OPEC to maintain current output levels
- maintain the oil price at $70 per barrel
THE DAILY STAR (Lebanon)
1 June '06:"Flush OPEC expected to leave well enough alone" , Jitendra
Joshi, Agence France Presse AFP)
QUOTES FROM TEXT:
"OPEC cartel appears set to maintain its oil output leves ... a bonanza of
petrodollars"
" 'As long as prices are hovering above $70 a barrel, the likelihood of a
production cut is virtually zero' '". . ." 'the countries who are above quotas
will blissfully ignore the formal levels' "
EXCERPTS:
WASHINGTON: The OPEC cartel ...to maintain its oil output levels ..., reluctant
to rock a high-flying market that is reaping its 11 members a bonanza of
petrodollars. The Organization of Petroleum Exporting Countries will hold
its latest talks in Caracas on Thursday - giving Venezuela's firebrand President,
Hugo Chavez, a high-profile stage to exhibit his anti-US rhetoric. ... Venezuela,
backed by Iran, its fellow US adversary in the group, is likely to persist
with proposals to price oil in euros rather than dollars ... .. "As long
as prices are hanging above $70 a barrel, the likelihood of a production
cut by OPEC is virtually zero," analyst Phil Flynn said. . . .OPEC's member
countries - Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar,
Saudi Arabia, the United Arab Emirates and Venezuela - hold about two-thirds
of the world's oil reserves. They supply 40 percent of the world's oil production
and half of its exports. Sudan has now been invited to join OPEC. , the cartel
is under pressure from the world's most powerful economies to do more to
bring down record-high oil prices and so limit the potential of a marked
deterioration in global growth. . . ..Increasing demand for energy from
fast-growing China and India has also played a role in the oil market's startling
rally of recent years.
... OPEC members with the exception of Saudi Arabia are pumping out all the
crude they can. Many are flouting the cartel's official quotas so that they
do not lose out on the market boom, analysts say. "With prices so high now,
the countries who are above quotas are going to blissfully ignore the formal
levels," said James Williams, energy economist at WTRG Economics.
Institute for Contemporary Affairs founded
jointly at the Jerusalem
Center for Public Affairs with the Wechsler Family Foundation
Vol. 5, No. 7 – 16 October 2005
The World Oil Crisis: Implications for Global
Security and the Middle East
Gal Luft
-
The global oil market environment of very strong
demand and very little spare capacity offers a huge opportunity to the radical
jihadists. The terrorists believe that the best way to hurt the global Western
economy is to go after oil.
-
Since the end of the major hostilities in Iraq, there
have been close to 300 attacks on pipelines, refineries, and other facilities,
and there have been attacks on oil installations in many other parts of the
world, including Chechnya, Pakistan, India, Russia, Azerbaijan, and
Nigeria.
-
The cumulative impact of those attacks amounts to
about 1 million barrels a day that has been taken off the market as a result
of sabotage. If this million barrels a day had reached the market, oil prices
would have been at least $20 a barrel lower.
-
We are seeing today in essence a transfer of wealth
of historic proportions from the economies of the United States, Japan, China,
and Europe to the economies of the oil-producing countries. Of course, this
is not a way to win a war on radical Islamic terrorism when the side that
needs to defeat terrorism and radical Islam is constantly enriching the
enemy.
-
We are seeing the beginning of a new era in the Middle
East where other players, particularly China, will move in and want to cut
deals and alliances. The U.S. and Europe are trying to curb Iran’s nuclear
program, to stop it from developing the bomb, but the Chinese have signed
a $70 billion energy deal with Iran, and it will be very difficult to get
them on board at the UN Security Council.
-
One of the main causes of friction between China
and Japan involves access to oil and gas deposits in the East China Sea.
The Chinese are also developing a strong foothold in Pakistan, where thousands
of Chinese workers are building a new port in Baluchistan at Gwadar, which
sits right at the entrance to the Persian Gulf.
Spare Oil Production Capacity
Falls Drastically
In the United States, gas prices have reached $3.30 a gallon. In a country
where one cannot even get a loaf of bread without getting into a car and
driving somewhere, this is a major issue.
The oil crisis we face today is not the supply-driven crisis we had in 1973.
This is a demand-driven crisis, due in large measure to increased demand
for oil in China and India, whose economies are growing by leaps and bounds.
Their need for energy has caused a chain reaction, since this has almost
totally eliminated the oil market’s spare production capacity of about
five million barrels a day that Saudi Arabia and other countries could produce
in times of emergency to stabilize the market.
Today there is a very thin layer of insulation in the oil market amounting
to approximately one million barrels a day, meaning that every small disruption,
be it a hurricane in the Gulf of Mexico or riots in Nigeria or instability
in the Middle East, immediately creates a rise in prices. This situation
will be with us for a long time because there is no new spare capacity. Building
spare capacity requires an investment of billions of dollars to create
infrastructure that may sit idle most of the time. Nobody will invest on
those terms.
Jihadi Terrorists Target Oil Production
This environment of very strong demand and very little spare capacity offers
a huge opportunity to the radical jihadists. The terrorists believe that
the best way to hurt the global Western economy is to go after its oil, to
blow up pipelines, refineries, pumping stations, tankers, and take them off
the market. They realize that when they blow up a pipeline in Iraq or in
Sudan or anywhere in the world, this translates immediately into a price
rise in all the markets. It is much easier for terrorists to blow up an oil
facility or take out a tanker somewhere in the world than to infiltrate into
the United States and blow up the World Trade Center.
Osama bin Ladin and the jihadists have said many times that their war against
the West is not only a religious war or a political war but an economic war.
