Sunday, August 9, 2009

Oil, mother of all troubles (part 1)

After the production of oil as a cheaper and commercial source for producing light started by drilling wells in North America during 1800’s, oil quickly grew to become one of the most important issues in the internal affairs of most nations as well as international relations. Later, discovery of electric power to produce light in United States forced the oil industry to look for other areas of consumption while drive for finding new oil resources had taken over the whole nation. Invention of gas burning engine to run a vehicle solved the most important problem which oil industry was facing in its toddler years and made it possible for this industry to continue growing in more rapid manner and generate more profit for the owners. This meant heavy competition

As newer inventions and discoveries were introduced, oil gradually turned into the most important source of energy for all needs of societies. From producers of electricity to transportation and aviation, farming and other industries, all needed oil. Transportation industry grew immensely based on the needs and in parallel to the oil industries and this matter expanded relations between the nations to a great degree. Industrial growth in pioneer nations of the west went into full gear and need for new markets and resources created intense competitions. Control of the sources of energy in the world became a vital interest for those nations which saw that as an essential component to their progress and prosperity and also to become a dominant global power.

About half a century after oil became preferred source of energy to produce light, security and progress of United States and many European nations had become heavily dependent on it. The need for new resources dragged American companies and government with their immense financial power into the areas which were part of old colonialist’s domains that reluctantly conceded to share its region of influence with greater power. Other western nations like France and Germany were left behind in the race for oil while the need for more energy resources was becoming a matter of great concern to Germans for inevitable competition with growing economy of British Empire. In fact, in both WWI and WWII, oil became the biggest advantage point of allied nations against Germany which was desperate for new energy resources to accommodate its progress.

Western nations which were involved in colonizing non-European territories during previous decades and centuries, were in fact the initial beneficiaries of expansion in the business of oil throughout the world. During this period, many concessions for exploration activities to find oil were obtained from governments in Asian, African and South American continents. In some cases, investments seemed very risky in the beginning but later, they brought huge fortunes for the hasty investors to make them greedier even further. Serious drive for finding new oil fields as a source of energy for the world and as good source for gaining vast and fast wealth for some, and heavy competition between rival companies sometimes caused conflicts over territories of influence. This matter was later resolved with an “informal” agreement between the oil companies which was observed by all very closely in order to respect each other’s boundary and avoid disputes. This agreement was known to oil companies with the name of “As-Is” which helped them to regulate everything related to oil industry, from pricing to rate of production and establishment of new plants, for a long time.

While exploration activities were continuing and the amount of proven oil reserves were increasing every day, oil production was also bringing unexpected wealth to some of the poorest nations in the world including those in the Middle East and Persian Gulf region to make their economy totally dependent on it. This wealth of course was never comparable to enormous gains that oil companies were making of these sources of oil which were in the territories of other nations. The monopoly over the market and transportation of oil provided oil companies with enormous gains and gave them a huge leverage against governments of oil producing nations which had previously signed unfair concessions in desperate situations.

From the beginning, oil related issues and unjust relation between providers of oil industry’s technology and oil transportation from one side and oil producing nations from another side, had become a major contributor to many open or hidden conflicts between people, governments, and corporations. A new trend in relations between nations and oil companies started after strike and revolt of Russian oil workers in early 1900’s which resulted in destruction of large areas of oil production and refining facilities under leadership of Stalin and eventually ejecting Rothschild out of Russia after losing a great portion of his investment. This issue raised a lot of concerns among private investors and they started looking for guarantees for their investments from their own governments after that. This matter dragged some western governments practically into business of oil as active partners with wealthy investors. Confrontation between British and France over Iraq’s oil after WWI in which they were allied against Germany and Ottoman Empire, was an indication that oil had become a very serious issue for all western governments.

Another revolution and nationalization oil industries in Mexico a couple of decades after Russian revolution, made it clear that a clash between interests of consumers with producer nations was inevitable. At the same time oil had turned into the lifeline for security of progressive nations while, in some cases, the resources in their own territories had decreased greatly as a result of overconsumption or had become too expensive to exploit compared to cheaper oil which was available in abundance from overseas.

Discovery of vast oil resources in the countries around Persian Gulf by American capitalists which had received generous concessions from rulers in Bahrain, Kuwait and Saudi Arabia turned this region into an important center for production of oil that was desperately needed by western world. From the time that oil started flowing from Iran in 1911 to this day which over 25% of energy needs of the world is supplied from Persian Gulf area, this region has seen many political turbulences in which, oil has always played an important role.

