Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum
September 30, 2004
JOANNE MYERS: Good morning. I'm Joanne Myers, Director of Merrill House Programs, and on behalf of the Carnegie Council I would like to thank you for joining us as we welcome Michael Klare to our Books for Breakfast program. This morning he will be discussing his book, Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Petroleum.
It is one of the extraordinary paradoxes of this past century that oil, a resource that exists only in limited quantity, should be one of the major ingredients to fuel the global economy. For countries that produce it, it can be a boon. For others, it may be a curse. And yet for those nations that depend on oil for their economic well-being, it is a challenge to find the supply which will meet the demand.
America is a country where oil is so vital to our prosperity that we have long understood that access to this resource must be protected at any cost. And even though the United states has repeatedly denied any relationship between our foreign policy objectives in the Middle East and the oceans of crude oil that lie beneath the region's soil, it is no secret that secure access to oil has been a major foreign policy priority since the mid-1940s.
In his groundbreaking book Resource Wars, world security expert Michael Klare made the controversial argument that scarce resources—such as diamonds, gold, copper, arable land, and water—were at the root of most contemporary conflicts. He now follows that seminal work with Blood and Oil, in which he concentrates on a single precious commodity, petroleum, and writes about the consequences of America's growing dependency on imported oil, especially that which flows from rogue regimes.
In this work he argues that oil has more potential than any other resource to provoke major crises, and perhaps even wars, in the years ahead. He demonstrates this by tracing U.S. foreign policy over the past sixty years as viewed through the lens of oil.
Professor Klare's acute understanding and penetrating analysis of global politics always lends credibility to his theses. This time he paints a bleak scenario: he warns the United States of rapidly escalating and expensive overseas wars if we continue on this current path, and he convincingly writes that assuring a continued supply of foreign petroleum will require an ever-increasing payment in American blood.
Michael Klare is Director of the Five College Program in Peace and World Securities studies at Hampshire College in Amherst. He is a defense analyst for The Nation and National Public Radio. In addition, he is a contributing editor to Current History. Professor Klare's articles have appeared in many well-known publications, including Scientific American, Foreign Affairs, Harper's, and The Harvard International Review.
He is one of the world's leading authorities on the causes and consequences of war and U.S. military policy, and this book and others reflect his expertise. Included among his published works are Low-Intensity Warfare, Rogue States and Nuclear Outlaws, and Resource Wars.
At a time when oil is at an all-time high, and the outlook for U.S. energy security is unclear at best, and troubling at worst, it is with great interest that we anticipate hearing your views on what you believe it will take to sever the link between spilling American blood for oil.
Please join me in giving a very warm welcome to our guest today, Michael Klare. Thank you for joining us.
MICHAEL KLARE: I'm delighted to be here and thank you so much for coming.
I suspect the news may have had a bit of an effect on your interest. Any of you who have driven up to a gas station lately know that prices are rising, and the topic of oil has moved from the business page to the front pages of the newspapers and to TV in this country and around the world.
I want to begin by talking about how this current crisis is being presented in the press and then try to get beyond that.
The reasons that are being given in the popular media and in public discussion for the current increase in prices around the world include political uncertainty and instability in Nigeria, in Venezuela, in Iraq, in the Middle East; combined with inadequate refinery capacity and growing competition from China and other new importers of petroleum; also the political uncertainty in Russia—all of these combining to produce the shortages around the world and the resulting high prices.
But beyond this, a very intense debate is underway in the international energy community about the possibility that this is not a temporary phenomenon, just an unusual coincidence of the specific developments I have just mentioned, but that this is a symptom of something much more profound, that the world might be reaching the point of peak oil production.
There are a growing number of geologists associated with the Association for the Study of Peak Oil (ASPO), organized by Colin Campbell, a UK oil expert, who argue that the world has now used up about half of the available supply of conventional petroleum—that is, the kind that you drill for and comes gushing out of the earth—and that the second half of the world's supply will be much more difficult to drill. No matter how much money is spent on new drilling rigs and offshore production, and new technologies, we may see within the coming decades the moment of absolute peak daily production and then a decline. No matter how much more money is spent, the world oil supply on a daily basis will begin to decline and, with all the growing competition, prices will rise substantially and there will be global inflation and a worldwide depression.
