David Seaton's Energy Links


David Seaton's Energy Links ® Week 13 - March 31st - 2003


Table of Contents Editorial Practice to Deceive (Washington Monthly) Oil shortage rocks markets (BBC) US psychological warfare is responsible for oil price reduction (IRNA- Iran) Ethnic Clashes Disrupt Nigeria Oil Production, World Markets Hit (All Africa) The Missing Energy Strategy (Editorial - New York Times) Chinese Oil Giants Grow Up Fast (Business Week) *Delusions of Power (Krugman - New York Times)

David Seaton's Energy Links® Editorial Many people mistakenly believe that America's most successful recent wars were won because of the US armed force's technological superiority, however it is interesting to note that the first Gulf War, Kosovo and Afghanistan began as diplomatic and political triumphs before moving to the battlefield. On the contrary, failures such as Grenada - a farce - and Somalia - a tragic farce - and of course the "mother of all failures", Vietnam, were poorly conceived politically and diplomatically and all the military and technological superiority applied to them could not straighten out their crooked trajectories. If this yardstick were to be applied to the present conflict in Iraq it wouldn't be difficult to predict a messy outcome.

The most important miscalculation that Washington seems to have made is that of the willingness of Iraqis to fight. After the diplomatic disasters of Turkey and the United Nations, after the mass demonstrations in allied countries, it was politically essential for the Iraqi regime to crumble quickly under the first blows. If the Iraqis had risen up against their rulers or even had surrendered to the advancing Americans en masse, all those around the world who had opposed the war would have been left in an extremely awkward position.

As it stands today the invasion of Iraq, already of dubious international legality, will only be seen as a war of conquest, not as one of "liberation". If the United States cannot bring the war to a successful conclusion very quickly the defense of Baghdad will begin to take on the epic tones for Arabs and Muslims all over the world that the Spanish Republic's defense of Madrid represented for the international left in the 1930s. This effect alone would a political failure of incalculable proportions and future dangers.

Can the war be brought to a quick conclusion? Probably not: expecting little Iraqi resistance and a "Northern Front" that Turkey finally would not permit, the American army brought to take the Iraqi capital seems too light for that job and the simultaneous defense of its long, thin supply line that stretches though hostile desert too. Heavy action, such as assaulting the Republican Guard burns immense quantities of ammunition and gasoline, all of which have to be brought from Kuwait along roads constantly attacked by Iraqi irregular forces. Consequently the fiercer the attack on Baghdad the more vulnerable to severe logistical problems the Anglo-American force will be.

These problems aggravate with the passing of time.

By mid-May temperatures in Iraq reach into the high 40s centigrade. This heat is not only discomforting for the troops themselves who will require up to 8 liters of clean drinking water per soldier per day - all brought by road from Kuwait - but drastically impairs the performance of helicopters and attack aircraft who lose "lift" in the heat. Extreme heat also causes the dysfunction of sophisticated electronic gear and tank engines.

In my opinion if Baghdad can hold out till the end of April the multiplication of negative factors, military, political and diplomatic, combined with growing Islamic violence world-wide will lead to some sort of defacto UN administered cease-fire, perhaps with the return of Hans Blix and his inspectors to the scene. David Seaton