For decades before discovery of oil, British Empire had tried to use Iran and Persian Gulf as a base for protecting their interests in Indian subcontinent against Russians who considered reaching the Persian Gulf waters an historical mission for themselves to fulfill the wishes of their king Peter I. Communist Revolution changed the expansionist attitude of Russians for a short period of time when British took the opportunity to expand their influence in the region but Russians came back soon and this time they had a revolution with a lot of beautiful slogans to export.

Rapid increase in consumption of oil to support newer generations of transportation vehicles and war machines, which ran faster and better, made Persian Gulf region and other oil rich areas in the world a matter of greater interest for all powerful nations. After WW I, when Winston Churchill ordered all British Navy to switch from burning solid fuel to oil based fuel, in fact he linked the security of his nation to the oil which was produced far away from home by Anglo-Iranian oil company.

By mid 1930’s economic growth of all nations was heavily dependent on oil for fueling their modern industries and mobility to distribute their goods throughout the world with faster speed. Great Britain and USA, which had vast resources of cheap oil in their reach, had huge advantages over others like France and Germany that needed to buy it from them. Production of fuel from other sources through synthetic process would cost much more and put a big burden on any nation’s economy to make competition a lot harder. Once again, trouble was brewing in Europe but this time oil had played a big role in it on the side of need for newer markets to support the economic growth.

During WW II, oil proved to be of the highest strategic value to both sides and when it ended, new measures were taken by both British and American governments in order to deal with the most important issue facing western nations: OIL. A lot of work needed to be done after deliberate destruction of oil wells and production facilities in Persian Gulf region and Indochina which were carried in order to deny access to Germans and Japanese in case if they got there. On top of that, new agreements were to be reached between the oil companies and also between British and US governments in order to impose their control over production and pricing of this valuable commodity to avoid loss of profit while maintaining control over the access to energy sources. A new era had started in the world affairs and the race for domination of energy resources became a high priority in the agendas of superpowers in order to impose their authority over the world.

Start of cold war immediately after WW II was ended, brought the importance of oil as main source of world’s energy into spot light. British government was already involved in the oil business directly through Anglo-Iranian Oil company, which later changed to British Petroleum. US government was restricted by laws and could not enter any business directly but threw its full support behind the oil companies against British and others to ensure the security of their own share of resources.

In fact, US government had become a counselor for American oil companies and acted as their protector in international disputes for decades to come. US government documents show that, during 1960’s and 1970’s, very deep issues had arisen between American and Iranian governments resulting in exchange of threats over the oil dispute between Iran and Oil Consortium in which seven American companies had a big share. This was while American government denied having any control over oil companies and at the same time encouraging Iranian government to yield to the demands by Oil Consortium and settle for what they offered in order to avoid bitterness in relations with US and British governments.

During 1980’s, a war between Iran and Iraq broke out which dragged the superpowers into the region. During that war, American government provided indirect intelligence assistance and sold weapons to both sides while reluctantly raising US flags over Kuwaiti oil ships for their protection. In fact, US government did not respond to Kuwaiti government’s requests until they raised USSR flags over three of their ships so that Iranian and Iraqi forces do not target them.

Later on, in 1990’s Iraq attacked Kuwait and destroyed almost all their oil production facilities which provided oil companies with new opportunities and imposed incredible damages on Kuwaitis. The attack by Iraqis on Kuwait happened shortly after James Baker, the secretary of state during G. Bush sr., stated that Kuwait did not have a defense pact with United States. About a month earlier, American Ambassador to Iraq told a reporter that US government did not have any issue with Iraq if they tried to resolve their border disputes with Kuwait. This was while more than a hundred thousand of Iraqi forces were positioned near Kuwaiti borders according to the news reports of that time.

Later on, under UN mandate, US forces led a military operation to rid Kuwait of Iraqi forces and impose heavy damages on Iraqis. Saddam never expected that Americans who had helped him from the beginning of his career as an assassin and CIA agent, turn on him. Saddam fell and a new government with greater influence from Iraqi Shiite sect with close ties with Islamic government of Iran replaced him. As a consequence of all these events, American government could establish a permanent base in the region to enforce the security of flow of oil to the free world. At the same time, the three oil rich nations of UAE, Kuwait and Saudi purchased total worth of one third of all conventional military products of the whole world during 8 years from the attack of Iraqis on Kuwait. And the story goes on…