This argument is being challenged by stalwarts in the energy industry who claim that this is a temporary phenomenon, that there's plenty of oil, that new technologies will come along, we'll be able to drill far offshore, we'll be able to go into Siberia, in the far north, in Alaska, that large supplies of oil remain, that peak oil may be coming but not for another generation or so, and so there's nothing to worry about, you can go on buying gas-guzzling SUVs, that the problem will solve itself in time.
This debate is gaining momentum. Recently, The Wall Street Journal had a lead front-page story: "As Prices Soar, Doomsayers Provoke Debate on Oil's Future." As I have traveled around the U.S. speaking to groups, I'm sensing that the public is more and more aware of this argument about peak oil.
But this is not the crucial discussion to be having. I'm not a geologist, I'm not in a position to mediate between the competing views, whether there's more oil or less oil. The world will be able to wrench more oil out of the earth for a while yet before we see absolute decline. When that will be I'm not in a position to say.
But there is a more important development that needs our attention, and that's what I want to speak to today. That phenomenon is a historic shift in the center of gravity of world oil production. Essentially, the locus of oil production in the world is moving steadily southwards, from the older industrial countries of the global north to the developing nations of the global south. In some cases, it's a geographic shift as well as a conceptual shift.
When oil was originally developed in the 19th century, most of the leading producers were in the older industrialized countries, especially the United States; in Europe in the case of Romania and Russia; in Canada; and if you want to include Mexico in that as well. So as recently as the 1950s, two-thirds of the world's daily oil output measured in million barrels per day were coming from the industrialized countries of the north and only a third from the countries of the developing world, mostly from the Middle East and some from Africa.
But because these industrialized countries, the northern countries, were the earliest to develop their fields, those fields are also the first that are reaching their peak output capacity and are in decline. The U.S. was the world's leading oil producer for the first ninety years or so of the petroleum age. In 1970, the United States reached its peak moment of production, and domestic output in the United States has been in decline ever since. And even if some oil is found in Alaska in the Arctic National Wildlife Refuge, it is not expected to be enough to substantially affect the downward slide of American oil output.
The oil in the North Sea is expected to be at peak now, or to soon reach peak production, and then to rather rapidly decline after that. Romania, once a major world producer, is now a very insignificant player. The older fields in Russia are also facing decline, although new fields are being found in Siberia and in the eastern part of the country that are only recently developed, so Russia is not in decline in general, but the fields that were important in the first half of the oil age in Russia are in decline.
So all of these older fields have been extensively depleted. Add on top of that the fact that most of the world's original supply was concentrated in the Middle East and in Africa, and that, generally speaking, most of the fields in the global south were developed later in the history of the oil age, and that means that as time goes on there will be a continuous and accelerating shift in the focal point of world production from these older fields to the newer fields in the global south.
So whereas in 1950 two-thirds of the world's oil came from the United States and the other northern countries, by 2025 two-thirds to three-quarters of world oil output will be from the countries of the global south, primarily the Persian Gulf producers, Iran, Iraq, Kuwait, Saudi Arabia, the United Arab Emirates; Africa, a lot from Algeria, Angola, Libya, Nigeria, and Sudan; from the Andean region of Latin America, Colombia and Venezuela; and from new producers in the Caucuses and Central Asia, the Caspian Sea Basin, Azerbaijan, Kazakhstan, Turkmenistan. This is where most of the world's remaining oil is located, and as time goes on, more and more of our daily output and consumption will come from those countries.
Whether the world oil production in absolute terms rises or starts to fall, this pattern will be unaffected. No matter what the total volume is, more and more of it will come from these countries.
This poses very substantial geopolitical and security problems, because the countries I named as a rule tend to be unstable or divided by ethnic conflict, to be politically divided, and to harbor large pockets of anti-American sentiment.
The reasons for this can be traced to the history of colonialism. Most of the countries that are emerging major producers were at one time colonies or occupied by the major European powers, including the Russian Soviet empire. Most of them have a history of anti-colonial struggles and a deep abiding resentment of colonialism.
Colonialism also has an effect in other ways in these countries. Many of the borders of the countries were drawn by the European powers to meet their convenience in the 19th century or early 20th century after World War I, and very often these borders do not reflect the ethnic realities on the ground. Very often, you have minority groups occupying an area where the oil is produced that are under-represented in the national government and there is deep resentment between these ethnic minorities against the central government, which often monopolizes the income. When oil is added to the mix, it can prove very explosive.
