What’s Oil Got to Do With It


Since April of this year, after U.S. Secretary of State Colin Powell failed to make progress in his mission to Israel and Palestine, international oil prices have reached $25 per barrel — 25% higher then the same period last year. And on April 8th Iraq announced its 30-day oil embargo to protest Israeli attacks on Palestine, and from April 12-14 Venezuela suffered a military coup that disrupted its oil supply.

When it comes to oil, there’s no doubt: all eyes remain focused on Middle East production. Despite the large amount of oil coming from other major international producers such as Mexico, Russia and Venezuela, Iraq and the other major Gulf region oil producers (Iran, Kuwait and Saudi Arabia) still have a huge influence on the price of oil. Iraq’s recent decision to cut off oil exports for one month will deeply affect the international oil market.

The United States, on the other hand, uses its military and political muscle to further its own economic interests. By undermining the international oil price, it sends an unquestionable message to the world: America is the only country that will decide who can produce, who
can sell, and who can buy at what price. The recent failed military coup against President Hugo Chavez is a clear example of how US oil interests undermine the democracy of Venezuela – a country who dares to sell oil to Cuba, who dares to go against the Iraqi oil embargo protesting Israel’s attacks on Palestine. And the US military has been in the Gulf region protecting corrupt Gulf oil monarchies since the 1990-91 Gulf war, most notably after September 11 in Afghanistan to further the US agenda.

It’s the Oil, Stupid

The oil market is completely and artificially controlled by the Organization of Petroleum Exporting Countries (OPEC) and Western powers such as the United States. For the past 10 years, although Mexico and Venezuela export more oil to the US then Gulf countries, Saudi Arabia and Iraq (Iran does not export oil to the US) are still the ones who control the price. “The international petroleum market is just like the orange juice section in the supermarket,” an oil expert explains. “If one of the brand-name juices drops its price, the rest will be forced to follow.” Iraqi oil can be considered one of these brand name products. American military campaigns against Iraq are the determining factor for international oil prices, and – what is less widely known – are the best way to steal Iraqi oil.

During and after the Gulf war, when the United Nations was enforcing an oil/trade embargo against Iraq, the US openly denied that it was buying Iraqi oil, instead using the United Nations’ “oil-for-food” program to purchase the cheap, below-market-price Iraqi oil behind closed doors.

Although this “oil-for-food” program was originally designed to “help” the Iraqi people while sanctions were maintained against the Iraqi government, nearly 40 percent of Iraq’s oil exports end up on U.S. soil, going to Bush-friendly Texas and California based oil companies such as Chevron, Exxon-Mobil, Valero and Clark.

After Israel attacked and occupied the West Bank this past March, on April 22 Iraqi President Saddam Hussein called on Arab oil exporters to stop sales to the United States and Israel, as well as to cut their exports in half. And he announced that Iraq would stop exporting oil for 30 days or until Israel withdraws from Palestinian territories, an announcement that triggered an immediate increase in world oil prices. The United Sates government and oil experts initially downplayed the impact of this announcement. Sen. Frank Murkowski (R-Alaska), a strong supporter of Alaskan oil-drilling, even called for prohibiting US direct and indirect imports of Iraqi oil in response to Saddam’s action.

But the Bush administration opposes this Senate plan to ban U.S. imports of Iraqi oil out of concern it could “undermine a U.N. program to meet Iraq’s humanitarian needs.”

Therefore Venezuela has become a wild card for the US against the Iraq/Gulf region OPEC price monopoly. Although Venezuela is the third largest US oil exporter after Canada and Saudi Arabia, Venezuela’s supply alone does not fundamentally affect international oil pricing. However, if the US depends less on oil from the Gulf and relies more on other cheap suppliers such as Mexico and Venezuela, it can undermine OPEC’s price monopoly in favor of the US in the long run, and won’t have to worry so much about the oil politics of those Gulf countries who are angry about US support for Israel’s war on Palestine.

Compared with the Washington-friendly governments of Canada and Mexico, Venezuela’s popularly elected president Hugo Chavez is not so friendly with Uncle Sam.

The US was angry at Venezuela’s refusal to allow foreign oil companies to invest, at its continuing to sell oil to Cuba, at its using its OPEC membership status to maintain high oil prices, at its lack of support for “Plan Columbia” and at its criticism of the US “War on Terrorism.” Washington worries that Venezuela will become a second Cuba, and that it will undermine American efforts to control the global oil market.

It was in this context, when international oil prices steady increased early this year, that strikes and mass protests initiated and organized by pro-U.S. Venezuelan business councils and pro-business right-wing trade unions spread across Venezuela’s oil producing sector. For several months, the Venezuelan oligarchy (jokingly referred to as the “oilygarchy”), its right-wing media and the U.S. government had been provoking civilian opposition to President Chavez, a deja-vu of the CIA-backed Chilean military coup against President Allende 30 years earlier. On April 12 when an ill-planned military coup against Chavez was attempted, the US supported the coup. Two days later when the coup failed and Chavez was back in power, Sen. Jesse Helms, the Foreign Relations Committee’s top Republican, said he hoped that Chavez “has learned from his ordeal.”

It remains to be seen how long Iraq, Venezuela and the situation in Palestine will affect the international oil market, but it’s clear that in this round the US has lost the game. This loss will affect Bush’s decisions on Palestine – he will not be able to risk further angering Middle Eastern countries, and may have to delay the planned mass military campaign against Iraq.

Is Somebody’s Loss Someone Else’s Gain?

Ironically, while the US and western countries would like to see lower oil prices, on the flip side of the coin higher oil prices mean more income for US oil companies and boosted investment returns for oil-related mutual funds.

In New York, for example, oil-related stocks comprise about 85% of Excelsior’s Energy and Natural Resources Funds portfolio, said Michael Hoover, the fund’s manager. And today’s higher oil price –influenced by OPEC — means more return on oil-related investments. “The price isn’t so high that it chokes growth, but high enough that they’ve a good return on investment,” Hoover said.

Higher oil prices mean more secure profits for some oil companies as well, such as Exxon Mobile Corp. Oil stocks act as a hedge when instability in the Middle East unhinges much of the market.

It is clear that one of the reasons the US maintains the Iraqi sanctions is to allow the major oil companies to reap huge profits. Yet the overriding motivation behind US policies is to retain hegemony over the oil-rich Persian Gulf which provides about a quarter of the world’s oil. Above all, the goal is to send an unmistakable message: that any country bold enough to stand up to the US will reap the same unprecedented and brutal consequences inflicted upon Iraq.

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