A War for Oil

Bush, Major and other Western leaders have cloaked their war aims in the most noble language. They are fighting Saddam to ‘liberate’ Kuwait, to ‘uphold international law’, and to defend ‘democracy’ against evil ‘dictatorship’. A moment’s reflection on recent history, however, will show that such claims are entirely hypocritical. The United States invariably shows a blatant disregard for international law and United Nations resolutions. The US operates not according to the rules of ‘international law’, which is a fiction, but through ‘realpolitik’, that is, policies “based on realities and material needs, rather than on morals or ideals”. (Concise Oxford Dictionary) The allies of the US in the Gulf are vicious dictatorships, not democracies. The decisive motive for the war is oil. Iraq and Kuwait account for 19 per cent of world oil reserves. Saudi Arabia, threatened by Saddam’s regime, accounts for 25 per cent. Control of massive reserves gives a state the ability to vary production, the key to the price of oil. Every extra one million barrels per day pumped by Saudi Arabia, for example, adds about two per cent to the oil output of the capitalist world, reducing the price by 20 per cent. The restriction on output, on the other hand, would obviously push up the world price of oil. Thus “the reason why Saddam Hussein could not be allowed to take Kuwait with impunity,” wrote The Independent’s economics editor, “is simply that it would have left him in effective control of the world oil market”. (20 January 1991)

The United States’ Double Standards

President Bush claims that the intervention against Iraq is to uphold international law and punish aggression and the violation of the UN Charter. This claim is completely contradicted by the conduct of the United States over recent years.

It was George Bush who ordered the invasion of Panama in December 1989. Although code-named Operation Just Cause, the armed kidnapping of Noriega, a gangster of their own making, was as ‘illegal’ as the occupation of Kuwait under international law. Bush also served in Reagan’s administration, which for eight years carried out economic sabotage and covert military operations in an attempt to undermine the Sandinista government of Nicaragua. The International Court at the Hague ruled that the US mining of Nicaragua’s ports contravened international law. Washington simply ignored its decision.

The illegal occupation of territory is not a new development. Some of the major culprits in recent times have been key allies of the United States. Turkey, a member of NATO from whose bases US warplanes are now operating against Iraq, seized northern Cyprus in 1974. The US government did not so much as mention the question of sanctions or a blockade against Turkey, which has been allowed to consolidate a client state in the north of Cyprus. The UN Security Council resolution 353, calling for “withdrawal without delay” of Turkish forces was totally ineffective.

In 1975, Indonesia invaded and occupied East Timor, claiming 200,000 lives. UN resolution 384 called on Indonesia to “withdraw without delay…” This, too, was totally ineffective.

In 1967, Israel, through military action which still lies at the heart of the Arab-Israeli conflict, occupied the Gaza Strip (part of Egypt), the Golan Heights (part of Syria), and the West Bank (part of Jordan), the heartland of the Palestinian people. The UN Security Council unanimously passed resolution 242, calling for “withdrawal of Israeli armed forces from territories occupied in the recent conflict”.

The United States has supported UN resolutions and issued many statements of its own paying lip service to the need to resolve the conflict between Israel, the Arab states, and the Palestinians. But it has never suggested sanctions or any other kind of economic or military pressure to secure Israel’s withdrawal from the occupied territories. On the contrary, the United States has given military and economic aid to the State of Israel on an ever increasing scale, regardless of the policies carried out by the Israeli regime. In 1982, the Israeli state invaded the Lebanon, another sovereign state, killing 14,000 Lebanese and Syrians in the first two weeks of the invasion. Successive governments have promoted further Jewish settlements on the occupied territories. Fearing that the repercussions of some of these actions would rebound on US strategic interests generally, Washington has from time to time complained about the policy of the Israeli government. “Rightwing Israelis,” commented The Independent on Sunday (10 July 1990), “learned that the US complaints have never been translated into sanctions to undermine the $3.2 billion (£1.9 billion) in military and economic aid given to Israel every year.” As a payoff for staying out of the war, Israel has reportedly negotiated an additional £13 billion aid package from Washington.

