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Blood Oil 

By Jeremy Leung

Oil has undoubtedly been the dominant factor in international politics for recent decades, mainly due to its scarcity. At the current enormous consumption rate of oil, the West will have run out of oil in 2010, Eastern Europe in 2013 and Asia in 2018. The dependence of industrialized countries on oil, however, does not decrease with its availability. This means industrialized countries will collapse with the depletion of oil if they do not reduce their dependence as soon as possible. Unfortunately, instead of looking for new sources of energy, most industrialized countries continue to deplete this limited resource, thus making oil producing countries more and more important. As the oil richest region in the world, the Middle East has been subjected to this pressure the most. In fact, few things happen in the Middle East that are not related to oil. In this analysis I would like to focus on how oil has affected relationship between Iraq and the US, especially in the last decade.

Oil has shaped Iraq’s history indeed. Iraq possesses the 4th largest oil reserve in the world (United States. Central Intelligence Agency), making it one of the largest oil exporters before US occupation. Most of the income of the country was from oil. In the post Gulf War era, US enforced strict sanctions on Iraq but it did not stop European countries and Asian countries from buying their oil from Iraq. Most of Iraq’s income still depended on oil. The dependence on oil sales to create national income has made Iraq extremely susceptible to oil price fluctuation. This is not only a characteristic of Iraq’s economy but also that of most of the oil producing countries that rely heavily upon their oil sales.

Most of the income, however, went to the military, which is also another characteristic of these oil producing countries. The people’s living standards remained low and infrastructures decayed with time. Oil has indeed created incredible wealth for the region, but that wealth remains in the grip of a handful of individuals who have the power.

The effect of oil on Middle Eastern countries’ political development such as Iraq then includes 2 main components: dictatorship and militarism. They are not entirely independent factor as they are intertwined. Dictatorship was usually a result of foreign intervention, mostly of the West. Despite their advocacy of democracy and human rights, the West had indeed colonized the region before and their interest in the region’s oil did not vanish with the end of colonization. Most Western countries still had a vast interest in the region’s oil and democracy in the region was most likely not going to help if they wanted to do business with the oil producing countries. Therefore they had help to instill a lot of the dictators in the region to create a much more favorable trading environment for themselves.

Militarism was an indirect result of dictatorship. In order to preserve themselves from the people who did not necessarily support the government, the dictators needed to have large armies to protect themselves from their own people. For this reason they had also become some of the largest Western arms’ importers. Their remaining in power had in turn created profit for the West, leading to more Western support for these dictatorships and their policies which were often inhumane.

It was under these conditions US started the War in Iraq on March 20th, 2003. US invasion of Iraq was mostly based on two claims: Iraq’s possession of Weapons of Mass Destruction and Saddam Hussein’s ties with al Qaeda. Both were clearly wrong for reasons that would not be explored here. The invasion was based on oil. Not to mine Iraq’s oil for money but to control Iraq’s oil for power.

There were numerous reasons for US invasion in Iraq, all of them related to oil. First of all, the occupation of Iraq gave US strategic and geological advantage in the region. The US has been slowly losing control of the Middle East in recent years as it withdrew its troops from Saudi Arabia due to its deal with the Saudi’s royal family, making the US desperately in need of a new staging ground for its army. Iraq, already crippled in the Gulf War, seemed like a favorable target. With a strong army in the region, US could keep the Saudi monarch safe and thus ensure a steady oil export from Saudi Arabia to the US. This is reasonable because the Saudi monarch seemed to be incredibly weak. US military presence in Iraq, as Clark suggested, can “surround and grab Saudi’s oil fields in the event of a coup by an anti-western group” (Clark). So even if the monarch fell, US oil import would still be guaranteed.

Military presence in the Gulf could also give US unprecedented control over oil exports of the Middle East. David Mulholland, a business editor, observes that with an army in the region, “US can cut off oil export to anywhere it wants by stopping ships out of the Gulf and creating embargo” (Oil Factor). This means that US would be able to completely cease oil export from the Middle East to any other countries in case of emergency. This could deal a fatal blow to countries that rely heavily upon Middle East oil such as Japan, China, Germany, et cetera, thus giving US tremendous leverage in the world oil market.

