintaining an influential economic presence in the region. The British withdrawal had significant implications on local geopolitics. The Gulf tribal sheikhdoms were new monarchies with little experience in state building. What was left, was a political vacuum and a big question mark over the future of the oil fields. The economic structure of the world’s oil market was facing significant changes as well. For decades, the major oil industry issue had been how to handle oversupply. The international oil companies had since the 1920s agreed to manage oil so as to avoid a price collapse. Producer countries in the Persian Gulf were vulnerable to these conglomerates, who were in control of the entire oil sector: they were the sole buyers, shippers and refiners of crude oil.
The system had its rogue agents, such as Marc Rich, or also known as the “King of Oil”. He was the founder of Marc Rich & Co. AG, later renamed “Glencore”, and a pioneer in creating a spot market for crude oil in the late 60’s, at a time when most of it was bound in long-term contracts for future trades by the big conglomerates. He learned to take advantage of world conflicts and potential oil supply shortages and he managed to circumvent all political and legal obstacles in his way. He sold Soviet oil to South Africa during the apartheid and he traded with Cuba, despite the trade bans. He also made a deal with Iran that allowed him access to Iranian surplus oil, which he sold on to the global market and to U.S. oil companies, making significant profits, as the Arab oil embargo allowed him to double his resale price. He kept doing so even after the ‘79 Revolution and the hostage crisis, thanks to his special relationship with Ayatollah Khomeini. In 1983, he was charged with some 64 charges including “trading with the enemy” and became a fugitive from the FBI for over 20 years, until he was pardoned in 2001, by President Clinton. Marc Rich did manage to undercut the conglomerates to some extent, though he never presented a real threat to Big Oil; but a challenge of a much greater scale did, and it decisively changed the rules of the oil game.
Challenging the status quo: The Gulf states versus the oil corporations
The 1953 Iranian coup was a prime example of how far the oil industry interests could reach into national politics. Ever since the original concession to William Knox D’Arcy, followed by a renewed agreement in 1933 for another 60 years, the Iranian oil fields were operated by the Anglo-Persian Oil Company (later renamed to Anglo-Iranian Oil Company, now known as British Petroleum). By 1950, the Iranian public’s discontent with the company’s practices, which were deemed exploitative, was approaching its boiling point and in 1951, the democratically elected Prime Minister Mossadegh, after failed attempts to renegotiate the terms of the concession, moved to nationalize the company’s holdings in Iran, backed by the parliament.
In response, the Anglo-Iranian Oil Company (AIOC) persuaded the other international oil companies to boycott Iranian oil to exert pressure on the country. Production increases elsewhere, including Kuwait and Saudi Arabia, made up for the lost Iranian oil, but AIOC was suffering heavy losses. On a political level, this created a vacuum, and an opportune moment for the Soviet Union. In 1953, fearing that Mossadegh would seek support from the Soviets, U.S. President Dwight Eisenhower decided to take action. The CIA launched Operation AJAX with the support of the British intelligence agency and with the complicity of the Shah. AJAX was a coup d’état that deposed Mossadegh and installed a pro-western government under the Shah’s leadership. Declassified CIA documents also revealed that the operation involved the bribery of Iranian politicians, security and army high-ranking officials, and massive anti-Mossadegh propaganda that helped to instigate public revolt. In return for successfully restoring the Anglo-Iranian Oil Company’s position in Iran, the U.S. demanded an end to its monopoly, and divided the oil fields among a group of international petroleum companies.
Mossadegh’s provocation was only the beginning, to be followed a few years later by another ambitious Middle Eastern leader unafraid to defy the status quo: Muammar Gaddafi, a young officer in the Libyan army, who rose to power after the 1969 Libyan coup. The following year, he informed Occidental Petroleum, a small American oil company operating in Libya, that it would have to increase Libya’s share of the profits from 50% to 55%, and to raise the price of its oil by 30 cents per barrel, which was considered a significant increase from the price level of around USD2.00 per barrel at the time. Occidental resisted but eventually acceded to Gaddafi’s demands after he threatened nationalization. Other producers in Libya followed suit shortly thereafter.
