Many people have argued, I think correctly, that a war for oil makes no economic sense.
The question is then what follows. Does that mean this isn't a war for oil? That doesn't ring quite true either.
I think the time has come to accept that both our premise and our middle are correct. A war for oil makes no economic sense. And this is war for oil. The correct conclusion is that this is a war for oil that makes no sense. The question to be answered is how intelligent people can believe something that makes no sense.
The war for oil is mad in the simple, non-clinical sense. It's a logical structure built on a mad premise. And it's mad in the same sense as the war on terror and the war on WMD are mad. All three strategies appear designed to produce the opposite of their intended outcomes. At least they appear so to sane minds.
Ultimately at the bottom of all three strategies lies the same mad premise: that the West is still faced by a war that threatens its existence, such as it faced in WWII and spent all of the Cold War preparing for. And the problem is not merely the madmen who take this premise as far as it can go. The real problem is that this premise is still assumed by the entire policy making and punditry establishment (as well as most of their critics). They assume it even when they think they don't because it lies at the basis of the beliefs that determine their worldview. And chief among these is the belief that oil is a strategic good.
If strategic goods exist at all, then surely oil is one. And if strategic goods exist, it gives you an advantage to control them. That is tautologically true.
But what makes something a strategic good? It has nothing to do with economics. It is has to do with war. And not just any war, but with a war that so threatens your existence that it pushes your resources to the limit. It is only when such a war is a real possibility that oil is a strategic good.
These are not imaginary circumstances. They obtained for 90 years. But they don't obtain any longer. That is how a once reasonable premise turned into a mad one. It stayed the same while the world changed.
Of course that in itself is nothing to marvel at. The establishment is not made up of people who habitually question the assumptions that define their institutions. And those defining assumptions are cemented in place by huge economic interests and bureaucracies and worldviews and career paths.
Insofar as thinking about oil is concerned, most of establishment's ideas were formed in the mid 70s. The neoconservatives avail themselves of these accepted ideas and use them as an entering wedge to gain acceptance for their more radical ones. When it comes to oil, all they have to say is that it's a strategic good. After that, the question is no longer whether it should be controlled, but only how.
The reason this makes no sense from an economic perspective -- any economic perspective -- is because economic perspectives presuppose peace in the same way that strategic thinking presupposes war.
The 90 year history of oil as a strategic good is easy to tell. Oil became a strategic good in 1911. That's when Churchill (then Secretary of the Navy) decided to switch the British fleet from coal to oil. Oil allowed warships to be faster and more maneuverable. But while coal came from Wales, the only oil the British controlled was in the Middle East. It was this fact that brought the British (with the French as sleeping partners) into Iraq in the first place after WWI. They didn't know if there was oil there. But they knew there might be (not only because it had been found nearby, but because it had been noted bubbling out of the ground there since classical times).
That was accepted as reason sufficient because allied oil supplies had come under threat in mid-WWI, enough that peopled seriously worried that they might be cut off and they might lose the war because of it. And that was the original definition of the original strategic good: a commodity so important to your war effort that, if it were cut off, you might lose the war. And conversely something that might win you the war if you cut it off from your enemy.
It was this quality and this alone that made oil "strategic:" that it was essential to winning a war. And this is what made it rational for potentially warring countries to want to control it. In time of war, control of strategic elements increases the chances of victory. This was a true of oil as it was for any other strategic element, like strategic territory (rivers, passes, straits), strategic infrastructure (bridges, roads, radio stations), and strategic supplies (like raw materials for steel). Strategic importance is about importance in time of war.
Before 1911, oil wasn't strategic in this sense. The oil industry originally arose to supply kerosene lighting. There was actually a brief moment when it seemed like the whole industry would become obsolete when the (coal-powered) electric lamp was invented. But from WWI until today, the strategic significance of oil has been accepted as an unquestioned fact because it's been true. It made perfect sense during World Wars I and II, and the time between, and the decade afterwards, to act like cataclysmic war was an ever-present possibility. And then that period merged seamlessly into the Cold War, the fundamental presumption of which was that we had to prepare eternally for WWIII, if only to ward it off. One can question whether all aspects of this continuation really made sense, especially in terms of oil. The cold war contained its own kind of madness. But there is no disputing that WWIII, if it happened, would have been cataclysmic and exactly the sort of war for existence that rightly set strategic alarm bells ringing.