Yet when Iraq invaded Kuwait in August 1990, an action followed by Security Council resolution 660, demanding that Iraq “withdraw immediately and unconditionally all its forces”, the United States rapidly dispatched the biggest military force in post-war history to evict Iraq from Kuwait. The record of the United States in relation to the invasion of sovereign territory and disregard for UN resolutions demonstrates that US action cannot be based on concern for ‘international law’. A former Navy Secretary in the Reagan administration puts it quite bluntly: “Our policy in the Middle East for at least the past 20 years has best been characterized as realpolitik – a manipulation of regimes, several of them potentially hostile, to preclude the absolute dominance by one… this has led us to the irony of now attempting to destroy the very nation that only months ago was our preferred bulwark against a reluctant Iran and an emerging Syria.” (Wall Street Journal  3 February 1991)  Their real motive for war is the defense of the economic and strategic interests of US and world capitalism. On this occasion, however, the unprecedented unity of the UN Security Council has allowed the US to cloak its policy in international legality. This has been made possible by the willingness of the Gorbachev leadership in the Soviet Union to accommodate the interests of US imperialism.

Hijacking the United Nations

The United Nations has provided the US ruling class with an invaluable political shield. Without it, Bush would have faced far more opposition from the US Congress and capitalist governments abroad. When the British Labour leaders voted for war, for example, they claimed that they were not supporting the Tory government, but voting for the United Nation’s intervention. On the Labour left, some, like Tony Benn, had originally called for United Nations intervention to secure the withdrawal of Iraq from Kuwait. When the military intervened under UN auspices, however, they argued that the UN had been ‘hijacked’ by the United States.

This raises a number of questions for socialists. Can the United Nations ever be effective in resolving international conflicts on the basis of co-operation between states, independent of the contending parties, and above the interests of the big powers? Can socialists place any confidence in the UN or ever call for UN intervention? There is also the question of sanctions, which the Labour left supported as an alternative to armed intervention.

The grand declarations of the UN Charter in favor of international co-operation and against war appear laudable in themselves. Few people welcome the idea of war, least of all the toiling people who always bear the main burden of conflict. The roots of war, however, are to be found in the clash of vested interests, above all those based on the existence of the national state and private property. Pious declarations in favor of peace will never prevent war.

The United Nations organization is incapable of preventing war because it is based on member states who will never abandon their contending national interests. In reality, it is a dis-United Nations, dominated for most of the post-war period by the two superpowers, the capitalist class of the United States and the ruling bureaucracy of the Soviet Union. Like the League of Nations, its predecessor, the United Nations merely provides a camouflage for the naked class interests of the capitalist powers and the Stalinist bureaucracies.

Some small disputes, on the sidelines of world relations, have been settled through the UN. Pressure from the states of the neo-colonial world, now extensively represented in the UN General Assembly, occasionally forces one or other of the powers to make diplomatic concessions. But on vital issues that affect the fundamental interests of the superpowers, the UN always proves incapable of action. This is shown by the very constitutional mechanism of the United Nations. Action can only be taken on the basis of unanimous UN resolutions, and any member of the Security Council, which includes the United States and the USSR as permanent members, can veto action.

The UN has conspicuously failed to keep the peace throughout the post-war period. Since World War II, there have been 127 wars, causing 21.8 million war-related deaths. On an average yearly basis, the death toll has been five times greater in the 20th century than in the 19th century, eight times greater than in the 18th century (from the World Military and Social Expenditures Annual, 1989). In addition to premature deaths, these wars have caused a horrendous toll of injuries, starvation and social disintegration.

In some cases, the United Nations has indeed been ‘hijacked’ to provide a cover for the class interests of American imperialism. The military intervention in Korea (1950-53) was in reality a United States military intervention against a revolutionary movement. North Korea, a bureaucratic regime based on nationalized property relations, was backed by China, not a UN member at that time, and the Soviet Union – which walked out of the UN Security Council, thus allowing the United States to hijack the mantle of the international organization.