David Seaton's Energy Links®


Practice to Deceive (Washington Monthly) Imagine it's six months from now. The Iraq war is over. After an initial burst of joy and gratitude at being liberated from Saddam's rule, the people of Iraq are watching, and waiting, and beginning to chafe under American occupation. Across the border, in Syria, Saudi Arabia, and Iran, our conquering presence has brought street protests and escalating violence. The United Nations and NATO are in disarray, so America is pretty much on its own. Hemmed in by budget deficits at home and limited financial assistance from allies, the Bush administration is talking again about tapping Iraq's oil reserves to offset some of the costs of the American presence--talk that is further inflaming the region. Meanwhile, U.S. intelligence has discovered fresh evidence that, prior to the war, Saddam moved quantities of biological and chemical weapons to Syria. When Syria denies having such weapons, the administration starts massing troops on the Syrian border. But as they begin to move, there is an explosion: Hezbollah terrorists from southern Lebanon blow themselves up in a Baghdad restaurant, killing dozens of Western aid workers and journalists. Knowing that Hezbollah has cells in America, Homeland Security Secretary Tom Ridge puts the nation back on Orange Alert. FBI agents start sweeping through mosques, with a new round of arrests of Saudis, Pakistanis, Palestinians, and Yemenis. To most Americans, this would sound like a frightening state of affairs, the kind that would lead them to wonder how and why we had got ourselves into this mess in the first place. But to the Bush administration hawks who are guiding American foreign policy, this isn't the nightmare scenario. It's everything going as anticipated. In their view, invasion of Iraq was not merely, or even primarily, about getting rid of Saddam Hussein. Nor was it really about weapons of mass destruction, though their elimination was an important benefit. Rather, the administration sees the invasion as only the first move in a wider effort to reorder the power structure of the entire Middle East. Prior to the war, the president himself never quite said this openly. But hawkish neoconservatives within his administration gave strong hints. In February, Undersecretary of State John Bolton told Israeli officials that after defeating Iraq, the United States would "deal with" Iran, Syria, and North Korea. Meanwhile, neoconservative journalists have been channeling the administration's thinking. Late last month, The Weekly Standard's Jeffrey Bell reported that the administration has in mind a "world war between the United States and a political wing of Islamic fundamentalism ... a war of such reach and magnitude [that] the invasion of Iraq, or the capture of top al Qaeda commanders, should be seen as tactical events in a series of moves and countermoves stretching well into the future." In short, the administration is trying to roll the table--to use U.S. military force, or the threat of it, to reform or topple virtually every regime in the region, from foes like Syria to friends like Egypt, on the theory that it is the undemocratic nature of these regimes that ultimately breeds terrorism. So events that may seem negative--Hezbollah for the first time targeting American civilians; U.S. soldiers preparing for war with Syria--while unfortunate in themselves, are actually part of the hawks' broader agenda. Each crisis will draw U.S. forces further into the region and each countermove in turn will create problems that can only be fixed by still further American involvement, until democratic governments--or, failing that, U.S. troops--rule the entire Middle East. Click here to read more Contents