Aside from the strategic and geological factors, what lies at the heart of the War in Iraq was the economic factor. US domination of the oil market relies heavily upon one factor and one factor alone: oil’s trading currency. Deals were struck between Middle Eastern oil producing countries and the US back in the 1960s and all agreed to use US dollar as the trading currency for oil exchanges, thus starting decades of US dominance in the oil market. The importance of oil’s trading currency was apparent. US being oil’s trading currency meant that all exchanges of oil, whether import or export, must convert to dollar for the trading to occur. More oil exchanges meant more converting of other currencies into US dollar and that resulted in revenues. Tyler Shipley, a political activist, quotes Former Secretary of State Henry Kissinger in his article to prove this point, “the rise in the price of energy would affect primarily Europe and Japan and probably improve America’s competitive position” (Shipley, 10). Higher oil prices and more oil exchanges benefit US as long as dollar remains to be the trading currency. We should also take note that the oil price has sky-rocketed ever since the War in Iraq, creating incredible wealth for US because dollar was used as oil’s trading currency. The US government might have predicted this result and that added another reason to go to war.

This monopoly of oil’s trading currency, however, has been threatened by Saddam’s switch of Iraq’s oil’s trading currency from dollar to euro. Saddam’s conversion was probably a mix of his personal resentment towards his defeat in the Gulf War and the economic perks of converting to euro. Unfortunately, this broke the agreement between the oil producing countries and the US, thus creating a precedent that threatened US dominance in the world oil market. This was something the US could not tolerate. If the US stood by and took no action to punish Iraq, it would mean that the US allowed such defiance to its superiority. Observing oil producing countries might begin to consider the US weak and pay less heed to America’s interests in making their decisions. The US needed to make it clear that challenging it was not without consequences and what better ways are there other than a military action. The punishment of Saddam Hussein would then act as a deterrent in the region. Countries would have to think twice before making any decisions that might harm US interests, especially those that are related to oil.

US military presence in the region served yet another purpose: to scare the OPEC into submission. As Clark suggested in his essay, the army in Iraq was probably used to “send a message to other OPEC producers that they might receive a regime change if they too move to euro for their oil exports” (Clark). The OPEC producers would be crazy to switch to euro with a hostile army right next to them. Also note that Iran was regarded as one of the Axis of Evil country by the USA after they expressed their interest in selling oil in euro. The US was indeed planning to invade Iran after they finished off Iraq. Luckily for the Iranians the US was bogged down by the complicated situations in Iraq. Otherwise Iran, an Axis of Evil country, also a country that was interested in selling oil in euro just like Iraq, might have already undergone a regime change by now.

As a result of all these factors, the US is now occupying Iraq. Such is the enormous effect of oil on relationships between oil producing countries in the Middle East and the West. Oil is not only a factor that affects Middle Eastern politics, it dominates the region.

References:

Clark, William R. ”Real Reasons for the Upcoming War in Iraq: a Macroeconomic and Geostrategic Analysis of the Unspoken Truth.” Jan. 2003 <http://www.ratical.org/ratville/CAH/RRiraqWar.html>.

Oil Factor: Inside the War on Terror. Dir. by Gerard Ungerman and Audrey Brohy. Narrated by Ed Asner. Free-Will Productions. 2004.

Shipley, Tyler. “Currency Wars: Oil, Iraq, and the future of US Hegemony.” Studies in Political Economy Journal vol. 79 (2007): 7-33.

United States. Central Intelligence Agency. Country Comparisons – Oil – Proved Reserves. 1 Jan. 2008 <https://www.cia.gov/library/publications/the-world-factbook/rankorder/2178rank.html>.

Jeremy Leung is a free-lance writer on Middle Eastern affairs. Currently he is in the process of publishing his works of fiction that relate to politics, military domination, and philosophy.