This is an economic war against the infidel similar to the war they fought
against the Russians. “We bled them to the point of bankruptcy. So if
we were able to do it to the Russians, we can now do it to the Americans,
and the best way to do it is to go after their Achilles heel and attack
oil.” This is what they have been doing primarily in Iraq. Since the
end of the major hostilities in Iraq, there have been close to 300 attacks
on pipelines, refineries, and other facilities, and there have been attacks
on oil installations in many other parts of the world, including Chechnya,
Pakistan, India, Russia, Azerbaijan, and Nigeria.
The cumulative impact of those attacks amounts to about 1 million barrels
a day that has been taken off the market as a result of sabotage. If this
million barrels a day had reached the market, oil prices would be at least
$20 a barrel lower. This shows that the jihadists, using very simple tactics,
have been very successful in driving up oil prices significantly, taking
advantage of a very tight market. (See also
"Danger" in the next article)
Transferring the World’s Wealth
In 2001, oil was selling for $20 a barrel; today it sells for more than triple.
This means that the Saudis, the Iranians, and all the other producers are
making an extra $40 a barrel. We are seeing today in essence a transfer of
wealth of historic proportions from the economies of the United States, Japan,
China, and Europe to the economies of the oil-producing countries. Of course,
this is not a way to win a war on radical Islamic terrorism when the side
of the world that needs to defeat terrorism and radical Islam is constantly
enriching the enemy. American taxpayers send their dollars and soldiers all
over the world to fight for freedom and democracy. At the same time, every
time they go to a gas station, they finance the enemy that is out there to
kill us.
Some 77 percent of the world’s oil reserves are in the hands of governments.
These governments have little interest in bringing down oil prices.
Unfortunately, most of the oil-producing countries are corrupt dictatorships.
How Oil Shapes Foreign Policy
What happens when you have the United States, China, India, Europe, and Japan
all competing over the same oil? We are seeing today the beginning of a new
era in which the Middle East will no longer be a unipolar arena. There will
be other players, particularly China, that will move in and want to cut deals
and alliances.
The United States and Europe are trying to curb Iran’s nuclear program,
to stop it from developing the bomb, but the Chinese have signed a $70 billion
energy deal with Iran, and said they will veto any attempt to impose sanctions
on Iran at the UN Security Council.
When the Security Council tried to impose sanctions on Sudan – one of
China’s main oil suppliers – over the issue of Darfur, the Chinese
again said no. These are two cases in which China’s energy interest
trumped their interest to be part of the international community.
A third incident happened this year in Central Asia, which is a very important
new energy domain. In May a massacre occurred in Uzbekistan, with hundreds
of people killed by President Islam Karimov. The United States and Europe
asked for an international investigation, but China, which had signed a $600
million gas deal with Uzbekistan, said no. A few weeks later, the United
States was told by Uzbekistan that it had 180 days to evacuate the air force
base it was using to fly over Afghanistan in the context of the war on terrorism.
China has been a leading force in calling for the United States to remove
all its military forces from Central Asia, including Kurdistan. So we see
how oil shapes foreign policy.
We are seeing a situation in which America’s policy of bringing democracy
to the Middle East is being constantly compromised by the fact that the United
States and China are essentially competing over energy resources. This is
happening all over the world, not only in the Middle East and Central Asia.
It is happening in Africa and even in the Western Hemisphere, where China
is moving into Venezuela and Canada.
Access to energy resources will shape the world in the years to come. It
will dictate the international behavior of countries as it plays an increasing
role in relations between the major powers. We will see new alliances forged,
such as between China and Saudi Arabia.
One of the main causes of friction between China and Japan involves access
to oil and gas deposits in the East China Sea. Similar occurrences are happening
all over the world. The Chinese are also developing a strong foothold in
Pakistan, where thousands of Chinese workers are building a new port in
Baluchistan at Gwadar, that sits right at the entrance to the Persian Gulf.
Israel should be very sensitive to developments between the United States
and China, and should be very careful in pursuing military relations with
China because there will be a cost. There are a lot of things that can be
done with China on many issues, but for Israel to pursue military relations
with China at a time when very important parts of the U.S. defense establishment
and Congress are extremely hawkish on China is a very dangerous game to
play.
American Dependence on Foreign Oil Has Doubled
Americans are beginning to understand that their dependence on foreign oil
has doubled in the past thirty years. In 1973 America imported 30 percent
of its oil. Today it imports more than 60 percent and that will increase.
Americans are beginning to understand that dependence on oil imports is
America’s Achilles heel and that this needs to be addressed. Oil is
no longer an environmental issue. It is increasingly becoming a national
security issue.
In 1973, Brazil imported 80 percent of its fuel. Today the Brazilians are
on the road to energy independence because they have developed an agricultural
sector that allows them to produce transportation fuel from sugar cane. Brazil
today does not feel the impact of an oil crisis as other countries do.
A lot of investment is going toward producing transportation fuel from coal.
In South Africa, planes that fly out of Johannesburg run on synthetic jet
fuel made from coal, not oil. So a country does not have to subjugate its
entire foreign policy just to satisfy its need for petroleum products. Two-thirds
of U.S. oil consumption is in the transportation sector. With a quarter
of the world’s coal reserves, America can do the same and embark on
a path toward weaning itself from its oil dependence. This has already
been done in the U.S. power sector – today only about 2 percent of U.S.
electricity is generated from oil.
Dr. Gal Luft is Executive Director of the Institute for the Analysis of
Global Security (IAGS) and co-chair of the Set America Free Coalition. He
specializes in strategy, geopolitics, terrorism, Middle East and energy security.
This Jerusalem Issue Brief is based on his presentation at the Institute
for Contemporary Affairs in Jerusalem on August 17, 2005.
This Jerusalem Issue
Brief is available online at:
http://www.jcpa.org/brief/brief005-7.htm
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