But the cold war ended in 1990. And with it ended the strategic importance of oil -- or anything else for that matter, as far as the United States is concerned. To think that we are as threatened now as we were during the cold war is mad. But that is the very center of our new national security strategy that was published last Fall. It is built around the idea that we are not only *just* as threatened as during the cold war, but that we are *more* threatened.
This is the madness at the bottom of the war for oil. And perfectly normal people assume it every time they say that oil is a strategic good. Most don't know why oil is a strategic good. But they do know that if you stood up and said it wasn't, everyone in the room would look at you like you were the mad one.
There is one other independent basis of thinking of oil as a strategic good. This is based not so much on war as on a profound misunderstanding and reification of the 1973 oil embargo. There are two things about that embargo that everyone knows and which aren't true.
Strategically, the terrible fear is that oil power could bring us to our knees and force us to do something we wouldn't do otherwise without a shot being fired -- in other words, that oil power is a power equal to war power. And that therefore controlling that power is essential to controlling the world.
That's how everyone felt in the 70s. It was a formative moment in the lives of the most of the present establishment, and especially for neoconservatism, which until post-1973 was mainly a domestic theory. (Up until then, its anti-communism was indistinguishable from that of the liberal mainstream.)
But a look at the historical record, at the actual embargo, proves exactly the opposite. It shows that even under the best of conditions the oil weapon shot nothing but blanks. Actually that's putting it kindly. In strategic terms, it backfired. And conditions will never again be so favorable for its use, not least because you can't utterly surprise the whole world twice.
The cause of the embargo was America's $2.2 billion airlift of materiel to Israel in the midst of the 1973 Arab/Israeli war. It was widely perceived at the time as turning the balance from an initial Arab victory into an ultimate defeat. The goal of the embargo was to force the world to favor the Arab cause and to change the policy of the US away from Israel.
And the result? America's ties with Israel became from that time onward stronger than they had ever been in the past. Stronger in fact than the Arabs of the time would have dreamed of in their worst nightmares.
That's a strategic weapon to be afraid of?
But for some reason what sticks in people's minds about the oil embargo was Europeans and Americans "truckling" to Riyadh to make bilateral oil deals and being forced to sit through long antisemitic tirades and nod politely. What they forget is even under conditions of total surprise and the tightest market in history, the embargo per se collapsed almost immediately. In reality it lasted about a month. Nominally it lasted 6. It wasn't sustainable for the simple reason that the producing countries needed the money. And 30 years later, that's just as true as it was then. Meanwhile their market power, solidarity and common ideology have all hugely diminished -- and could be easily have been diminished much more if the US had thought economically and set about single-mindedly increasing the supply of oil. Rather than what it has done under illusion of oil as a strategic good, which is exactly the opposite, to constrain it.
That brings us to the second misunderstanding, which comes up so often in our economic discussions. And that's the belief that's that OPEC can raise the price of oil at will. Because without that power, there is no oil weapon.
The reason people believe this of course is that during the embargo, oil prices quadrupled. And stayed up there. So surely Opec did it? And could do it again if they wished?
There are two problems here. One is drawing a curve through one point. And the second is acting like markets don't exist.
The reason Opec could make that huge price rise stick in 1973 was that oil was selling way below its market price. It was kept there by long term contracts enforced by a conspiracy of distributors, the famous Seven Sisters oil companies. No one realized how tight the market had become because there really wasn't a market. 1973 was the beginning of the modern oil market. It was the end of the distributors' cabal, which in its heyday was stronger than the producers' cabal ever became.
But as soon as a real market in oil came into existence it began to act like a market. Higher prices increased supply, most notably from Alaska and the North Sea, where oil had been too hard to be worth getting at due to climate and terrain, but which was now made economical by higher prices. Since then, supply has only continued to increase and diversify. Opec supplied 40% of world demand in 1973. It has 30% of the market today even though demand has greatly expanded.