We see this in Acha, in the part of Sumatra where most of Indonesia's oil and gas come from, which is in revolt against the Indonesian government. The people of Acha are historically discriminated against by the central government, but all of the revenue from oil production in their territory goes to Jakarta, not to Acha.
A similar situation in Nigeria, where the minority peoples of the Delta region where all the oil is produced, where there is terrible environmental contamination, the Ijaw and the Ogoni people are now in revolt against the central government in Abuja, again where most of the oil income resides.
There are many other examples of this ethnic separatism fueled by disputes over the distribution of oil.
But the most worrisome element is that many of the governments in these countries are propped up by their dependence on oil income. The rents from the oil output are often their countries' single most important source of revenue, the overwhelming source of revenue for government income, and so any government that is in control of these countries has absolute control over the countries' sole source of wealth.
In most of these countries, certainly the case in the Middle East and in the Caspian and in Africa and Latin America, it is state-owned oil companies that own the lands and manage the export of oil, not private investors as in the northern countries, so whoever controls the state also controls the oil companies, and thus the oil revenue. Because this is the only source of wealth and income in many of these countries, this is a powerful prize that nobody is willing to give up readily.
It's not surprising that these governments in general are very reluctant to allow, for example, elections, where they might be driven out of office through the electoral process. They are much more inclined to spend some of their money on police and internal security forces and to prevent any political change from taking place. The result of this, naturally, is that opposition forces, whether on political, religious, or ethnic grounds, see no option but to engage in violent struggle in order to change the environment.
A perfect example is Saudi Arabia, where you have a feudal monarchy that controls the state, and therefore controls the revenue, historically has used this money to the personal benefit of the family itself, possessing immense wealth and using it lavishly in a country where displays of such extravagance are frowned upon. Meanwhile, a huge rising population of young men and women, steeped in Islamic tradition, find themselves under the thumb of this royal family, which has close ties with the United States, which has ties with Israel, and yet deprives them of an opportunity to express their resentment through political means. It's hardly surprising, then, that you have a deep undercurrent of militant, violent resistance to the royal family, and it is from this milieu that Osama bin-Laden has organized many of the foot soldiers for al-Qaeda and for the attacks on the United States and for continuing violence in Saudi Arabia and in adjacent countries.
I can give other examples of this process—that's the story in Nigeria and in other oil-producing countries—and this will be the case in the new oil regimes, the new petro-states of Azerbaijan and Kazakhstan as time goes on, where you have the beginning of a KGB kind of system turning into almost monarchy-like regimes, in Azerbaijan, the father giving way now to the son. Similar kinds of feudal arrangements will occur in the other countries in the region. All of this will in the end spark violent resistance because there is no other way to express dissent.
So the very process of oil production in these developing countries is a source of instability and violence. On top of that, we see the growing anti-Americanism in many countries. Whatever the cause of anti-Americanism, for many people, especially in the Middle East, it's oil that is widely believed to be the magnet to bring the U.S. into their midst. It's the penetration of American oil companies into their territory that is seen as the driving wedge for American imperialism - for many people the United States has become an imperial power, and it's the oil companies that represent the driving wedge of that intrusion.
Therefore, anything to do with oil in these countries—pipelines, refineries, pumping stations, and tankers—become a legitimate target of attack. That's what we're seeing now throughout Iraq, in Saudi Arabia, and other countries in the region.
The more we go into the future, the more we become dependent on these countries in the developing world, the greater the likelihood of instability and violence, and a lot of that targeted at American oil companies.
How have American officials responded to this historically? For a very long time, and through Democratic and Republican administrations, it has been American policy to securitize oil, to view it as a national security matter, because it's so crucial to our economy, and to American military power as well.
The U.S. has the most highly mechanized military in the world. It's the only truly global military in the world. It relies to a great degree on air power and mechanized vehicles, and virtually all of these weapons and instruments of war are powered by petroleum. So America's global military power rests on an adequate, abundant supply of oil.
For economic and military reasons, American leaders have historically and consistently viewed oil as a national security matter to be protected by force when and where necessary. This is the underpinning of the Truman Doctrine, of the Eisenhower Doctrine, of the application of the Nixon Doctrine in the Middle East, and most explicitly in the Carter Doctrine, which identified Persian Gulf oil as a vital interest of the United States and something that must be protected, as he said, by any means necessary, including military force. This is the declared policy of the U.S. government.