Gaddafi’s challenge to Occidental came at a time of soaring world demand for oil. While in the early 1950s, lost Iranian oil production could be easily replaced, it was no longer possible by 1970 due to limited spare oil production capacity. Oil production in the U.S. peaked in 1970, but oil imports continued to increase. According to Middle East historian, Gregory Gause, world demand and supply of oil had reached a “precarious imbalance”, which further empowered producer governments. After Gaddafi’s victory over Occidental, the Shah of Iran successfully insisted to also increase Iran’s share of the profits from 50% to 55%. Early 1971, the oil companies agreed to extend the 55% profit-sharing arrangement to all Gulf countries, and to increase prices by 35 cents per barrel and on an annual basis thereafter. Moreover, the companies agreed to additional government demands to further increase the price per barrel by 90 cents. By June 1973, the “posted price” (a benchmark price for a particular grade of Saudi oil, from which prices for other grades of oil were set) of Gulf oil climbed to USD 2.90, compared to just under USD 2 per barrel at the beginning of 1970. Accordingly, higher oil prices and greater share of profits contributed to significant increase in the oil revenue of the Gulf states.
In parallel, producer states began to assert more direct control over their own oil industries: the real decision-making power was transferred from the oil companies to the governments. Iraq nationalized the Iraqi Petroleum Company (owned by BP, Shell, Exxon Mobil and Compagnie Française des Pétroles) in June 1972. In Iran, the new regime of Ayatollah Khomeini in 1979 took over operational control of the Iranian fields from the international consortium. Additionally, the Saudi government acquired a 25% share of Aramco in 1973, and in 1980 completed the take over with a 100% stake. Qatar negotiated a similar agreement.
The oil shock of ‘73: The dawn of the petrodollar system
By 1960, the oil-producing countries had improved their own level of technical sophistication and cooperation. That year Iran, Iraq, Saudi Arabia, Kuwait and Venezuela formed the Organization of Petroleum Exporting Countries (OPEC) as a forum for coordinating among themselves in dealing with the oil companies; a move that further empowered the oil producing states. By the time of the Yom Kippur War, they were able to use oil as geopolitical leverage.
OPEC members demanded a new round of negotiations with the oil companies, which started on October 8th 1973, only two days after Egypt and Syria launched their surprise attack on Israel. As we will learn shortly, the talks had little to do with the ongoing war and more to do with the collapse of the Bretton Woods system and Nixon’s closure of the gold window. Gregory Gause describes how these negotiations went, which began with an initial offer from the oil companies to raise the posted price by 15%; the OPEC negotiators, led by Saudi Arabia, demanded a 100% increase. The negotiations failed and the Gulf ministers of OPEC announced a unilateral decision to raise the posted price of oil by 70%, to USD5.11 per barrel. For decades, the major oil companies had set the oil prices, with no input from producer governments. Now the tables had turned. But more importantly, the power relations in the oil market became linked to the geopolitics of the Arab-Israeli conflict and American relations in the Gulf: Oil became a weapon in the war against Israel.
On October 17, the Gulf oil ministers agreed to immediately cut 5% of their production levels, and to make a further 5% cut every month until Israel withdrew from the territories occupied in the 1967 War. Shortly thereafter, the U.S. announced a USD2.2 billion military package for Israel, and the Israeli army encircled Egyptian forces in Sinai. Then, Libya, Saudi Arabia, together with Kuwait and the UAE announced a complete embargo on oil sales to the U.S., naming it a “principal hostile country”. The effects were of a massive scale: a near 4-fold surge ensued in the oil price from USD2.90 a barrel before the embargo, to USD11.65 a barrel, in January 1974.
According to Gregory Gause, these decisions “sent the world oil markets to an unprecedented panic”. The oil embargo alone did not cause the oil price crisis of 1973-74. However, it was the most dramatic and unexpected element of that crisis. In December 1973, at the peak of the oil production cuts, about 5 million barrels of Arab oil were taken off the market per day. These production cuts, along with the ambiguity over the future of oil supplies, led to unimagined increases in oil prices. The table below shows the spike in oil revenue of Gulf states in 1974.
The 1970s were a difficult time for the American economy. Nixon closed the gold window after the U.S. Treasury could no longer back its currency with gold. While the Nixon administration was looking for a way to resuscitate the dollar, close presidential advisors offered a practical solution. According to leaked documents, then Secretary of State, Henry Kissinger, held a meeting in Bilderberg in the Netherlands with a group of influential men from the world of oil and finance, who recognized that they could use oil to turn the tables on OPEC. They discussed “an energy crisis or an increase in energy costs,” which would allow a 400% increase in oil prices. Anecdotally, the Shah of Iran, when asked by Saudi King Faisal’s representative at the OPEC meeting why he had demanded a 400% price hike, he purportedly replied: “Tell your King, if he wants the answer to this question, he should go to Washington and ask Henry Kissinger.” It became clear that the oil conglomerates managed to make the best out of the situation, by using back channels that encouraged an oil price hike in the short-term and also diverted the long-term U.S. foreign policy to the Middle East. The oil embargo was lifted in March 1974 after the Americans committed to negotiate a disengagement agreement between Syria and Israel. In return, the U.S. embarked on a series of agreements with Saudi Arabia, which reshaped the international financial system into one entirely based on oil, or “the petrodollar system”.
