According to the report [Crude Designs: the Rip Off of Iraq's Oil Wealth], from groups including War on Want and the New Economics Foundation (NEF), the new Iraqi constitution opened the way for greater foreign investment. Negotiations with oil companies are already under way ahead of next month's election and before legislation is passed, it said.

The groups said they had amassed details of high-level pressure from the US and UK governments on Iraq to look to foreign companies to rebuild its oil industry. It said a Foreign Office code of practice issued in summer last year said at least $4bn would be needed to restore production to the levels before the 1990-91 Gulf War. "Given Iraq's needs it is not realistic to cut government spending in other areas and Iraq would need to engage with the international oil companies to provide appropriate levels of foreign direct investment to do this," it said.

Yesterday's report said the use of production sharing agreements (PSAs) was proposed by the US State Department before the invasion and adopted by the Coalition Provisional Authority. "The current government is fast-tracking the process. It is already negotiating contracts with oil companies in parallel with the constitutional process, elections and passage of a Petroleum Law," the report, Crude Designs, said.

Earlier this year a BBC Newsnight report claimed to have uncovered documents showing the Bush administration made plans to secure Iraqi oil even before the 9/11 terrorist attacks on the US. Based on its analysis of PSAs in seven countries, it said multinationals would seek rates of return on their investment from 42 to 162 per cent, far in excess of typical 12 per cent rates.

Taking an assumption of $40 a barrel, below the current price of almost $60, and a likely contract term of 25 to 40 years, it said that Iraq stood to lose between £74bn and $194bn. Andrew Simms, the NEF's policy director, said: "Over the last century, Britain and the US left a global trail of conflict, social upheaval and environmental damage as they sought to capture and control a disproportionate share of the world's oil reserves. Now it seems they are determined to increase their ecological debts at Iraq's expense. Instead of a new beginning, Iraq is caught in a very old colonial trap."

Louise Richards, chief executive of War on Want, said: "People have increasingly come to realise the Iraq war was about oil, profits and plunder. Despite claims from politicians that this is a conspiracy theory, our report gives detailed evidence to show Iraq's oil profits are well within the sights of the oil multinationals."

The current Iraqi government has indicated that it wants to treble production from two million barrels a day this year to six million. The US Energy Information Administration said such an increase would ease "market tensions" that have kept the price high. But governments and oil companies in the West said the report was purely hypothetical and that the issue was a matter for the Iraqi people. They also pointed out that Iraq needed money to rebuild in the sector.

A spokesman for the Foreign Office said the country's oil industry was in desperate need of investment after years of under-investment, UN sanctions, vandalism by Saddam Hussein and more recent sabotage by insurgents and general looting. "The Iraqi government has made it clear that the decision is a matter for its authorities but they understand that it would require a lot of investment," he said. He said it was not surprising that Iraq should look to outside experts to help rebuild an industry that was the key source of revenue to help rebuild the country.

"We work closely with other departments such as the Treasury to give assistance and advice," he said, adding that the Foreign Office had not been involved in specific lobbying.

Gregg Muttitt, of Platform, a campaign group that co-authored the report, said Iraq had an existing - albeit damaged - network of oil expertise and could use current revenues or new borrowings to fund investment. The report named several companies, including the Anglo-Dutch Shell group, as jockeying for position before a new government is elected. In 2003, Walter van de Vijver, then head of exploration and production, said investors would need "some assurance of future income and a supportive contractual arrangement". The groupsaidyesterday that the involvement of foreign oil companies would be determined by the new Iraqi administration. "We aspire to establish a long-term presence in Iraq and a long-term relationship with the Iraqis, including the newly elected government."

No multinationals are operating in Iraq now because of the poor security situation.

###

Protesters in Ecuador have dynamited oil pipelines, a Bolivian presidential candidate says he wants to seize private gas fields, and Venezuela is threatening to kick out any foreign oil companies that won't submit to more state control.

For international oil companies like BP PLC and Exxon Mobil Corp. and their customers, who used to look to South America for stable supplies, this powerful wave of nationalist sentiment comes at a particularly bad time.

Tight supplies worldwide already have driven oil prices close to record highs, and while the nationalist swing is unlikely to further escalate prices unless it curtails oil production or exports, it's heightening risk in a region that once was willing to offer much more to attract foreign investment, experts say.

