Where There's Oil - There's Turmoil

Where there’s oil – There’s turmoil
(First published in The Island/30th July 2010)

We are almost certainly on the threshold of a new era of economic development and international diplomacy ushered in by the imminent discovery of oil. Drilling is due to start in the Mannar Basin next January. This opens before us exciting prospects of economic prosperity as well as daunting challenges posed by players in the arena of global political and diplomatic relations.

When prospecting for petroleum in Sri Lanka began nearly forty years ago at the initiative of the government, we were silently jubilant at the promise of a comfortable petrodollar-rich future for the country, which enhanced the general euphoria experienced in the wake of the adoption of the republican constitution in 1972. However, the Russian engineers who conducted the search at Pesalai in Mannar failed to find any oil. The grandiose project was abandoned, and the matter forgotten after a few laughs at jokes about certain fake samples of oil claimed to have been extracted from the area aimed at convincing an increasingly sceptical public. Ironically, though unconnected with the search for oil, separatist terrorism erupted from the north and east which we had originally hoped would be a source of unprecedented prosperity; terrorist violence devastated the country for thirty long years. We have just emerged from that dark phase of our history to be happily greeted by the news that Sri Lanka possesses substantial oil reserves. This naturally revives our hope of a bright future; a decisive reversal of our fortunes appears to be in the offing.

The initial attempts four decades ago at finding oil drew a blank probably because of the inadequacy of the prospecting technology adopted at that time. The situation today is different. We now enjoy the advantages of highly advanced modern technology in the matter. The many geological surveys and seismic tests carried out with the help of foreign organizations have revealed the existence of exploitable deposits of petroleum and gas in parts of the northern, eastern and southern regions of the island, both onshore and offshore. The major portion of the oil resources is reported to be concentrated in the area above an imaginary line joining Chilaw and Trincomalee, i.e. the north.

The coincidence of the elimination of separatist violence and the discovery of oil augurs well for the country. But the way ahead is not without risks. It is strewn with international landmines of political manipulation and interventionist pressure, which demands an extremely high level of political acumen and courage, and a selfless commitment to consensus building, on the part of our national leaders for Sri Lanka to remain whole. This is something that even a cursory glance at the oil-dominated twentieth-century global power (im)balance among nations will be sufficient to convince us of.

All countries depend on cheap oil for their economic development, and demand unrestricted access to it. This makes oil a “strategic asset” in the hands of powerful countries that are involved in the general scramble for a share of it.

The United States of America (USA), the European Union (EU) and China are the biggest consumers of oil (25.9%, 19.1%, and 6% of the world’s oil respectively). Their contributions to the global oil supply are as follows: USA – 10.7%, EU – 4.3%, and China – 4.4%. They may be identified as the main players in the global oil rush. Their partners in this “oil game” are the generally less industrialized oil producing nations.

From the very beginning Britain and America have been engaged in political and colonial manoeuvring for the sake of cheap oil. The quest for oil in the Middle East started when Iran struck oil in its Masjed Soleiman oil field in 1908. Iran was a part of the British Empire then. While Britain had no oil of its own Iran and the Middle East had an abundance of it. The British wasted no time in contriving strategies to help themselves to the vast oil resources found there. The Anglo-Iranian Oil Company (AIOC) was founded in 1909 to exploit the oil resources of Iran. The British devised a clever arrangement called “concessions”. This was based on the complementary relationship between the two countries: Iran owned the oil, but had no technical know-how that would enable them to extract, refine, store, and sell it; neither did Iran have a market for the oil; on the other hand, Britain had no oil, but needed it very much; Britain also possessed the technological expertise necessary for extracting and refining the oil. Foreign companies vied with each other for concessions across the Middle East. Under the concessions arrangement the owner of the oil fields or the “host” country (eg. Iran) was paid a “concession” on the output. The bigger the output the bigger the concession. In other words the more oil the foreign companies extracted and sold, the more money the owner countries got.

Decades later (in 1951) Iran under democratically elected Prime Minister Dr Muhammad Mossadeq nationalized the Anglo-Iranian Oil Company in order to retain the oil profits within the country. The US and Britain were strongly opposed to the move. They responded by causing the ouster of Dr Mossadeq through a coup, and installed in power Shah Mohammad Reza Pahlavi in 1953. The nationalized British oil interests were returned to British control; similarly the American oil concessions were retained by eight private oil companies which were given 40% of the Iranian oil industry.

