New Developments in Political Economy: The Politics of Oil

Since the military build-up leading to the First World War, petroleum production has been the figurative, if not literal, motor for economic growth. Modern machines of war demonstrated the future. The imperialist powers recognized the crucial role of motorized vehicles, airplanes, and naval vessels and their thirst for oil in modern warfare, as well as anticipating the many important peacetime uses to come. At the same time, these same powers foresaw that securing sources of crude oil would be an essential, if not the essential, key to achieving and maintaining a dominant position in the global economy.

It is not far-fetched to view the post-First World War victor’s settlement, especially regarding the peoples of the Middle East, as significantly driven by considerations of future energy resources. The secret Sykes-Picot agreement likely had as its unspoken goal the guarantee of access to petroleum in the Middle East by both France and the British Empire. The conquest and oversight of oil reserves and the anti-Communist crusade became two essential pillars of twentieth-century imperialism.

US oil companies joined the European imperialists in sourcing Middle Eastern oil to complement domestic production. And the acquisition of sources of oil played no small part in the Second World War. All three Axis belligerents-- Germany, Italy, and Japan-- lacked sufficient petroleum access to sustain their imperial designs. The course of their aggression was shaped, to a great extent, in order to accommodate their thirst for oil.

In the Cold War era, the US took responsibility for securing oil for itself and its allies, installing Iran and Israel as Middle Eastern gendarmes. The oil issue became particularly acute with the collective organization of oil-rich nations into the Organization of Petroleum Exporting Countries in 1960, a development coming to a head with the oil embargo of the early 1970s that debilitated the advanced capitalist economies. This blow coincided with the beginning of a decline of US domestic oil production, sending shock waves through the US ruling class. A further shock struck with the loss of the Shah’s policing of the Middle East as a result of the Iranian Revolution.

Thus, the US entered the last two decades of the twentieth century facing shrinking domestic oil supplies and Middle East instability, two developments prompting more imperialist attention upon the affairs of oil-producing nations.

The Iraq-Iran War, beginning in 1980, further destabilized the region; US imperialism sided with Iraq out of fear that the Iranian revolution would spread throughout the Middle East, jeopardizing oil security.

And in 1991, the US undertook a massive military intervention in Iraq to protect the government of Kuwait, a reliable oil source threatened by an Iraqi invasion. US imperialism then recognized both Iran and Iraq as major threats to imperialist dominance of the region.

The Twenty-first Century

With the demise of the Soviet Union, the US enjoyed an unprecedented freedom of action. At the same time, US rulers faced growing dependence on foreign petroleum resources-- the US imported twice as much crude oil as it produced domestically at the turn of the new century. The Bolivarian Revolution in Venezuela was perceived as a threat to a once reliable source of petroleum products. Long-compliant allies in the Cold War sought their own independent arrangements with oil producers, stoking inter-imperialist rivalries. The explosive growth of the People's Republic of China and its dramatically expanded energy needs stressed global oil production.  

A panicky US ruling class looked to different paths to ensure access to resources for its mighty military machine and to assuage a restive public rocked by energy-price volatility. On one front, the US began to explore moving away from traditional sources of oil imports. Capitalist Russia enjoyed vast petroleum reserves and production capacity rivaling Saudi Arabia. And capitalist Russia was also in need of foreign investment. Two factors blocked this route (see Bloomberg Businessweek, 1-16/1-22-17, An Oily Reset in US-Russia Relations): first, Russian nationalization of some of its private oil business, and, two, the beginning of a revolution in domestic energy extraction (fracking and shale production). US allergy to supporting nationalization and the emergence of promising technologies (not to be shared with an imperialist rival) soon closed the opening to Russia in the eyes of many policymakers.

On the other hand, a substantial sector of the US ruling class favored achieving oil security through military intervention and under the guise of human rights and democratization. Tested in the Cold War, this strategy of imposing US capital’s will upon other nations by posturing as high-minded saviors proved even more effective after the demise of the Soviet Union as a counterforce. Before, imperialism promised to bring civilization to its victims; today, it is human rights and democracy.

The twenty-first century overt and covert interventions in Afghanistan, Iraq, Libya, Iran, Egypt, Syria, and possibly Turkey can all be seen, through the lens of the politics of oil, as related to securing or protecting petroleum resources. Because of active resistance to US domination, because of the strategic importance of oil, the US has been at continual war in the region since 2001 under the tattered banner of fighting terrorism.

Matters began to change in the last decade, with US domestic oil production nearly doubling between 2010 and 2014. In the last few years, US oil production has reached levels in line with the world’s largest producers, Saudi Arabia and Russia. For the first time in decades, the US is again exporting extracted energy products. In fact, many experts expect the US to become a net energy exporter in the next decade.