Some warn that such changes could land governments in a tight spot if oil prices fall, investment has been compromised, and there's less to meet the inflated expectations of poorer citizens who have been promised more benefits.

But many political leaders say those are risks worth taking for a region where 35 percent of the residents live on less than $2 a day. "We need to take back our national power, our sovereignty to manage our resources," said Venezuelan President Hugo Chavez, who has become one of the continent's most forceful voices for redirecting oil money from corporate giants to the poor.

Venezuela supplies 13 percent of U.S. crude oil imports, and Chavez's government has passed laws in the last four years that require state-owned Petroleos de Venezuela S.A. (PDVSA) to obtain a majority stake in all oil production projects, raised royalties on heavy crude production from 1 percent to as high as 30 percent, and required firms pumping oil to pay income taxes at a top rate of 50 percent, up from the previous 34 percent.

All firms with oil-pumping contracts now face a Dec. 31 deadline to sign new joint-venture agreements giving PDVSA up to an 80 percent stake or have their oil fields reclaimed by the state. Before the joint ventures can be completed, the firms must also pay $3 billion in back tax claims.

Besides BP and Exxon Mobil, the changes affect international majors such as Chevron Corp. and Royal Dutch Shell PLC.

"We're looking at a transitory period in which things are a little bit tense, but if we get through this, we'll be in a much better place. I believe there is a role for private oil companies here, and that the government believes there is a role for us here," said Sean Rooney, president of Shell Venezuela.

It's a trend mirrored across South America, where governments are squeezing more control and money from the energy sector, much as state-owned oil companies have done in many Middle East countries.

In Ecuador, demonstrators in two oil-rich provinces seized oil wells, dynamited pipelines and provoked spills during August protests that prompted a state of emergency.

It's time oil companies "give us our due," said Guillermo Munoz, governor of Sucumbios province, who helped lead the protests that froze oil exports for two weeks. Those protests and earlier disturbances in May cost Ecuador $445 million in lost production.

Ecuadorean President Alfredo Palacio later announced all contracts with private oil firms would be revised to ensure the government at least 50 percent of oil profits, up from 20 percent.

Poor Indians in Bolivia also are demanding a greater share of natural gas revenues. Bolivia has Latin America's second-largest gas reserves after Venezuela, and protests in the past two years have sparked violence and forced out two presidents - Gonzalo Sanchez de Lozada and Carlos Mesa.

Congressman Evo Morales, an Aymara Indian who has led the protests and is close to Chavez, has emerged as a front-runner for December presidential elections. "You have to be brave. The president has to have the courage to take the oil fields," he said. "It doesn't mean the expulsion of the transnationals, but that we'll make new contracts."

Morales has said he wants to seize private gas fields held by foreign companies like Repsol YPF of Spain, Petrobras of Brazil and Total of France. But he has also said that he remains open to foreign investment as long as better terms can be negotiated.

Elsewhere, Argentina approved a new state-owned energy company last year, reversing a decade-old privatization policy. Peru passed a law to ensure 25 percent of royalties from its Camisea natural gas pipeline are funneled to poor communities.

In one sign of a backlash, investment in Bolivia's gas and oil industries dropped by 40 percent in the first half of 2005 compared to the same period in 2004, reversing a seven-year trend, according to the Bolivian Hydrocarbons Chamber.

But analysts say the region is unlikely to repeat past mistakes, when governments were forced to dismantle and privatize segments of the energy industry that had been nationalized in the 1970s. Countries are responding to pressures "to realign that deal in favor of the governments" now that energy prices are much higher than when contracts were first signed, said Roger Tissot of PFC Energy, an energy consultancy.

"We didn't expect a change to existing contracts but we do expect that governments will adapt their terms to the ... oil price reality - not just here but all around the world. That's not a surprise," said Rooney of Shell.

Chavez, who blames U.S.-style capitalism for creating poverty in Venezuela, has spent billions of dollars in oil revenues from state company PDVSA for public works projects and social programs. Petrodollars have turned one abandoned oil depot into a bustling $3.2 million community center with a textile cooperative and a medical clinic, nestled between green hills and the Caracas slums.

"I'm proud of what Chavez is doing. He's brought us resources," said Margarita Rojas, 44, who works in a training program at the textile shop.