It took 10 years for supply to adjust to the new conditions. But since then, the oil price has been consistently *low*. And it's not because there has been a nefarious conspiracy of Opec producers to make less money. It's rather because they can't control the market. Only when the market is tight can they exert the power to raise prices. Their only chance is that after decades of low oil prices, growth in demand will outstrip growth in supply by so much that we'll draw closer to the conditions of 1973 and they'll once again be able to exercise a corner.
So the obvious course of action for any consuming country that wants to increase its power vis a vis the oil producing countries is to increase supply. If we had followed such a course in the 90s, the countries of the middle east would have as much power as coffee producing countries do today, and for the same reason.
And yet, possessed by the zombie idea of a strategic good, we have spent the 90s doing exactly the opposite. We have done everything in our power to restrict supply. We have restricted investment into both Iran and Iraq, both of whom could be producing 2 or 3 times what they are producing today. We have put every effort into preventing Caspian oil from getting to market by the shortest, cheapest and fastest routes, which run through Russia and Iran. And yet even with all that, oil prices were still in collapse during most of the 90s and Opec was helpless to stop it. Had we encouraged the market to follow its natural course, this would have continued true for the foreseeable future. Which anyone could see by look at the last century and a half. Historically, the problem with the oil market since its beginnings in kerosene has always been glut.
*But that's only a problem when you're a producer.* When you're a consumer, that's a great thing. And insofar as oil is a strategic worry, we're a consumer.
Lastly, there are a few other ways in which oil can be thought of as strategic good, all of which rest on these first two pillars, and fall if they fall. But they are distinctive enough to merit discussion on their own, not least because they have determined all our strategic choices since the cold war ended.
The first is variant of the 1973 oil weapon idea. What if, this version goes, some country hostile to the US unites the Middle East oil fields militarily? The largest oil fields in Saudi Arabia are in the northeast corner of the country. So geographically the area to be conquered is relatively small: Iraq, that corner, & Kuwait. The bigger scarier version adds in Iran and the sultanates down the coast. That would basically control all of Middle East oil
Now, this conqueror would no longer be the Soviet Union, so we wouldn't be worried that the resultant entity could overwhelm us in war. The only plausible fear then is that *they could control the oil the way Opec did in 1973.*
This seems to mesmerize people, perhaps because the military conquest element make it look so much like the Cold War scenario that it triggers conditioned responses, as if the loss of the cold war's crucial element -- the communist empire -- changed nothing. But of course it changes everything. It changes it from a war threat -- the real meaning of strategic threat -- to an economic imitation of a strategic threat. And there are several damning problems with this idea.
For instance, such a victor, even in the worst case scenario, wouldn't control all of Opec's oil. And Opec doesn't control as much oil as it used to. So if Opec found it impossible to make its embargo stick in 1973, why would its weaker successor find any it any easier? It would not.
The same goes for raising the price of oil. Such events would most likely break Opec into at least two pieces. It would also make non-Opec countries less likely to support its aim. And in the worst case, where Opec holds together? In that case, the conquest *wouldn't have changed anything.* You'd have the same set up you have right now.
So if you think it through, such an invasion couldn't possibly make Opec more of a threat and would quite probably make it less. The use of arms conveys the image of more power. But when the relevant power is market power, arms don't always necessarily increase it.
But lastly, and most importantly, this whole scenario is treated as if were taking place in a terraneum. In reality, there is a much simpler reason why this doesn't have to be feared. Because the US and its allies would intervene to stop it. And its allies would include all the other countries in the region.
This was what Gulf War I was about. And what GWI proved was that it was easy to do and there was nothing to fear. Even in a worst case scenario -- when the second largest middle eastern oil producer got all its oil wells destroyed -- it didn't effect oil markets at all. In fact oil prices went immediately back to the rock bottom levels they'd been at before the war. Opec's economic power had been clearly neutralized at this point by glut. And Iraq's million man super stocked army was revealed as completely unable to hold its gains.