When it came to the thirteen-year war in Vietnam, the United Nations was incapable of intervening – because the United States and the Soviet Union used their vetoes to block each other’s proposals. In 1960, the UN dispatched a peacekeeping force into the former Belgium Congo, now Zaire, nominally to prevent the secession of Katanga province from the newly independent state. This supposedly neutral UN force blatantly acted as an agent of imperialism. Lumumba, the anti-imperialist president of the Congo, was overthrown and assassinated. He was replaced by Mobutu, a stooge of the United States and the Western mining corporations, who established the ruthlessly repressive and corrupt dictatorship which survives to the present day.

On some issues, where the policies of the superpowers coincide, the United Nations can sometimes take limited action, or at least provide a cover for the policy of the superpowers. Ironically, this is true of the eight-year long Iran-Iraq war. In July 1987, seven years after the start of the war, the United Nations Security Council passed resolution 598. This called for an end to the war and promised the setting up of a commission of enquiry to decide which of the belligerents was the aggressor. The Iraqi regime, which had failed to win the quick victory previously promised by Saddam, accepted the resolution. Iran, quibbling about the terms of the resolution, refused to accept it at that time.

Far from being a neutral, impartial attempt to bring the war to an end, the resolution provided a cover under which the Western powers and the Soviet bureaucracy could increase support to Iraq against Iran. Both the United States and the Kremlin bureaucracy feared the influence of the Islamic fundamentalist regime in Teheran, particularly through the development of fundamentalism in the Arab states. They adopted the policy, therefore, of stepping up military and economic support to Iraq. This was the period of the so-called ‘tanker war’ in which the US, British, and French navies in reality assisted Iraq against Iran. It was also the period in which Saddam used chemical and biological weapons against his opponents on the front. When the balance was tipped against Iran, Saddam dragged his feet on negotiations over UN resolution 598, drawing back from the probability that any UN enquiry would find that Iraq had started hostilities. Saddam saw the UN resolution as merely a useful adjunct to his diplomatic and military policies. He was merely following the example of the superpowers.

The Labour leaders in Britain, like many representatives of the Democratic Party in the US, argued that sanctions against Iraq should have been continued for a prolonged period before there was any resort to arms. But sanctions are, in reality, a preliminary step to war. A policy of sanctions would only have been effective if it was rigorously enforced by a blockade, and a blockade will only work if it is upheld by armed force. Moreover, rigorous sanctions would inevitably hit the Iraqi people. Saddam had already accumulated an enormous arsenal. A policy of sanctions would have been aimed at strangling the economy, including fuel (which would hit transport and heating), food, and the materials and equipment needed to keep industry and services going. The people of Iraq would undoubtedly see sanctions as being aimed against them. It is not the same as in South Africa, where the black workers support sanctions, because they see such a policy as weakening the apartheid regime. In the case of Iraq, the workers would see support for sanctions by the labor movement as support for imperialism. Socialists can no more support sanctions aimed at weakening Iraq in the interests of imperialism than they can support armed intervention in the interests of imperialism.

Bush, pushed by Thatcher, was determined to move militarily against Iraq as soon as the necessary forces and supplies could be mobilized. He committed a massive build-up of US forces to the Gulf even before such action was authorized by the United Nations (and before obtaining approval by Congress). It is clear that, had the UN failed to approve decisive military action by the US, Bush would have sent the forces anyway. When the 15 January deadline expired, the decision to commence military action was taken by Bush without even informing the United Nation’s General Secretary, Perez de Cuellar. This revealed the US leader’s utter contempt for the UN. Up until the Gulf crisis, the United States was seriously in arrears with its UN contributions, which had been withheld as a token of the US government’s reservations to many UN resolutions and pronouncements. When the US president wanted UN approval to minimize domestic and international opposition to military intervention, the arrears of $600 million were promptly paid off.