Chavez also has sought to solidify political alliances by offering oil sales on preferential terms to countries throughout the Americas. And he denies criticisms by some who say his policies are turning PDVSA into a government slush fund and are weakening the company by starving it of needed investment.

He has threatened to sell some refineries of PDVSA's wholly owned subsidiary, Citgo Petroleum Corp., arguing that current refinery contracts produce losses for Venezuela and constitute a subsidy for the U.S. economy.

PFC Energy's Roger Tissot points out, however, that Citgo has 14,000 U.S. retail outlets and "is a very important asset" because its refineries are able to process heavy Venezuelan crude and secure a market for it.

In a tight oil market, companies in Venezuela have so far accepted the increasingly tough terms. Representatives of Chevron, Exxon Mobil and Repsol didn't return calls seeking comment, but Susana Brugada of Norway's Statoil ASA said the firm remains committed to its investments here.

"Venezuela is a country of opportunities," said Brugada, whose company pumps crude with Chevron. "Statoil is in Venezuela to stay, and our plans are for the long term." 

Blood, Ink, and Oil: the Case of Darfur. By David Morse. CommonDreams.org, July 21, 2005.
The ink is scarcely dry on oil deals signed between the Islamist dictatorship that rules Sudan from the northern capital, Khartoum, and an eager bevy of oil companies from China, India, Japan, and Britain - even as the genocide continues full tilt in the western region known as Darfur. Every new contract signed in Khartoum makes it clearer that this genocide is fueled by the world's unquenchable thirst for petroleum.
Oil rigs are now drilling on land seized from black African farmers - who have been killed, raped, and driven off their land by their own government through its proxy militias, known as Janjaweed, in a campaign of ethnic cleansing now in its third year.
The Islamist regime of Lt. General Umar Hassan Ahmad al-Bashir bears primary responsibility for the slaughter. Khartoum's claims that it can't control the Janjaweed are refuted by United Nations observers and by human rights organizations, as are Bashir's denials that rape of women and children is used systematically to intimidate and demoralize black farmers and prevent them from returning to their ruined villages. Khartoum's continuing slaughter of its own people should make it a pariah among nations.
Obviously the oil companies are deeply complicit. Attacks by Janjaweed, often with aerial support from Sudan government forces, have cleared the way for pipelines and drilling. Oil company roads and bridges are used by government troops to carry the genocide into more remote communities in Darfur. And it is an unhappy fact of recent history that violence, disorder, and corruption generally accompany the exploitation of oil in undeveloped nations. Oil revenues do not translate into schools and hospitals for the people; they translate into arms and Swiss bank accounts for the elite. Sudan, the largest country in Africa, and one of the poorest, is a case in point.
Sudan's governing elite have whipped up ancient ethnic rivalries in their pursuit of oil revenues, half of which is spent on arms. Oil has thus contributed indirectly and directly to the death of roughly 370,000 Darfurians and the displacement of some 3.5 million more, who are now dependent on outside aid for food and water.
American oil companies are not visibly part of the scramble, because in 1997 the Clinton administration added Sudan to the list of states sponsoring terrorism, which included Iran and Libya. Under these trade sanctions, Americans who do business with Sudan face up to ten years imprisonment and fines of $500,000.
But why, especially in the absence of "strategic interests" in Sudan, does President Bush not take the moral high road? Why does he seem so reluctant to take even the smallest step to end the genocide?
Congress, to its credit, is way ahead of the President - reflecting most Americans' essential decency in believing that the genocide should be brought to a halt. The Darfur Peace and Accountability Act, now being deliberated in Congress, purports to do that. It calls for beefing up the African Union peacekeeping forces, which are now stretched dangerously thin in Darfur, providing the AU with logistical support, and broadening its mandate to include protection of civilians. The bill also provides for prosecuting before the International Criminal Court individuals - such as Major General Salah Abdallah Gosh, head of Sudan's intelligence agency = who are suspected of helping orchestrate the present genocide.
Why has the Bush administration lobbied to weaken the Darfur Peace and Accountability Act?
Why has the administration sought instead to cozy up to this bloodiest of regimes? Last spring, the CIA sent one of its own jets to Khartoum to fly none other than intelligence chief Gosh to meet with intelligence officials in Washington D.C. The official reason offered by the Bush administration? Sudan was proving a "valuable ally" in the war against terrorism.
The real reason may lie with the oil money that has backed George W. Bush from early in his first campaign for president.
U.S. oil companies, sidelined since 1997, are clearly eager for a piece of the action in Sudan. One of the recent oil deals signed with Khartoum is worth noting. On June 10, a "British" oil tycoon named Friedhelm Eronat acquired for $8 million the largest stake in a drilling contract signed two years ago on behalf of Cliveden Sudan, a company owned by Eronat at that time and had registered in the Virgin Islands to avoid paying taxes. Until then, Friedhelm Eronat had been an American citizen. He swapped his American citizenship for British just before signing the contract, thereby avoiding a jail sentence or fine.
But was Eronat - a high-risk wheeler-dealer who owns extensive drilling rights in neighboring Chad, where he played the Chinese against Canadian oil interests - acting on his own behalf in the recent deal, or was he fronting for other interests? Eronat has fronted for Exxon Mobil and other companies in the past. He narrowly escaped indictment on corruption and fraud charges in connection with a deal allegedly involving shell companies, bribery, and the swapping of Iranian oil for oil from Kazakhstan in order to circumvent the American law against trading with Iran.
U.S. oil companies, to judge by Eronat, can scarcely wait to drill in Sudan. "The war against terrorism" is, once again, a red herring to cover the administration's true interest: oil.
The only thing standing in the president's way is the ugly fact of genocide and the ability of the American people to make it politically unacceptable for our president to avert his eyes from what is happening in Darfur.