The next president, Ronald Reagan, applied this principle of the Carter Doctrine to re-flag Kuwaiti tankers during the Iran-Iraq war and to use the U.S. Navy to escort Kuwaiti tankers in and out of the Persian Gulf, which led to clashes with Iran, which underpins the abiding hostility of the Iranians to the U.S.
It led in 1990 to President Bush's decision to deploy forces in Saudi Arabia to protect Saudi Arabian oil fields against the Iraqi forces then in Kuwait. When President Bush senior spoke on national television on August 8, 1990, he talked about "drawing a line in the sand," and went on to say that "the oil from Saudi Arabia is vital to the national interests of the United States," and again, "we'll use any means necessary to protect that oil, and I am informing you that we have begun the deployment of hundreds of thousands of American troops in Saudi Arabia to protect that oil."
Future historians will conclude that the Iraq war of 2003 is nothing more than a continuation of that struggle that began in 1990, that was frozen for twelve years between 1991 and 2003, with the containment of Iraq, but then a decision to continue where it had left off on March 1, 1991, with an invasion of Baghdad.
The belief that the oil flow from the Gulf is essential to American national security is the essential driving force behind the war in Iraq.
Since the Bush Administration came in, the Carter Doctrine, which referred explicitly to the oil of the Persian Gulf being a vital interest of the United States, has been applied by President Bush junior to internationalize or globalize it to apply to all the other areas in the developing world upon which the U.S. is increasingly becoming reliant for petroleum.
The Caspian Sea is the first area in which this expanded Carter Doctrine has been specifically applied. This began at the very end of the Clinton Administration but has been accelerated by President Bush to view the energy flow from the Caspian as a national security interest, and therefore to justify a very involvement of American forces. There are American military advisors in the Republic of Georgia assisting Georgian forces in protecting the route soon to be the Baku-Tbilisi-Ceyhan (BTC) pipeline, from the Caspian Sea to Ceyhan in Turkey on the Mediterranean coast. This is a pipeline in which two American presidents, Clinton and Bush, have had a personal interest and have expressed that completing and protecting that pipeline is essential to American national security interests.
This is a pipeline that passes within or near six areas of violent ethnic insurgency: the Armenian enclave in the Ngorno-Karabakh; Chechnya, which is only a hundred or so miles away; Daghistan and Ingushetia and South Ossetia, where the recent fighting and violence has been; Abkhazia in Georgia, Adjaria in Georgia—Abkhazia in permanent revolt against the Georgian government; Adjaria has been back and forth—and then the rest of the pipeline extends right through the heart of the Kurdish areas of Turkey. This pipeline is likely to be under permanent attack or viewed as a target by any of the rebel groups in this area.
The United States views this as the cause for a permanent American military presence in the region to ensure that that pipeline is made safe, and we are likely to see, as occurred in the Persian Gulf, the establishment of permanent American military bases in that region, in Azerbaijan or Kazakhstan, joining the ones already in Uzbekistan and Kyrgyzstan.
But this globalization of the Carter Doctrine also is being applied to Latin America, where U.S. troops are providing the same kind of protective services in Colombia, working with the Colombian government to protect the Cano-Limon pipeline that takes oil from Occidental Petroleum's fields in the northeast to the Caribbean coast.
And there is a growing move to establish an American military presence in or around Nigeria, given the growing importance of Nigeria's oil and the continuing instability in the area. Pentagon officials have traveled to Africa to look at various possible sites to establish bases in the region. More U.S. military advisors are being deployed there. The U.S. Navy is stepping up its patrols in the Gulf of Guinea, off of the coast of Nigeria and Angola.
The U.S. military is being converted into a global oil protection service. The Navy in the Pacific is spending its time patrolling the South China Sea, which is an area in dispute between several countries because of the underground oil there. There is a new naval force being established in the Strait of Malacca between Singapore and Malaysia and Sumatra because so much of the world's oil flows through that narrow passageway and there's a risk of piracy and terrorism. Wherever you look, American forces are increasingly being devoted to protecting the flow of oil.
This is troubling enough, but to conclude my panorama, the United States is not the only country that is militarizing its foreign oil policy. So are Russia and China.
For Russia, it's not so much a need to acquire oil, because they have a lot of it, but because the Russians are attempting to reestablish their prominence as a major power. It's the explicit strategy of Vladimir Putin and his associates for Russia to be a dominant player in the oil flow from the Caspian Sea area to the West.