A Freudian slip during a press briefing at the commencement of hostilities revealed the extent to which the UN had been “hijacked”. “So overwhelming is the US contribution to the allied war efforts,” reported The Financial Times (17 January 1991), “that Rear Admiral William Fogherty… could almost be forgiven for two slips of the tongue in his references to the ‘United States Security Council resolution’ and ‘article 51 of the United States Charter’.”

The political representatives of US imperialism, whatever the outcome of the present war, will have no intention of handing over the question of a peace settlement to the United Nations. They are intervening to defend the interests of the economic and strategic interests of the American ruling class and world capitalism.

‘Liberating’ the Emir of Kuwait

The state which the US is now fighting to ‘liberate’ is not a democracy, but a reactionary sheikhdom long held in the tight grip of the al-Sabah family. Reports of Iraqi looting after 3 August 1990, which were intended to whip up indignation at ‘Saddam Hussein’s pillaging of a nation’, inadvertently revealed the luxurious lifestyle of the ruling elite. “‘I went to my house,’ related an anonymous member of the royal family. ‘It had been looted once by the Iraqis, who were looking for gold, then by somebody else who took the TV and electronic equipment, according to my servants. I saw someone else driving my Cadillac’…” (Independent on Sunday, 16 September 1990) The Iraqi invasion produced some of the wealthiest refugees ever seen. Kuwaitis in London were paid an emergency allowance of up to £5,000 a day from the United Bank of Kuwait, pending the unfreezing of Kuwaiti assets abroad. Meanwhile, tens of thousands of immigrant workers, from Pakistan, Bangladesh, Palestine, Egypt, etc, were forced to flee across the desert without their possessions. Many were relieved of their meager savings by unscrupulous racketeers and officials. Thousands spent weeks in refugee camps in Jordan, under terrible conditions.

The luxurious lifestyle of the wealthy elite and the treasure troves of the royal family reflect the fact that Kuwait is the oil el Dorado of the Gulf. The $7.7 billion income from oil last year, added to investments from past oil revenues, produced a national income which is the equivalent of over $10,000 per head of the statelet’s two million population. But it is the 2,000 or so members of the al-Sabah royal family and their hangers-on who take the lion’s share of the wealth. The al-Sabahs were loyal servants of British imperialism when Kuwait was crowned a colony. The territory, along with Bahrain, Qatar and the Trucial States, was held by Britain to guarantee its access to the region’s oil and to secure strategic sea ports for its power ‘East of Suez’. After independence in 1961 the al-Sabahs continued to be loyal custodians of British and American interests.

Even the self-indulgent lifestyle of the wealthy rulers could not slow down the enormous accumulation of oil wealth. The emirate is estimated to have foreign assets of more than $100 billion. About $30 billion of this is managed by the Kuwait Investment Office (KIO, a powerful and secretive body based in London). Most of the KIO’s assets are supposedly being handled for the ‘Reserve Fund for the Future Generations’, but in practice control by the Emir and his close associates is virtually total. As one of their bankers explained: “The only authority recognized in the City (of London) is that of the Emir and his family.” In January 1991, twelve KIO executives resigned, reflecting resentment at the personal interference of the al-Sabahs.

The Emir, Sheikh Jaber al-Ahmad al-Sabah, has shown no more interest in democracy than his predecessors. The national assembly, which in any case had no real power, was dissolved during the Iran-Iraq war. The press, too, was gagged to silence demands for reform and exposure of financial scandals involving al-Sabahs. In the past, the al-Sabahs could ‘monopolize everything’ through buying off the majority of Kuwaiti citizens, who from the 1960s formed a minority of the statelet’s population. A small share of the oil wealth provided education, health-care, comfortable housing, and free services. Many Kuwaitis were given sinecures in government offices, their only real task being to collect their salary checks. Only 60,000 Kuwaitis, who can trace their family’s existence in Kuwait back before 1921, were allowed the privilege of owning property and voting.