Chinese dragon awakens, By Bill Gertz, Washington Times, June 26, 2005.
"... [China] also is facing a major energy shortage that, according to one Pentagon study, could lead it to use military force to seize territory with oil and gas resources.
The report produced for the Office of Net Assessment, which conducts assessments of future threats, was made public in January and warned that China's need for oil, gas and other energy resources is driving the country toward becoming an expansionist power.
China "is looking not only to build a blue-water navy to control the sea lanes [from the Middle East], but also to develop undersea mines and missile capabilities to deter the potential disruption of its energy supplies from potential threats, including the U.S. Navy, especially in the case of a conflict with Taiwan," the report said.
The report said China believes the United States already controls the sea routes from the oil-rich Persian Gulf through the Malacca Strait. Chinese President Hu Jintao has called this strategic vulnerability to disrupted energy supplies Beijing's "Malacca Dilemma."
To prevent any disruption, China has adopted a "string of pearls" strategy that calls for both offensive and defensive measures stretching along the oil-shipment sea lanes from China's coast to the Middle East.
The "pearls" include the Chinese-financed seaport being built at Gwadar, on the coast of western Pakistan, and commercial and military efforts to establish bases or diplomatic ties in Bangladesh, Burma, Cambodia, Thailand and disputed islands in the South China Sea.
The report stated that China's ability to use these pearls for a "credible" military action is not certain.
Pentagon intelligence officials, however, say the rapid Chinese naval buildup includes the capability to project power to these sea lanes in the future.
"They are not doing a lot of surface patrols or any other kind of security evolutions that far afield," the intelligence official said. "There's no evidence of [Chinese military basing there] yet, but we do need to keep an eye toward that expansion."
The report also highlighted the vulnerability of China's oil and gas infrastructure to a crippling U.S. attack.
"The U.S. military could severely cripple Chinese resistance [during a conflict over Taiwan] by blocking its energy supply, whereas the [People's Liberation Army navy] poses little threat to United States' energy security," it said.
China views the United States as "a potential threat because of its military superiority, its willingness to disrupt China's energy imports, its perceived encirclement of China and its disposition toward manipulating international politics," the report said..." (from Chinese dragon awakens, By Bill Gertz, Washington Times, June 26, 2005).