Oil shortage rocks markets (BBC) The North Sea's Brent oil - a benchmark for world oil prices - gained $1.53 to $26.82, while US-grade oil rose by nearly two dollars to $30.37. Oil has gained steadily in recent days as ethnic unrest in Nigeria combines with the conflict in Iraq to tighten supply in the global marketplace. The commander of UK forces in the Gulf said on Thursday that it would take three months for oil exports to resume from Iraq's southern oilfields, longer than some had expected. Iraq's usual exports of about 1.8 million barrels of oil a day have come to a standstill since the conflict began. The war has coincided with bloody clashes between tribal factions in Nigeria, Africa's largest oil producer. The violence is now reported to have ceased but the big oil firms say it is still unsafe to return to the region to resume work. Although oil prices are climbing significantly, they are still well below the 12-year highs of nearly $40 a barrel seen in the run-up to the war. That spike was caused largely by fears that a war could affect oil supplies from the whole Gulf region rather than just Iraq, something that has not yet happened. Click here to read more Contents
US psychological warfare is responsible for oil price reduction (IRNA- Iran) Deputy Oil Minister for legal affairs Mahmoud Astaneh said here on Friday that the elimination of OPEC production ceiling, US psychological warfare and use of the American strategic oil reserves are mainly responsible for the drop in oil price. He told IRNA that propaganda warfare launched by the United States and Britain and their claim to solve the Iraqi crisis within 72 hours played a decisive role in the reduction of oil price. The official noted that the most significant issue faced by the OPEC member states is to halt the extension of crisis beyond Iraq's borders and avoid the involvement of other Middle Eastern states in it. According to him, a price range of dlrs 25-28 per barrel is quite favorable to the OPEC members states. "The OPEC member states' oil ministers do not intend to raise the oil price, but they are mostly concerned over the depletion of the Middle East oil reserves," he added. The deputy minister said that failure in solving the Iraqi crisis will not only expose the world energy resources to high risk, but will deplete the Persian Gulf area oil fields. According to him, Iran's approach towards OPEC has always been based on peaceful policies and protection of Persian Gulf oil wells, since the export trend in the region depends on regional security. Astaneh predicted that the longer the war and the worse the crisis in Iraq, the higher oil price will be. Click here to read more Contents
Ethnic Clashes Disrupt Nigeria Oil Production, World Markets Hit (All Africa) More than a week after an outbreak of ethnic violence in the oil-rich Delta region of Nigeria, the army sent by the government to quell the disturbances claims to have tightened its control on the volatile conflict zone. But military action has done little to reassure world petroleum markets or steady oil production, with overall output down by around 40 percent since the major companies operating in the Delta closed most of their production and exporting facilities last week. Nigeria is the world’s sixth largest oil producer and number one in Africa. Reuters reported oil companies saying that daily production of more than 800,000 barrels remained stalled Tuesday, because of ethnic clashes between the Ijaw and the Itsekiri communities. The fighting helped drive up world oil prices. But Monday’s gains were still well short of recent near $40-a-barrel highs. Nigeria normally pumps about 2.2 million barrels per day (bpd) and exports up to 1.8 million bpd, according to Reuters, making it the eighth biggest oil exporter in the world. Anglo-Dutch giant Shell, America’s ChevronTexaco and French company TotalFinaElf have all virtually shut down operations in the Niger Delta. “Clearly we won’t send workers back until it is safe and all we can do for now is to monitor the situation and hope for a peaceful solution,” a ChevronTexaco spokesman told Reuters, after closing all its facilities in the western Niger Delta Sunday. Click here to read more Contents
The Missing Energy Strategy (Editorial - New York Times) The Senate struck a blow for the environment and for common sense last week, defeating President Bush's second attempt in less than a year to open the Arctic National Wildlife Refuge to oil exploration. Credit goes to the Democrats, who mainly held firm in a close 52-to-48 vote, and to a small, sturdy group of moderate Republicans, which now includes Norm Coleman, a Minnesota freshman who wisely chose not to renege on his campaign promise to protect the refuge despite an aggressive sales pitch from senior Republicans and the White House. The pitch included the usual hyperbole from the Alaska delegation, which typically inflates official estimates of economically recoverable oil in the refuge by a factor of four. It also included a new but equally spurious argument minted for the occasion, namely that rising gas prices and the war in Iraq made drilling more urgent than ever. In truth, Arctic oil will have no influence on gas prices until it actually comes out of the ground, and even then it is likely to reduce American dependence on foreign oil by only a few percentage points. Nevertheless it is much too soon for the environmental community or its Senate champions, like Joseph Lieberman, John McCain and James Jeffords, to rest on their well-earned laurels. Drilling proposals will almost certainly resurface, most likely in energy bills now on the drawing boards in both the House and Senate. Beyond that, neither the White House nor the Republican leadership shows any appetite for developing what America really needs: innovative policies that point toward a cleaner, more efficient and less oil-dependent energy future. Instead, the White House and its Congressional allies continue to push a retrograde strategy — of which Arctic drilling was just one component — that faithfully caters to President Bush's friends in the oil, gas and coal industries and remains heavily biased toward the production of fossil fuels. On this score, the energy bills now being drawn up on Capitol Hill offer no more hope than the 2002 models. Click here to read more Contents