Saudi Arabia ( created in 1935 and named after Ibn Saud its ruler) possesses 25% of the world’s oil reserves. It is the only “oil superpower” in the world. In 1945 President Roosevelt met Ibn Saud on US cruiser Quincy in the Suez canal to sign an agreement in terms of which the US pledged to support Saudi Arabia militarily in return for access to its oil through their Arab-American Oil Company (ARAMCO). The USA exploited this relationship to develop its economy and build its military strength over the next half a century. When the Americans waged war on Iraq at the beginning of the 1990’s they used Saudi Arabia as their base. That special relationship still remains intact.

Iraq has the second largest proven oil reserves in the world next to Saudi Arabia. The western involvement in the country’s affairs led to a devastating war against it on rather dubious grounds (as it is being revealed now), and UN embargoes, etc with genocidal consequences on the innocent Iraqi citizens, primarily because of the American thirst for cheap oil. Organizations such as the Global Policy Forum (GPF) maintain that Iraq’s oil is “the central feature of the political landscape”. According to the GPF, under US influence the 2005 constitution of Iraq has been made to “contain language that generates a major role for foreign companies”.

Venezuela is said to have 77.2 billion barrels of proven oil resources – the largest in the western hemisphere. It nationalized its oil industry in 1975-76. The incumbent president Hugo Chavez rejects the privatising policies of his predecessors. His attempts to renegotiate a sixty year old royalty payments agreement with Philips Petroleum and Exxonmobil (both large oil companies) did not endear him to the Americans. Under these agreements the corporations had to pay taxes as low as 01% of the tens of billions of dollars in revenues.

Of course, western hegemony in the oil world has not been unchallenged. Venezuela pioneered the idea of establishing the Organization of Petroleum Exporting Countries (OPEC) in 1949, approaching Iran, Gabon, Libya, Kuwait and Saudi Arabia. But the OPEC was set up in 1960 when the US imposed import quotas on Venezuelan and Persian Gulf oil to support the Canadian and Mexican oil industries. Antagonized by American bias towards Israel the OPEC exercised its power by imposing an oil embargo against the US and Western Europe in 1973.

China, taken as an individual country, is the second largest consumer of oil. At present it imports 30% of its oil. This figure is forecast to double by 2020, which will see China in much more desperate need of oil.

The Chinese obtain 10% of their oil from Sudan. The economically poor Sudan is riven by civil conflict between the Christian and animist south and the Islamist north. The Sudanese government is accused of evicting the civilians of the southern Darfur region from land they have occupied for generations, and even of massacring them in its determination to clear the area for oil extraction. When the UN wants to condemn Sudan over these allegations, China provides it diplomatic protection. China makes massive investments in Sudan in addition to delivering oil revenues and supplying arms to be used in its more than twenty year old civil war. Washington has blacklisted Sudan as a state supporter of terrorism, and US companies are not permitted to do business there, which provides a wonderful opportunity for the Chinese.

With the economic and military strength gained from its oil dealings with China, Sudan has been able to stand up to the Sudan People’s Liberation Army (SPLA). The SPLA are threatening to expel the Chinese from Sudan if they come to power for the support the latter are giving to the Sudanese government. Obviously, peace for the Sudanese is not in the best interests of the Chinese.

(Of course, this reference to China should not be misconstrued as implicitly critical of that country in relation to Sri Lanka. Oil or no oil, their proven friendship will last; it was certain other powers that wanted to fish in troubled waters.)

The above paragraphs outline just a few instances of the global turmoil due to intense competition among nations for the acquisition of oil. To date Sri Lanka has only been a relatively insignificant customer in the global oil market. Soon, however, we’ll be among the producing nations. The new position will be economically advantageous to us, no doubt. But it will also expose us to international political and diplomatic manoeuvring. Probably potential signs of such manipulation are already apparent. These are too plain for me to state explicitly.

It’s time we put all forms of internal conflicts behind us, and looked forward to this new promising future. There’s only one future for all of us; if we are divided among ourselves and try to pursue separate goals, there will be no future for any of us.

(I owe some of the ideas and information to Paul Middleton’s “A BRIEF GUIDE TO THE END OF OIL”, 2007)