In 1975, Saudi Arabia settled military sales with the United States worth nearly USD2 billion. In parallel, the U.S. carried out contracts and joint ventures with Iran valued at about USD11.9 billion, in addition to Iran signing an accord, with a commitment to spend USD15 billion on American goods and services from 1975 and over the next five years. The U.S. thus successfully secured its position in the region after forging political and economic partnerships with the two largest oil-producing countries in the Middle East, however, risks soon arose once again, with the Islamic revolution in 1979.
The Gulf Wars: Oil and Blood
i) 1980-1988: Iran –Iraq War
Border disputes had long been a point of friction between Iraq and Iran. In the 1975 Algiers Agreement, Iraq made territorial concessions—including the Shatt al-Arab waterway—in exchange for normalized relations. In addition to the border tension, the Islamic revolution of 1979 intensified the already strained relations, and the fall of the Shah created a power vacuum in the Persian Gulf. The uncertainty and instability that came with the Islamic Revolution not only affected the regional system politically, but also caused oil prices to climb to new heights. This was the second oil shock after the oil embargo of 1973.
The Iranian revolution changed the rules of the game in the Middle East. The clergy successfully sidelined other political factions in the community and fully took over the role of a government, including foreign policy. It soon became clear that the objective of the revolution was to Islamize society within Iran and export this ideology to the region through propaganda and media campaigns. It was an offensive against the Western interference in the region, and the pro-Western states whose legitimacy was directly and outright challenged by Khomeini, including Saudi Arabia, who prided itself as the leader of the Islamic world.
While the use of force was not part of the agenda to spread the Islamic revolution, the fragile relations between the two bitter rivals soon devolved into war. Initially, Kurds in northern Iraq took advantage of the instability in Iran and continued their armed attacks against Saddam’s forces. The post-revolution leadership in Iran, however, did not close its borders to Kurds fleeing from Iraq, which constituted an outright violation of the 1975 Algiers Agreement between Iraq and Iran. On top of this, the new leadership in Iran directly challenged Saddam’s leadership by calling on the Shiite community to overthrow him. On September 22nd war broke out after 9 divisions with 100,000 Iraqi soldiers crossed Iranian boarders. Saddam’s objective was to occupy the Iranian province of Khuzestan, which contains the bulk of Iranian oil reserves. According to Middle East historian, Gregory Gause, if Saddam had been successful in his endeavors, he would have been in possession of an oil production capacity amounting to 11 million barrels per day and thereby able to satisfy 20 % of world oil demand at the time.
The war escalated, and both parties recognized the strategic importance of each other’s oil wealth: Saddam ordered the Iraqi Air Force to attack Iranian cities, ports, oil installations and ships. Iran, too, destroyed the enemy’s oil terminals. The damage incurred to the Iraqi oil fields significantly reduced its ability to generate income that was very much needed in the eight-year-long war.
The Arab Gulf monarchies were particularly alarmed by the spread of Islamic fundamentalism in the region, which was fuelled by the Iranian revolution. As a counter-reaction, they formed the Gulf Cooperation Council in 1981, which would provide substantial financial support to Saddam. The war had led oil prices to climb to new highs of USD38 per barrel and it ended with a UN ceasefire resolution. No winner was proclaimed, and the main outcomes were numerous casualties and towering debt for both parties. The war cost Saddam USD450 billion, while the loss stood at USD644 billion for Iran. However, thanks to the financial and military support by the Gulf states, Saddam managed to build up a massive military arsenal which he planned to resort to again much sooner than expected.
ii) 1990-1991: Invasion of Kuwait- Operation Desert Storm
Border conflicts between Iraq and Kuwait were a repeated occurrence since Kuwait’s independence from Britain 1961. In 1990, the impoverished Saddam regime sought help from his GCC partners: Still carrying billions in debt from the Iran-Iraq War, he requested total exemption from his debt repayments to his Arab peers in addition to another USD10 billion in credit, but the GCC heads of state did not grant the request. And so Saddam’s strategic attention turned to Kuwait: He could not afford to repay the enormous sums he had borrowed from the neighboring countries to finance the previous war, and Kuwait persistently declined to forgive the debt. Additionally, Kuwait had massively increased its oil production, keeping prices low and further crippling Iraq’s economy; its refusal to reduce production was viewed as an act of aggression by Saddam. The temptation was clear: in combining both Iraqi and Kuwaiti oil reserves, the Iraqi dictator would become the second- largest crude oil producer in the Middle East.