This gold-plated feudalism was made possible by the importation of foreign workers, who formed a super-exploited, deprived working class within Kuwaiti society, carrying out all the manual labor and much of the clerical work. Before the Iraqi invasion, only 650,000 of the population were Kuwaitis. The rest were immigrant workers: 300,000 Palestinians, 150,000 domestic maids (about half of them from Sri Lanka), and large numbers of immigrant workers from the Indian subcontinent and South East Asia. They were not allowed to own property or to have the vote, and were totally deprived of trade union and other democratic rights.

In January 1990, there were demonstrations demanding the restoration of the 1962 constitution and democratic reforms. The protesters were themselves mostly well-off Kuwaiti citizens, frustrated by their exclusion from power by the al-Sabah family. Sheikh Jaber had suspended the assembly in 1986. In February 1990, there were new elections, boycotted by the opposition, followed by the appointment of 25 new members by the Emir. The al-Sabahs formed one-quarter of the cabinet and occupied all the key government posts.

“The Iraqi demands over the border, about oil, caught Kuwaitis by surprise,” comments Hamad al-Katib, a former member of Kuwait’s parliament. The confrontation over the Rumeila oil field, and Kuwait’s policy of vastly exceeding its OPEC export quota, “came as a surprise (to most Kuwaitis) because ours is a secretive government and nothing has been published.”

Other spokesmen of the opposition asked what happened to the billions spent on preparing Kuwait’s defense forces against a threat from Iraq. “Its commanders fled,” said al-Katib. “It disintegrated in three hours.”

Minutes before he fled, the Crown Prince broadcast an emotional appeal over the radio: “Oh, Arabs! Oh, brothers! Oh, beloved brothers! Oh, Muslims! Your brothers in Kuwait are appealing to you. Hurry to our aid…” But for the peoples of the Arab lands, the fall of the al-Sabahs, however it came about, was a matter for rejoicing. They symbolize the corrupt power of the hereditary rulers of the Gulf states and especially of Saudi Arabia, the region’s bastion of reaction. They have grabbed and hoarded a lion’s share of the region’s oil wealth, while the Arab masses still live in poverty. The ruling class’s $100 billion assets are invested in the West, and may therefore have a big stake in the health of capitalism in the economically advanced countries. The rulers of Kuwait fear the regimes of countries like Iraq, which inevitably come under the pressure of much larger, poorer populations. The al-Sabahs, like the Saudi ruling class, “have struck an implicit bargain with the West: they will use their immense power over the oil price in a responsible fashion in return for Western protection of their independence.” (Independent  21 January 1991) “Responsible fashion” means in the interests of Western capitalism. Their “independence” means protection from rival states and their own peoples. This is why, throughout the region, they are seen as traitors to the Arab cause.

‘Defending Democracy’: the Saudi Monarchy

Saudi Arabia is also a dictatorship. The state is run by King Fahad, reputedly the richest man in the world. He rules by absolute decree, and most of his ministers belong to his family. There are no elections, and political parties are banned. Like the Emir of Kuwait, although on a much bigger scale, the al-Saud royal family has grown immensely rich from their oil revenues. All 7,000 princes are multi-millionaires. They live in unbelievable luxury at home, and own estates, race horses, businesses, etc, in Europe and North America.

Like the al-Sabahs, the al-Sauds have been loyal servants of Western imperialism. The Saudi state grew out of the drive of Ibn Saud in the 1920s to extend his influence over the various tribes of the peninsula. From the beginning, he received the support of the US oil companies grouped around the consortium Aramco, the financial power of which ensured his success. Ever since, Saudi Arabia, with one-quarter of the world’s known oil resources and a commanding position in the region, has played a key part in the United States’ strategic plans.

The living standards of most Saudis have undoubtedly improved on the basis of oil production. However, the large-scale industrialization projects which were begun after 1975 have been carried out largely on the basis of 1.5 million immigrant workers, who have no rights in Saudi Arabia and can be deported if they try to demand better conditions.