So Bush Senior's originally advertised plan -- that purpose of GWI was to push Iraq out of Kuwait, and to establish a precedent that no country in the middle east would be allowed to cross borders to control oil, because the world of consuming countries and threatened neighbors would unite against it -- worked just perfectly.
Where they went wrong was in continuing to fear what had just clearly been shown to be a hollow threat. In a realist world, having taught Saddam his lesson, they would have concluded a self-interested peace. The threat would be over because it was now so clear what would happen. No rational country would try it again. And if they did, it would be the same result.
This was what Saddam was expecting as a worst case scenario, which is why what he did was not irrational. But our realpolitik morphed into moralpolitik. Saddam, our old pal, was now Hitler, and how can you make a deal with Hitler? And this has been true of our Saddampolitik ever since. It is a heady mixture of moralpolitik and realpolitik. It's really all about morals. But it pretends to be all about realism. And what Puritan nation can resist such a combination of motives? But neither is true. The realpolitik makes no damn sense. And the morals are abhorrent. They amount to killing the innocent in order to express our indignation at the guilty.
Of course our fear before Kuwait was that this same scenario would be acted out by Iran. That's why we backed Saddam for 8 years. (I should also point out in passing that Saddam's attack on Iran was actually more rational than our present attack on him. He *was* facing an imminent threat to his existence, to his nation's existence, in fact. And attacking first did give him the best chance of prevailing. The fact that it wasn't a good enough chance wasn't his fault. Those were the cards he had to play.)
Our entire middle policy since has been directed towards protecting ourselves against these twin phantom threats that Iraq or Iran might somehow unify control over the Middle East oilfields. It's called the policy of double containment. But both threats are empty, because they are easily preventable; because even if they were allowed to progress through to their worst conclusion, they'd still be lame threats; and because left to their own devices, they'd balance each other out. Iran and Iraq are regional rivals. They would continually try to weaken each other without our help.
This then leads us to the second derivative idea, a sort of miniaturization of the WWIII scenario. Okay, this idea runs, so the Soviet Union doesn't exist. So there is no country in the world that we could possibly be afraid of militarily. But shouldn't we worry that middle east oil will make some country that is our enemy inestimably more powerful??
No. Not unless it will make them powerful enough to defeat us. And it can't.
And yet this is the idea that has guided our policy towards Iran, and why we have done everything we can to keep it from getting richer, even if it means cutting off our nose to spite our face. This is why we've prevented investment that would allow an increase in its supply; prevented gas pipelines from running there from Turkistan; and most importantly of all, prevented oil pipelines from the Caspian sea from running across its territory and utilizing existing plant -- all of which would have drastically increased the supply by now, and correspondingly lowered the power of oil producers.
This is also what guided our Caspian policy towards Russia throughout the 90s: we didn't want them to get the transit money. Like transit cash would make them back into the Soviet Union.
This then brings us to the last idea, which is pipeline politics. Okay, this line of thinking admits. (Well, it doesn't, but imagine.) So none of these countries will be a serious threat to our power even in the worst case scenario. But when countries have a pipeline running through them, they have power over the neighboring country that pumps the oil!
Yeah. So?
There's really nothing more to be said to that argument. It's just a restatement of the obvious. Countries have power and influence over their neighbors, balanced by mutual interests. Welcome to an inescapable condition of the real world. Now stop worrying about it and help us make it more peaceful instead of more antagonistic.
As far as I can see, that covers every way in which oil can be a strategic good. The only thing I've left out is the situation of absolute shortage where supply can't be increased. That's because (1) it isn't a possibility in a our lifetime; and (2) when it is a possibility, control of oil won't be a solution. Just a short postponement.
So there you have it. Oil is a not a strategic good. It ceased to be one in 1990. And ever policy based on that idea -- which is every policy we've ever had since then -- makes no sense. And the policy that makes the least sense of all is a war for oil. On which we have now engaged.
Coming up next: why this is a war for oil in an even cruder sense than is at first apparent. And why it's an integral part of The Plan -- the 1992 DPG that, after several reformulations, eventually became the present US National Security Strategy.