Meanwhile, the U.S. was preoccupied with other major shifts in the global system, namely the fall of the Berlin wall in 1989 and end of the Cold War. On a regional level, the death of Khomeini helped restore some confidence across the Gulf. No one foresaw Saddam’s plans, except for the United States. Publicly, U.S. Secretary of State, James Baker, had stated that the U.S. “takes no position on the substance of the bilateral issues concerning Iraq and Kuwait”, while asserting his country’s respect for the sovereignty of the nations of the Gulf. On the 24th of July 1990, the U.S. State Department assured the Iraqi leadership that “we do not have any defense treaties with Kuwait and there are no special defense or security commitments to Kuwait”. According to leaked documents, Saddam held a meeting with U.S. ambassador to Iraq, April Glaspie, only a day later. Saddam had made his plans to annex Kuwait very clear, but when he asked Glaspie about the United States’ position on this, she expressed the U.S. was not against a moderate climb in the U.S. oil prices up to USD25 per barrel to support his efforts to rebuild his war-torn and heavily indebted country and even made a striking and controversial statement that can be regarded as a turning point in the war:
“We have no opinion on your Arab – Arab conflicts, such as your dispute with Kuwait. Secretary (of State James) Baker has directed me to emphasize the instruction, first given to Iraq in the 1960s, that the Kuwait issue is not associated with America.”
Saddam believed that he had been given the green light, and that the U.S. would consider Iraq as their partner and leading power in the Gulf, much like Iran in previous years, and that it would support its claims on Kuwait. On August 2nd, 1990 Iraq invaded Kuwait; the Iraqi forces devastated the Kuwaiti army and Saddam declared Kuwait an Iraqi province. Such great control over the oil fields alarmed the other countries of the Gulf: by conquering Kuwait, Saddam would have 40% of the world’s known oil reserves under his control. This was a horrific scenario for Saudi Arabia, but even more so, for the American leadership duo (and oil businessmen) Bush and Cheney. After failed attempts for an inter-Arab solution failed, the Saudi leadership allowed U.S. troops to establish bases on Saudi territory. And so, “Operation Desert Storm” was launched on 17th January 1991. The war ended a month later, with UN sanctions imposed on Iraq and the designation of no fly zones over Kurdish and Shiite territories. Additionally, oil exports were only permitted as part of the “Oil for Food” program, which was designed to serve the suffering Iraqi citizens under the economic sanctions following the war, by allowing the Iraqi regime to buy humanitarian supplies in exchange for oil sales, under the supervision of the United Nations. The program was initiated in 1995 and officially suspended in 2003. This UN scheme, however, came under great scrutiny after accusations of corruption linked to oil sales outside the program. These accusations were connected to members of the Iraqi regime and even the son of the Secretary General of the United Nations, Kofi Annan, who took advantage of his father’s position. Head of the Independent Inquiry Committee, former U.S. Federal Reserve chairman Paul A. Volcker made the following statement to the UN Security Council:
“Our assignment has been to look for mis- or mal-administration in the oil-for-food program, and for evidence of corruption within the U.N. organization and by contractors. Unhappily, we found both.”
According to some reports, Saddam Hussein successfully managed to secure USD1.7 billion in kickbacks from participating companies and USD11 billion in oil-smuggling profits. This program was not only a clear manifestation of poor management, but also a reflection of the corrupt reality of this organization of states and a testament to the dire consequences of bureaucracy and centralization.