The Saudi state is rigidly archaic and viciously repressive. The al-Sauds adhere to the narrow, puritanical Wahhabi sect of Islam, and strictly impose Islamic laws on the people, particularly in relation to the restricted role that women are allowed to play in society. Amnesty International reports that there have been 111 executions in the last 12 months, and many thousands have had hands chopped off or ears removed for lesser offences. Women can be stoned to death for committing adultery. Why should any young man or woman from the US, Britain, or anywhere else die in the sands of Arabia to defend these oil-rich dictators?

In the last few years, the Saudis have been strengthening their armouries, partly because of growing tensions in the Gulf but also to reinforce their defenses against opposition at home. The siege of the Grand Mosque in Mecca in 1979 by a Shi’ite group supporting the Ayatollah Khomeini shook the regime. They intensified repression at home, particularly in relation to Palestinian activists and to the Shi’ite minority. In July 1990, bombs exploded at Mecca during the pilgrimage, and 29 Kuwaiti Shi’ites were arrested. Eleven were executed in public, which provoked outrage among the democratic opposition in Kuwait.

When Iraq appeared to be ‘the lesser evil’ compared to Khomeini’s regime in Iran, the Saudi regime financed Saddam’s war against his northern neighbor (together with Kuwait, the contribution was an estimated $15 billion a year for eight years). In order to try and further undermine Iran, however, the Saudis also attempted to keep oil prices low – a policy which soon brought them into collision with Saddam.

There is no way in which the US defense of Saudi Arabia can be seen as a defense of democracy.

Plundering the Middle East for Oil

Whatever the high-sounding justifications put forward by Bush, Major and the rest, the troops are in no doubt that it is ‘a war for oil’.

Whatever the current level of support for intervention, there is deep hostility amongst the US public towards the giant, profit-guzzling companies which dominate the oil industry. A study commissioned by the American Petroleum Institute showed that “some 72 per cent of people view Big Oil unfavorably, up from 50 per cent in July. Eight in ten believe oil companies manipulated prices after the 2 August Iraqi invasion of Kuwait.” (Wall Street Journal  8 January 1991)

Nobody doubts that the global interests of the oil moguls, together with the demand of big business for cheap oil, are crucial factors in deciding Bush’s policy. In fact, Bush’s decision to send forces to the Gulf is merely the implementation of the ‘Carter doctrine’, put forward by President Jimmy Carter in 1980 after the Iranian hostage crisis. Any assault on the West’s Middle Eastern oil supplies, announced Carter, “will be regarded as an assault on the vital interests of the United States,” and will “be repelled by any means necessary, including military force.” (New York Times  24 January 1980)

Carter declared oil supplies “a vital interest” of the United States. Casper Weinberger, the US Defense Secretary, said: “The umbilical cord of the Western world runs through the Straits of Hormuz into the Arabian Gulf and the nations which surround it.” (New York Times  5 March 1981) Sixty-five per cent of the world’s oil reserves are located in the Middle East. Kuwait, the Gulf states, and Saudi Arabia account for over 50 per cent of OPEC’s known reserves. This region is the capitalist world’s ‘oil jugular’.

The United States is once again importing over half its oil requirements. This is a reversal of the policy followed after the oil shocks of 1974 and 1979 when oil prices rose sharply. Economic recession reduced the demand for oil. At the same time, big business, by introducing new technology, switched to more energy-efficient processes and products. New oil reserves were also developed in areas like Alaska, and the North Sea in the case of Britain. However, after peeking at $40 a barrel in 1982, the price of oil fell, as world production far exceeded current demand. The price briefly hit $8 per barrel in 1986, before stabilizing at around $18 in 1987. This glut of cheap oil led the advanced capitalist countries to turn once again to the Middle East for their supplies, cutting back on prospecting and development in more difficult areas like Alaska and the North Sea. Saddam’s attempt to push OPEC into fixing a higher price for oil (which we will return to later) threatened these cheap supplies.