Chinese Oil Giants Grow Up Fast (Business Week) Ever since they emerged on the global scene a decade or so ago itching to invest, China's energy companies have acquired a reputation as the greenhorns of the oil patch. They struck seemingly promising exploration and pipeline deals in Venezuela, Russia, and Kazakhstan -- only to see them unravel or find they had grossly overpaid. They gained notoriety by going it alone in rogue states shunned by most established Western players, such as the Sudan, Iraq, and Burma. And all too often, the Chinese drove negotiators nuts with ever-shifting terms and maddening delays. China Inc. is growing up fast. In mid-December, London's BG Group PLC (BRG ) decided to shop an 8.3% stake in oil and gas fields in the North Caspian Sea that could be as important as Alaska's Prudhoe Bay. ExxonMobil Corp. (XOM ) and Royal Dutch/Shell Group (RD ) also own stakes. So CNOOC Ltd., a unit of Beijing's China National Offshore Oil Corp. (CEO ), leaped at the chance. Executives hastily arranged visas and jetted to London. The deal, for $615 million, was struck in a few weeks and closed in mid-March. "I was blown away by the quickness of their response," says Cai Jinyong, managing director of Goldman Sachs (Asia) LLC, which advised BG. "Chinese companies have come of age." The fields require hefty investments, but analysts say CNOOC paid a fair price. The deal is part of an increasingly aggressive Chinese global oil investment blitz that is likely to accelerate from Central Asia to North Africa. The mission: to lock in oil and gas supplies to meet China's voracious energy demands in the coming decades, and to ease what Beijing regards as a dangerous reliance on the Persian Gulf. The Iraq crisis has heightened China's sense of urgency: The doubling of oil prices in the past year has hammered China's burgeoning, energy-guzzling industrial sector. China imports 60% of its oil from the Mideast. Any big disruption of shipments, Chinese leaders fear, could threaten national security. What's more, the gap between China's domestic output and its needs has been widening far beyond projections. By 2015, predicts the U.S. Energy Dept., China may have to import 8.6 million barrels a day, up from 2 million now. "They are desperate to secure all the supplies they can get," says Paik Keun-Wook, a China oil expert at London's Royal Institute of International Affairs. Click here to read more Contents
Delusions of Power (Krugman - New York Times) They considered themselves tough-minded realists, and regarded doubters as fuzzy-minded whiners. They silenced those who questioned their premises, even though the skeptics included many of the government's own analysts. They were supremely confident — and yet with shocking speed everything they had said was proved awesomely wrong. No, I'm not talking about the war; I'm talking about the energy task force that Dick Cheney led back in 2001. Yet there are some disturbing parallels. Right now, pundits are wondering how Mr. Cheney — who confidently predicted that our soldiers would be "greeted as liberators" — could have been so mistaken. But a devastating new report on the California energy crisis reminds us that Mr. Cheney has been equally confident, and equally wrong, about other issues. In spring 2001 the lights were going out all over California. There were blackouts and brownouts, and the price of electricity was soaring. The Cheney task force was convened in the midst of that crisis. It concluded, in brief, that the energy crisis was a long-term problem caused by meddling bureaucrats and pesky environmentalists, who weren't letting big companies do what needed to be done. The solution? Scrap environmental rules, and give the energy industry multibillion-dollar subsidies. Along the way, Mr. Cheney sneeringly dismissed energy conservation as a mere "sign of personal virtue" and scorned California officials who called for price controls and said the crisis was being exacerbated by market manipulation. To be fair, Mr. Cheney's mocking attitude on that last point was shared by almost everyone in politics and the media — and yes, I am patting myself on the back for getting it right. For we now know that everything Mr. Cheney said was wrong. In fact, the California energy crisis had nothing to do with environmental restrictions, and a lot to do with market manipulation. In 2001 the evidence for manipulation was basically circumstantial. But now we have a new report from the Federal Energy Regulatory Commission, which until now has discounted claims of market manipulation. No more: the new report concludes that market manipulation was pervasive, and offers a mountain of direct evidence, including phone conversations, e-mail and memos. There's no longer any doubt: California's power shortages were largely artificial, created by energy companies to drive up prices and profits. Click here to read more Contents

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