Looking back at the the international oil market during the war, the Iraqi invasion of Kuwait and the subsequent UN sanctions caused another production deficit by taking about 5 mbd of Iraqi and Kuwaiti oil off the world market. According to Gregory Gause, the world was on the verge of another oil crisis, if it hadn’t been for the decisions of Saudi Arabia and the UAE to increase production. Saudi Arabia raised its oil production by 3 mbd and the UAE by 400,000 bd, which represented about two-thirds of the losses from the Iraqi invasion. Meanwhile, oil prices soared with Saddam’s invasion, reaching the levels close to USD40 per barrel in September 1990 but, they dropped back to pre-invasion levels, just under USD20 per barrel, by February 1991, when Iraq withdrew from Kuwait.
iii) 2003: Iraq War – “Operation Iraqi Freedom”
Bertram Brökelmann described the 2003 war as “a war for oil and money”, where security interests were blended with economic objectives. The buildup to the war developed since the attacks of 9/11 and a strong pretext was created by “the war on terror”. Iraq was labeled as part of the so-called “Axis of evil”, alongside Iran and North Korea. Saddam was not only labeled a terrorist and supporter of Al Qaeda, he was also accused of stockpiling and using weapons of mass destruction, although the International Atomic Energy’s inspectors found no evidence to support these allegations.
The war on terror and the media’s focus on this angle overshadowed an entirely different strategic objective. The United States suffered from severe oil and natural gas shortages in many parts of the country. As Secretary of Energy Spencer Abraham described it at the National Energy Summit on March 19, 2001:
“America faces a major energy supply crisis over the next two decades. The failure to meet this challenge will threaten our nation’s economic prosperity, compromise our national security, and literally alter the way we lead our lives.”
Dick Cheney founded the National Energy Policy Development Group (NEPDG), an expert group on oil and energy issues back in January 2001. The Group met secretly with corporate lobbyists, as well as the U.S. Secretary of State, Energy and the Treasury. According to Daniel Ganser, energy security, and oil resources in particular, became the focus of the administration’s foreign policy. Ron Paul explains that there was also another reason related to oil behind the war:
“Saddam Hussein demanded Euros for his oil. His arrogance was a threat to the dollar; his lack of any military might was never a threat…There was no public talk of removing Saddam Hussein because of his attack on the integrity of the dollar as a reserve currency by selling oil in Euros. Many believe this was the real reason for our obsession with Iraq. I doubt it was the only reason, but it may well have played a significant role in our motivation to wage war.”
In March 2003, the U.S. and its coalition allies, the United Kingdom, Australia and Poland, invaded Iraq, in the joint mission “Operation Iraqi Freedom”. Under the pretext of fighting terrorism, the USD3 trillion war was portrayed by the U.S. as a war of liberation and democratization. It resulted in 2 million refugees who fled into neighboring states and destabilized their economies as well. This war also wreaked havoc in the oil market: at the beginning of the war, the oil price stood at USD40 per barrel. By 2008, it reached USD 100. Oil production in Iraq, fell steeply from the high of 3.5 million barrels a day in the 1970s, to 1.5 million barrels after the war.
Today, the future of Iraq is still very uncertain – the political system remains fragile and society disintegrated. Due to the political uncertainty, large oil companies held back on investment. Without a doubt, Iraq’s diverse ethnic composition makes it vulnerable to opposing external influences, whether it is Iran, Turkey, Russia or regional states, all competing over political dominance (and existing oil fields) and seeking to benefit from the failed U.S. plan to rebuild the country. This failure, also paved the way for yet another conflict in the region: the rise of the Islamic State of Iraq and Syria (ISIS), which has amplified political and economic instability, and had a domino effect that led to the greatest refugee crisis known to the modern world.
In this report we revisited the discovery of oil and traced how and when it gained its superior economic and political value. We also looked back at the involvement of the family dynasties that dominate our modern finance and business world, in both the industrial and political evolution of oil. Their influence on the U.S. foreign policy, along with the rise of black gold as a leveraging tool, led to the militarization of the oil business – and with more militarization came more conflict zones. The image below shows the concentration of armed forces in the areas known to be rich in oil and oil reserves – this is the practical materialization of Mackinder’s theory, as the world is competing for the Heartland of the 20th Century: the Middle East.
This progressed in tandem with the determination of the American leadership to rise as a world economic power and the need to secure the means that would help maintain the “American way of life”. As the strong military power of the U.S. was no longer able to secure the continued availability of resources to provide for the needs and wants of the American population, the political strategy had to adapt in order to survive. The ‘70s marked the turning point when the United States shifted from being an oil exporter to the world’s largest oil importer. The oil crisis of 1973 was the game changer that transformed the international political and financial system into the current system of petrodollars and oil wars.
Submitted by: Claudio Grass
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