The massive oil reserves of the Middle East have made the region an area of key strategic importance for Western capitalism since oil first became a major source of energy. When British warships began to convert from coal to oil, Winston Churchill avowed (in 1911) that it was a strategic necessity for Britain to “become the owners, or at any rate the controllers, at the source of at least a proportion of the oil which we require”. This was an early version of the ‘Carter doctrine’.

Between World War I and World War II, British and French imperialism attempted to tighten their grip on the region, to secure oil supplies to the West. After the Second World War, the US took over as the dominant power. Cheap oil was a crucial factor in the post-war economic upswing. After 1959, the real price of oil, (that is after allowing for inflation), continuously declined. The market value of a barrel of oil fell between 1950 and 1970 by over 60 per cent, from $4.25 to $1.60 in real terms.

The giant oil companies were able to use their dominating position internationally to ensure that the oil-producing countries supplied oil at low prices. They were quite prepared to pay, out of their vast profits, to keep the oil sheikhs and the dictators in the lavish style to which they had become accustomed, ignoring the interests of the masses. The oil-producing states which belong to OPEC (Organization of Petroleum Exporting Countries) were too lacking in unity, at least until 1973, to counteract the power of the oil giants backed by the Western powers. The Arab-Israeli war of 1973, however, led to the oil embargo – and a three-fold rise in oil prices.

Oil is the world’s biggest international industry. For most of the post-war period, it was dominated by a handful of giant transnational companies, the so-called ‘Seven Sisters’. These were Exxon, British Petroleum (BP), Royal-Dutch Shell, Gulf, Mobil, Standard Oil of California (SoCal) and Texaco. By 1969, the Seven Sisters controlled 76 per cent of the international oil market. In the 1970s, a number of so-called ‘independents’, like Getty Oil and Occidental (of Armand Hammer), managed to push their way into the oligopolistic market, themselves rapidly becoming giant multinationals. The oil giants dominate the consumer market in the advanced capitalist countries, controlling most of the retail outlets. In Britain, they control over two-thirds of the market. On the other hand, with turnovers greater than that of many small states, the oil giants wielded enormous power over the oil producers.

In reality, the oil producers form the world’s biggest cartel. The idea that there is a market price for oil, determined by the Rotterdam Market, is a fiction. The Rotterdam Market is not a real market at all. The ‘spot price’ which is announced as the current price, is simply the ‘going rate’ for deals struck between buyers and sellers in confidential deals. Most of the buyers and sellers are in fact the giant oil companies and their subsidiaries.

The oil giants have always made enormous profits. They can’t lose. When there is a ‘crisis’ and the price of oil shoots up, their profits also rise enormously. “Oil company profits rose an average of 2.6 per cent during 1956-72 and soared in the period 1973-80 to 20.8 per cent. In current dollars, profits rose from $6.8 billion in 1972 to $15.9 billion in 1974. American oil company profits declined for three years (when the real price of oil fell), then rose to $16 billion in 1978 and then doubled to $32.8 billion in 1980.” (Data Resources Inc  1981)

The same thing has happened in the present crisis. The Chairman of BP, Robert Horton, happily announced that every dollar increase on the price of a barrel of crude oil adds over $200 million to the company’s after-tax earnings. In the case of Exxon (Esso) a $1 increase adds $272 million to their post-tax profits.

Since the beginning of the Gulf crisis last August, petrol prices have rocketed. However, as one oil analyst, Peter Burton, told the Petroleum Economist: “In terms of absolute supply, the world glut in oil stock should have provided adequate alternative sources, but panic prevailed and supplies were purchased at inflated prices.” The Petroleum Economist itself commented that “retail gasoline prices were raised even before the high-price crude had come out of the ground, let alone got anywhere near a refinery.”