They are expanding their Caspian Sea fleet. They are building new bases in the area. They maintain troops in Armenia, in Tajikistan, in Georgia, and also in Abkhazia. So in the Republic of Georgia you now have Russian troops and American troops within very close proximity.
And the Russians are fighting a brutal war in Chechnya, which is ultimately driven on Russia's part by its absolute determination to control this critical strategic crossroads right in the heart of its oil pipeline empire in the Caspian Sea region.
Grozny was the Houston of the former Soviet Union. It was the major concentration of refineries, and all of the pipelines from southern Russia met in Grozny. This was an absolutely pivotal center in their oil empire. They are absolutely determined to control this area, at least in part, because of this legacy and its strategic location. So Russia is a key player in this area.
China is also becoming very interested in the Caspian Sea region and in the Persian Gulf as well. China's demand for oil is expected to quadruple during the first quarter of the 21st century. Their oil output, like that in the U.S. and in Europe, is in decline. They are becoming increasingly dependent on imported oil. Their leaders see Central Asia, the Caspian, and the Persian Gulf as the main source of China's future oil.
China is copying the United States and Russia by militarizing its foreign oil policy, providing arms and military assistance, and even troops it's believed, to the government of Sudan in its war against the SPLA in the south. China is the leading investor in Sudan's major oil company in the southern part of the country. China provides arms and technology to Iran, one of its major suppliers. And through the Shanghai Cooperation Organization, China is developing close military ties with Kazakhstan, Uzbekistan, and Kyrgyzstan, holding joint military maneuvers, providing them with weapons.
So now you have a three-power military competition underway in the Central Asia Caspian region, all involving not so much necessarily direct presence, but building up military alliances with local governments, and in some cases insurgent forces, ethnic separatist groups; like the Russian presence in Abkhazia.
If you look back in history for a similar moment, where you have so many powers competing for geopolitical influence in a volatile area, the example that comes to mind is the struggle in the Balkans before World War I, when the Austrian Empire and the Russian Empire and the British and the French were all competing for influence, providing military assistance to the local powers, getting involved in internal disputes, and we know what happened in Sarajevo in 1914.
I see no evidence that any of these countries is backing off from their determination to dominate militarily the area where all of this oil is being sought.
Because of the geographic shifts in the production of oil to areas of instability, growing competition for access to that oil, and the militarization of foreign oil policy, we are risking a very high level of violence emerging. Whether the net supply of the world rises for a while or declines, oil will be increasingly in competition. In a situation where these supplies are all the subject of military rivalries and intervention, this will lead to an ongoing series of oil wars for as long as we continue to depend on this substance.
While there are many good reasons to think seriously about reducing our dependence on petroleum—environmental reasons, economic reasons—there are also strong moral and ethical reasons as well—and security reasons—that in our desperate pursuit of this material we are risking war, we are risking the lives of young men and women in uniform, and we are risking a serious international rivalry and conflict.
For that reason, we must move swiftly and systematically to develop a post-petroleum economy. Whether peak oil occurs in 2010 or in 2020, by the middle of this century, conventional oil will be in less supply than it is now and we will have to make dramatic changes in our way of life. The environmental reasons will make that necessary, but I hope that we could avoid twenty or thirty or forty years of bloodshed over this diminishing resource.
Questions and Answers
JOANNE MYERS: I'd like to invite your questions.
QUESTION: Is the policy of militarization of the oil supply policy sustainable for the coming ten, twenty, thirty years?
MICHAEL KLARE: Yes, it's sustainable.
QUESTION: Secondly, are there any alternatives? Could the United States perhaps not improve its performance in the area of development cooperation, for example, to improve its image globally?
And thirdly, do you believe that it would be a good decision of the American government to finance the Pentagon budget with taxes on fuel?
MICHAEL KLARE: Those questions should be addressed to the President of the United States, not to me.
QUESTION: He is very busy these days.
MICHAEL KLARE: On the issue of sustainability of this militarization, I tried to show how oil and terrorism are systematically linked. One provokes the other. And because terrorism is such a great threat, the U.S. government, and the Russian government and the Chinese government, all are able to describe the militarization of their oil policy as anti-terrorism. For the Russians it's Chechnya, for the United States it's Iraq and Colombia. The protection of the pipeline is described as an anti-terror measure, not as an oil protection measure.
