Oil Politics: A Modern History of Petroleum 9780755620593, 9781860649776

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INTRODUCTION TO THE PAPERBACK EDITION On 20 March 2003, the United States initiated full-scale hostilities against Iraq with an air strike intended to kill Saddam Hussein and to deliver a decisive blow to his regime’s will to resist the country’s invasion. By 7 April US forces were in Bagdad; Hussein, having escaped the initial bombing, was in hiding; and Iraq’s army was totally defeated. It was the beginning of a renewed struggle for the Iraqi nation’s fractured soul. Miraculously, Iraq as a single political entity has so far survived and not disintegrated into the three factions (Sunni, Shi’a and Kurd) that some had anticipated. In part, this was because the centrifugal (mainly internal) forces were insufficiently strong to precipitate the country’s break-up; but in larger part it was because none of its neighbours really wanted it broken up. Once again in its short life, Iraq has escaped fundamental revolution and is condemned to stagger along with little resolved. The price is an uneasy peace and the semi-paralysis of the body politic. Here we focus on the narrower issue of oil. More than six years after the toppling of Saddam Hussein, Iraqi oil producing capacity is lower, exports are lower, refinery runs are lower and oil products, notably gasoline, have to be imported on a large scale. Investments in the industry are minimal and its infrastructure is barely maintained. Exploration and development (E&D) programmes and agreements with foreign investors, such as they are, labour under an uncertain legal status because, to the huge detriment of the country and the world of oil generally, Iraq seems incapable of making the necessary decisions and implementing them. Elsewhere, the world of oil and energy is being transformed at a lightning pace. It is too soon to be able to assess the lasting impact the new developments will have, but in this brief introduction to the paperback edition of Oil and Politics, now being published, we can at least point to some of the ones that seem at present to be most significant. First and foremost of course is the emerging shape of the oil and gas industry that Russia inherited from the former Soviet Union. Until recently, it was a sorry picture—and it still is in some respects. The Soviet (now Russian) oil and gas industry was to a certain extent living off borrowed time before the fall of the Soviet Union: the classic symptoms were a short-term concentration on expanding output to the detriment of maintenance, modern technology and longer-term investments, especially in exploration.

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In the heady years immediately after the fall of the Soviet Union, there was a rush to privatize anything that moved, with, of course, disastrous results. Production and internal demand had already plunged during the intervening years. Privatization came to be equated with plunder (and the rise of the super-rich oligarchs). Hasty recourse was had to foreign capital, especially the large international oil companies that were practically the only ones that had the capital, technology and managerial skills to rise to the occasion. By the end of the Yeltsin years (1991–1999), Russia seemed to have little coherent idea of where it was headed in the energy sector. It fell to Putin to start instilling a sense of order and direction in the country, and once more to get a firm grip on the economy and foreign policy. As far as oil and gas are concerned, Putin’s vision for the future may be unclear, but he certainly does not envisage an American laissez-faire model. Russia is a net exporter; it is landlocked, in fact locked into an unwieldy international pipeline network on three fronts (east, south and west); and is facing competing internal development problems of its own in that it is always conscious of national security but still grappling with reintegration into the rest of the world’s major economies. How it and its energy sector are likely to behave over the coming few years is still an open question. More general and less focused but equally critical is the question of industry costs. Impossible to define with precision but clearly of cardinal importance is the world’s marginal price, the marginal cost of the development of significant new oil and gas supplies. Gone are the days when, not so long ago, the US view of a desirable international oil price was around the mid-twenties (dollars). This would have been deemed sufficient to maintain a healthy industry and keep new investment flowing to assure the development of new supplies. Today (2009), suggestions of less than $40 would be laughable; when prices at these levels appear to threaten or even actually materialize for a period, the number of wells drilled in high-cost areas drops dramatically and important projects are shelved or work on them slows down. Part of the reason for the increase is inflation, but another important part has also been a more fundamental increase in marginal cost. Oil and gas are simply getting harder to find and develop, and apart from some favoured areas such as Angola, this is reflected in the cost of mega-projects and the continued decline in areas such as the North Sea and Mexico. The spectre of imminent worldwide decline and its extent and timing has been a matter for heated debate for some time, and the line-up over the two sides of the fence smacks of a partisanship suggesting some deficiency in analytic objectivity. There is now an organized movement promoting the study of ‘peak oil’—the Association for the Study of Peak Oil (ASPO)—and concern is mounting. In 2005, the US Department of Energy published a report on the Peaking of World Oil Production: Impacts, Mitigation & Risk

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Management (the Hirsch report), which declined to forecast a particular year for the peak, but clearly implied that it was not far off (ASPO puts the peak at 2010). This time, it seems, the wolf really is here. The usual authoritative forecasts from the US Energy Administration (EIA), the International Energy Agency (IEA) and Exxon, however, put the peak after the year 2030. Nevertheless, the flattening out and perhaps incipient decline of nonOPEC, non-FSU supplies, which started in 2000 and has continued ever since, remains an increasing concern because of the implications it holds both for price and for the diversity of supply. The major new oil provinces (the North Slope, the UK sector of the North Sea, and offshore Mexico) of the late 1970s and early 1980s, which brought such a large and welcome boost to the world’s energy supplies, are already beginning to fade away. By the same token, demand for increased production from the OPEC area in recent years has become critical, despite large increments in former FSU supplies. These are some of the major developments that have come to the fore during the past decade or so. There are many more, all of them deeply rooted in the past, from which there are plenty of lessons to be drawn. To understand the contemporary scene and the grim prospects for energy supply that threaten to engulf us in a future resurgence of demand, after the present world recession is behind us, I can only commend a study of this present history.