Both the US and the British governments have been slow to release supplies from their oil reserve stocks, though the US began such releases in January. Although war brings a dislocation of oil supplies and a rise in oil prices, as yet, there is no shortage of oil. Iraq and Kuwait were together supplying about eight per cent of world output, about 4.3 million barrels of oil a day, before the invasion of Kuwait. This has already been made up by Saudi Arabia, Iran, Venezuela, Nigeria and Libya.

Even before the beginning of hostilities, the oil companies were announcing massive increases in profits. In December 1990, OPEC was pumping 23.6 million barrels of crude a day. Since then, the world economy has slowed down, thus reducing the demand for energy. However, OPEC was producing less during the course of last year, pumping only 23.1 million barrels per day. In January 1991, it was reported that world profits for the fourth quarter of 1990 were expected to be ‘high’. “The US investment bank Solomon Brothers forecast that the fourth quarter net profits of Shell, Exxon, BP Chevron, Mobil and Texaco will be $5.79 billion in aggregate, up 58 per cent from $3.66 billion in the fourth quarter 1989.”

According to estimates from the First Boston Corporation, “the top eleven oil companies will post profits of $7.4 billion in the quarter (last quarter, 1990), up 154 per cent from last year”. Moreover, “results for some companies could jump 200 per cent to 400 per cent”. (Wall Street Journal  8 January 1991) In terms of profits, the big oil companies can hardly lose.

The oil giants have always worked hand in glove with Western powers, especially the dominant US superpower. They rely on the superpowers to create a framework of stability essential to the operation of their cartel. On the other hand, US imperialism never lost sight of the strategic importance of oil supplies. In the US, the oil companies use secret slush funds to finance candidates they believe would stand up for their interests, like Richard Nixon in the period before Watergate. Abroad, they have no hesitation in bribing monarchs, military dictators, and powerbrokers and middlemen to further their aims.

The war between Israel and Egypt in 1973 – the so-called Seven Day war – gave rise to an unprecedented unity amongst the OPEC producers. They mounted an oil embargo against all those states supporting Israel in the war – and used the resulting oil shortage as a lever to force up the price by three times. Persian Gulf crude jumped to $11.65 per barrel, from only $1.80 in 1971.

In reality, this rise in the current price only wiped out the long-term decline in the real price of oil. Nevertheless, it was enough to trigger a world recession. The oil price rise was not the root cause. The downturn came from the worldwide acceleration of inflation, the decline of big business profits, and the near collapse of the world money system. One cause was undoubtedly the US government’s inflationary financing of the Vietnam War.

Ironically, one of the states calling most energetically for the price rise was Iran, in spite of the fact that the Shah, armed and financed by the US, was seen by Washington as acting as their ‘policeman’ in the Middle East. Moreover, it was the fall of the Shah, when he was swept away by a revolutionary wave in 1979, that led to a second ‘oil shock’. Prices rocketed to well over $30 a barrel. Once again, because the conditions for recession were already there, the oil price rise triggered a reversal of the faltering post-1974 world recovery.

The oil price rises merely triggered the recessions of 1973-74 and 1979-80. However, the leaders of US capitalism blamed the Arab oil embargo for their economic problems. James Schlesinger, President Ford’s Secretary of Defense, told US News and World Report that “we might not remain entirely passive to the imposition of (another oil) embargo. I am not going to indicate any prospective reaction other than to point out that there are economic, political and conceivable military measures in response.” (26 May 1975) In March 1975, a Washington defense analyst writing under a pseudonym, put it more bluntly: “The only feasible countervailing power to OPEC’s control of oil is power itself – military power.” (Miles Ignotus, ‘Seizing Arab Oil’, Harpers  March 1975)  In the event of a new oil embargo, he said, “force must be used selectively to occupy large and concentrated oil reserves which can be produced rapidly in order to end the artificial scarcity of oil and thus cut the price”.

This was a blatant assertion that the US should be prepared to go to war in defense of cheap oil. With prophetic foresight, the President of OPEC, Manah Said al-Oteiba, predicted: “If there is another world war, it will be over petroleum.” (New York Times  26 February 1979)