10 March 2003

The Oil Connection

By Moshé Machover

Dear Gary Younge,

As I think I have told you before, your articles are my favourite reading in The Guardian, and today's article, "Defiance of global will" was no exception: I enjoyed very much reading it.

However, I must correct you on one point which is tangential to the main issue of your article but very important in itself. You say:

"But the issue on which he [Blair] chose to set himself against the wishes of the country and his party has been international law; if necessary, to embark on military action to secure cheap oil supplies for the world's wealthiest nation."

It is of course axiomatic that since 1913 (when Winston Churchill converted the Royal Navy from coal to petroleum) everything that happens in the Middle East has everything to do with oil. The impending war is no exception: in fact, it is connected to oil in at least three ways — of which, however, the "price" of oil is in my opinion the most short-term and least important. The trouble is that not only do you fail to mention the more important oil aspects of the war, but you have got the price connection back to front.

In fact the short-term effect of all Middle-East wars of the last half century was to "raise" the price of oil. The result is a period of windfall profits for the oil corporations. It is of course the oil sector, in alliance with the military-industrial (arms) sector, that now dominates the US power elite. (On these matters see Ch. 5 in the book The Global Political Economy of Israel by J Nitzan and S Bichler, recently published by Pluto Press.)

In this connection it is worth recalling the fateful meeting on 25 July 1990 between April Glaspie, the then US ambassador in Iraq, and Saddam Husein, the text of which has been published. Everyone knows that in this meeting Ms Glaspie was somewhat ambiguous about the US attitude to a prospective Iraqi invasion of Kuwait, thus giving Saddam what he interpreted as a green light. What is insufficiently well known is the Ms Glaspie was all but explicit in encouraging Saddam to help raise the price of oil: "We have many Americans who would like the price to rise above $25 [per barrel], because they are from oil-producing states," she tells him.

Nudge-nudge, wink-wink. Note that President Bush I was from Texas, as is President Bush II. However, the windfall profits accruing from a rise in the price of oil, however lucrative to the oil corporations, are — like any windfall — a temporary thing. Much more important than the price of oil is the matter of control. This has a double aspect: control over the international oil trade and control of the Middle East's oil reserves.

Control over the international oil trade is a vital medium-term consideration. Maintaining and tightening US control over this trade is
needed in order to make sure that oil continues to be traded in dollars rather than in euros. Thus both the reserves of oil purchasers and the royalties of the producing countries will continue to be kept in dollars, helping to underwrite the enormous deficit in the US balance of trade. This goes far beyond the sectorial interest of the US oil corporations. Just imagine what would happen to the US economy if a substantial part of petro-dollars were converted to petro-euros. Conversely, this aspect of the oil connection helps to explain the hostility of France and Germany to Bush's war plans.

But even more important is the long-term consideration of control of the Middle Easts' oil reserves. Tight control over this most important of all global material resources will allow the US unrivalled domination of the global economy. It is not so much that the US itself needs to import Middle-Eastern oil; in fact, at present it does not depend on it. But other countries — Japan, France and Germany to name but three — do.

All the Best,

M Machover


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