The return of the US as an energy competitor has predictably shifted US foreign policy. The Obama administration began to sour on leading the way in regime change in the Middle East as US energy production ramped up domestically. ENI, the Italian oil company led the call for regime change in Libya, backed up by the Italian and French governments. ENI’s relations with Gaddafi had worsened. The US joined, but did not lead the intervention. Obama later spoke of regret at being drawn into the schemes leading to the overthrow of the Gaddafi government.

Similarly, the US intervention in Syria was modest in contrast to the massive military expedition in Iraq eight years earlier. The Obama administration refrained from establishing a “no fly” zone, a military maneuver expected to open the way to the defeat of Syria’s military.

US relations with Iran improved during the later years of the Obama administration as well, despite Iran’s independent foreign policy.

These developments signal the change brought on by the US shift from a voracious consumer of Middle Eastern oil to becoming a potential rival for markets.

This shift is further demonstrated by US relations with the two largest oil producers in the world: Saudi Arabia and Russia. During the later years of the Obama administration, officials and a compliant press ginned up a new Cold War against Russia. Sanctions, saber-rattling, and hysteria brought tensions far beyond the actual points of contention. An energy-hungry, resource-poor EU has grown dependent upon Russian energy supplies, particularly natural gas. As the US is fast achieving energy independence and beginning the export of liquefied natural gas, the battle for the European market is intensifying and driving hostility with Russia.

Similar tensions arose between the US and its long-term ally, Saudi Arabia. The growth of the US as an energy producer certainly alarmed the Saudi regime. With the threat of a former customer becoming a rival, and with the effects of dramatic increases in global production, Saudi leaders reacted. While they may not have precipitated the collapse of world oil prices in 2014, they did nothing to stop it. They made no effort to lobby OPEC for price-supporting cutbacks.

A falling price of oil advantaged the Saudis, who had one of the lowest costs of production among producers and harmed the new US producers, who had a much higher break-even point. Indeed, the price drop slowed, even reduced US production, but at great cost to the Saudis. Despite having efficient production, their reserves are diminishing. But more importantly, their social costs, budget balance, and the maintenance of foreign exchange reserves require a much higher price for oil. Saudi Arabia has achieved all the trappings of a modern, wealthy state thanks almost entirely to oil. But that state cannot be supported without high oil prices, a massive surplus over their low cost of production. Moreover, the costly war that Saudi Arabia has pressed in Yemen has helped drain reserves and expand the budget. It is not lost on the Saudis that the Obama administration was less than enthusiastic about this adventure.

Consequently, the Saudis surrendered going into the new year, working a deal to cut production in the OPEC states and with other producers, raising the price of oil.

It should be clear, then, that the approaching oil independence of the US, the changing role of the US from consumer to producer, and the attention to markets-for-oil over sources-for-oil profoundly influences US strategic policies, including the weakening or souring relations with other major oil-producing nations like Saudi Arabia and Russia. Oil self-sufficiency also accounts for the reluctance, on the part of the Obama administration, to resolve the profound Middle Eastern antagonisms created by US intervention. Instability among oil-producing nations only secures the US a better opportunity to penetrate new markets and a higher margin over relatively high costs of production.

While it is too early in the Trump administration to be confident, the appointment of Rex Tillerson, the CEO of Exxon/Mobil, to direct State Department policy would seem to suggest a significant change. As the world’s largest multinational energy company and one of the largest corporations in the US, Exxon/Mobil has enormous interests in nearly every energy-producing country. With extensive investments in Russia, it feels neither bound nor moved by diplomatic or political niceties; the Obama-era sanctions on Russia cost Exxon/Mobil hundreds of millions of dollars.

Tillerson’s direction of foreign policy will likely return to embracing, protecting, and securing oil-producing countries while seeking enemies elsewhere to appease the military-industrial complex. The most recent US casualty in Yemen, a death dramatically acknowledged by Trump, would seem to support a friendlier approach to Saudi Arabia. The hysterical pre-emptive attack on better relations with Russia would likewise seem to suggest that improved links with Russia are seen by a prominent section of the ruling class as imminent and to be contested.

Some may see a contradiction in Obama, the internationalist, having moved towards a nationalist foreign policy, or in Trump, the nationalist, opting for an internationalist Secretary of State; but they are contradictions only if the decisive control of the state by monopoly capitalism is neglected. Ultimately, the dominant interests of monopoly capital always defeat professed principles.

The disparate interests of the smaller domestic drillers of shale oil and the large multinationals like Exxon/Mobil are reflected in US foreign policy. The upstart domestic drillers need higher prices, modest capital investments, and growth to insure profits; the giant international oil companies need massive capital investments for development of new reserves and continual cost cuts to guarantee profits.

Trump’s new regime reminds us that bourgeois politics is not about personalities or civility, but about differing visions of service to monopoly capital. The politics of oil underscores this truth. Further, the politics of oil tells us that inter-imperialist rivalries are coming to a boil.

Zoltan Zigedy

zoltanzigedy@gmail.com