And for the Chinese, they're very worried about the Uighur insurgency in Xinjiang Province, which will be where the pipeline from the Caspian is expected to be built, and Xinjiang has oil itself, so for China their protective moves are also anti-terrorism.
It's much easier to sell this policy to the public, as they are doing, under the guise of anti-terrorism rather than "we're simply protecting oil." It gives them more credibility.
Can it be sustained? I see no evidence that any of the governments that I am talking about have any inclination to shift their priorities. China, the United States, and Russia have all accelerated their military involvement with these countries in the past year.
QUESTION: In policy thinking it can be sustained, but can it be sustained financially, because if you look at the budget deficit, all of the expenditures for the Iraq war, and the fact that this country is lending money to wage that war, and, surprisingly, extending it from the Chinese, can this be continued forever?
MICHAEL KLARE: They appear to be determined to do so. The United States is doing it on deficit financing. But because oil is seen as so crucial to the economies of these countries, they think it is a worthwhile investment.
QUESTION: You have provided an American-centric presentation. You're missing the role of Europe. The Dutch through Royal Dutch Shell have huge investments in Middle Eastern oil, the British through British Petroleum, and much of the distribution of gasoline in this country is done by European companies, not American. You also have the protection here at stake for the European interests, their access to oil. They don't have the military that's necessary to preserve their own interests in those pipelines. So it becomes America's role to be the policeman, but not only for America and American national security interests, but for European security interests and Japanese security interests.
Another aspect of this is what you finally brought in with China and Russia. Both are authoritarian states, China and Russia—presumably incipient democracies, but not yet—and there is some question as to where they are going. So Europe and the United States will still be dependent largely on American, British, and Australian military to protect the interests for democratic countries.
Yes, we can get away from oil, but environmentalists have consistently opposed efforts to create nuclear power in this country. Europe has gone that way. But what are the other alternatives?
MICHAEL KLARE: Certainly you are absolutely right that Europe and Japan have placed their trust in the U.S., and there are assumed to be quid pro quos that go along with that that are not discussed in public.
Certainly that was more explicit in the first Gulf War, when the U.S. was much more overt in saying that "we're fighting this war on your behalf, and therefore we expect you to pony up some of the funds to pay for it." There is pressure on Japan even now to supply backing of various sorts.
But one way in which Europe is different from the United States is that it is placing much more reliance on natural gas. Russia is a major supplier of natural gas, which can be piped to Europe. You can't pipe it from there to here, so the U.S. has a problem; it's much easier to move oil than natural gas. So Europe will be able to shift more of its energy to Russian natural gas. That could lead to a very interesting Europe-Russia, and that too is very explicit in the conversations between Germany and Russia about creating an energy political bloc.
QUESTION: You didn't emphasize to a great extent the underlying reasons for much of the violence in Sudan and the rebels in the Darfur Region wanting part of the oil revenue and the peace. Would you comment a little bit more on that aspect, on the African violence.
MICHAEL KLARE: There are a number of revolts underway in Sudan. Sudan is one of these countries that were manufactured by the Europeans, its borders set by the European countries, with little respect for the ethnic realities. It is a partly Islamic Arab country in the north and more of an African non-Muslim country in the south, and the two parts have historically been unhappy with each another.
Darfur is a somewhat different situation because all of the players in that conflict are Muslims, although they have different tribal rivalries there. But the oil is in south, not in the Darfur Region, and in the south that is clearly a case where oil is supporting war. The oil is in areas historically occupied by the southern peoples associated with the SPLA, and the government is using oil revenues to pay for the weapons to crush the rebels.
Here is where China's role is significant, because China provided them with the military equipment, built the bases, built airstrips in the south around the oil fields that are used by the Sudanese air force, probably with Chinese help, to bomb the SPLA territory.
QUESTION: You didn't mention the difference between the price of oil in the current market and the long-term price of oil in terms of resource recovery across the world—on which investment decisions are based. Although $50 is the current price of oil, the investment price of oil is in the twenties, or low thirties. That's the price at which companies make investment decisions on whether to invest in new technologies.
Doesn't the entire world that you describe accurately change dramatically if the investment price moves into the $40-$50 area, because at that price you have the entire world of oil shale in Canada and Venezuela, which far exceeds the Saudi Arabian oil, for example; you have the viability of wind power, you have the viability of solar power—all of which are fungible, they're substitutable for oil to some extent—doesn't that entire world change in a beneficial way to the U.S. and developed economies, just on the price of oil?
MICHAEL KLARE: Yes, but not necessarily so.
In the United States, 70 percent of petroleum is used for transportation. Any of you who have lived in the suburbs or anywhere else know what I am talking about. Our whole society is dependent on vehicular transportation, and so you need a liquid fuel. So nuclear and wind power and solar power will not help us, and they won't replace oil because we don't use oil to generate electricity. Most of our oil is for home heating, which could be shifted. But it's finding an automobile fuel that is the crunch issue.
You mention the tar sands, so called, in Canada, shale oil and the very heavy oil in Venezuela. Yes, in a theoretical physical sense those hydrocarbons can be converted at great expense. At the prices you describe, they can be profitably converted into liquid fuels.
This is not sustainable because the environmental costs are phenomenally greater than for conventional oil production. The tar sands require something like ten barrels of water to produce one barrel of fuel, and water. As I said in my earlier book, Resource Wars, water is just as precious and increasingly scarce a commodity as is oil.
In Canada, energy companies want to divert all of Canada's rivers to produce this fuel, which means that food production in Canada will cease. Much of that water also comes into the United States as well to support food production here. So there will be an immense struggle over the water component of the tar sands.
Converting shale oil and this heavy fuel in Venezuela to oil produces vast amounts of carbon dioxide as a by-product, much more so than conventional oil production. So either we risk burning the planet into a crisp, which some people are willing to do, or there must be some way of sequestering or burying the carbon, and we haven't figured out how to do that yet.
Some tar sands will be converted into oil, but even at high prices, we have not yet overcome the environmental aspects of this to make that a feasible solution.
QUESTION: On the financing of this global shift that's occurring, are there competitive issues on the financing, or are all countries involved? Is there a technological difference, or is geographic—the Soviet Union will finance refineries and various equipment that's needed? Or is there an international financial capital need that gets satisfied in the market world?
MICHAEL KLARE: The National Energy Policy Report of Dick Cheney, May 17, 2001—the report that calls for drilling on ANWR—has a long section devoted to this question, because where the financing is going to come from is a very big question.
There is no doubt that there is a lot of oil in Angola and Nigeria, and Venezuela and Colombia, but these are either violent, torn-up countries or exceedingly corrupt. They need Western investment on a very large scale.
The International Energy Agency in Paris has estimated $3 trillion in new investment between now and 2030 to ensure that there is enough oil in 2030, most of it in the developing countries, most of it having to come from the older centers of finance.
This investment will not be made without political insurance, and that is a hidden reason behind much of American military activity in these areas. That's the underlying reason for the war in Iraq, because you have to have regime change and put in place governments that will protect these investments.
QUESTION: What you've described will be America protecting all of the oil assets, which is a drain on our economy, and the entire European community and the Japanese are hanging back, letting us spend our money for military purposes. They will have the $3 trillion to invest in the oil that will eventually yield them something that we will be protecting with only a drain on our economy.
The second question is: if we should be able to extricate ourselves from these areas that are so unstable and begin to produce other alternative sources of oil, will we then have masses of turbulent, destabilized ethnic populations, who don't even have a prospect of any kind of income, if the oil does not continue to flow?
MICHAEL KLARE: All of this was perfectly clear and known to Dick Cheney and George Bush in January-February-March 2001 when they organized the National Energy Policy Development Group and published their statement. President Bush said repeatedly, "If we don't change our policy, our oil will be in the hands of other people who don't have our interests at heart."
They knew, better than I did I'm sure, everything I have said, that the United States and the world must make dramatic change in new directions.
What they decided is to postpone that moment of truth for a decade or two. They said, "We could go on the way we are for twenty years, we could go on increasing by 50 percent in this country our consumption of petroleum over that twenty-year period, and by then our brilliant scientists will come up with a solution, so we don't have to worry. Our children will take care of this problem and we can go on the way we are."
This more than anything else is the outrage of the Bush Administration, knowing that we have to make these changes and that will require tremendous investment in new technology and we have to start now to be ready in time when all of this occurs, and yet to postpone it, to preserve the current existing oil model for another generation. And we'll all pay, or our children will pay, dearly for this delay.
JOANNE MYERS: Thank you very much for being with us.