Oil Fuels Suriname-Guyana Border Clash, by Anton Foek, Special to CorpWatch, July 5th, 2005.
The humid heat covers you like a blanket when you step from the air-conditioned plane at Guyana's international airport. Even before you reach customs, the boundary between sodden air and damp skin has disappeared. It is not the only border that blurs into vagueness on this remote Northern coast of South America.
Since colonial times, the division between Guyana and neighboring Suriname has been as indistinct and shifting as the haze that settles over it during the rainy season. When Guyana gained its independence from Britain in 1966 and the Dutch cut Suriname loose in 1975, the contested area was the relatively worthless realm of farmers and poor fishermen. But even then, one of Suriname's leaders, Dr. Jaggernath Lachmon, warned the Dutch that giving independence to a country without established borders would generate stacks of problems for future generations. The Dutch, at the independence negotiations, answered that a country, like Suriname with its magnificent poets, would always survive.
A few decades later, the discovery of vast off-shore oil reserves in the contested territorial waters has fulfilled Lachmon's warning. International corporations-lured by the prospect of an estimated 15 billion barrels of oil-are vying for drilling rights and pushing a centuries' old simmer to the boiling point of open war. Even old sayings have changed. In Suriname it used to be told that "a close neighbor is worth more than a far-flung friend." Now the favored proverb has become: "If things go wrong, your best friend and neighbor may become your biggest foe."
The line between friend and foe runs down the Corantijn River which divides the countries and extends into the sea. The dispute "has spiraled the people of these two countries into an unnecessary conflict and waste of costly time," says Brian Johnson in Guyana who collects taxes and tolls in the Iwokrama nature reservation on one side of the river. On the other bank, customs officer Frank Bruining agrees: "A complete waste of time; these politicians should know better. Instead of cooperating, they fight for political gains at the expense of the common people."
Suriname and Guyana overlap in more than geography: They were both shaped by the immigration trends beginning in the mid 19th century when the abolition of slavery led to settlements and then to overpopulation in urban areas. Later the migration of workers from India, China, and Indonesia created a multi-cultural society and a turbulent political dynamic. And now both countries share a host of social problems intensified by the risks and promises of oil wealth and by the avaricious focus of international corporations jockeying for control.
Border Clash, Corporate Rivalry
Representing Guyana is CGX Energy Inc. of Toronto, Canada. Suriname's claim is being supported by Spain's Repsol YPF of and Denmark's Maersk Oil. And despite moves to try and settle the border dispute though compromise, none of the corporations seem interested in a political solution to the problems.
"Their interest is not ours," says Guyana's Johnson. "Theirs is individual, they have to satisfy their stockholders. Our governments have to feed our people properly and provide us with adequate shelter and sufficient healthcare and schooling."
The international corporations first raised the stakes in 1998 when Guyana granted CGX a concession to drill for oil in the coastal areas it claimed as its own. By 2000 a platform rested over one of Guyana's two promising oil fields. But before drilling started, a Surinamese air force plane spotted the rig and Suriname ordered the it out of what it claims was its territory. Then, in the middle of the night, Surinamese gunboats towed off the Guyana's oil rig and launched a full-scale international crisis.
The Canadians left and waited for further developments. Since then off-shore development by both countries has been stalled while the price of oil and the potential worth of the claims steadily rises.
In February 2004 Guyana, out of peaceful options, took the dispute to the International Tribune of Sea Law in Hamburg, Germany. It accused Suriname of frustrating negotiations the past few years and of provoking trouble when it chased CGX Energy from the disputed sea-area.
Because of procedural rules and bureaucracy regarding communication about the conflict, high officials and attorneys in both countries are not allowed to say much. But both sides charge that it is the other country that is frustrating the bilateral negotiations. Predictions for a ruling range from decades to recent reports from spokespeople in Georgetown and Paramaribo (the capitals of Guyana and Suriname, respectively) that news will break in a few weeks.
Waiting Game
Meanwhile, as the nations and corporations play out the dispute, development is largely on hold, with both countries waiting for future oil wealth.
Suriname, with both oil and other resources is in a better position to wait it out. An almost century-long boom of the bauxite industry catapulted it into one of the more prosperous and affluent countries in the region. Now that exploitation of supplies and resources are reaching their end, the Aluminum Company of America (Alcoa) is looking for prospects in neighboring countries.
And State Oil Company, the pride of Suriname, is a huge and efficient enterprise that generates $70 million annual income for Suriname's 500,000 inhabitants. Managing Director Eddy Jharap runs it like a private corporation rather than with the slow bureaucracy typical of state companies with massive government involvement. State Oil's on-shore drilling in the Saramacca district furnishes the local market with heavy crude and still leaves 25 percent of production for exports. Bauxite and gold also generate income as do developments agreements with the Netherlands...[MORE at CorpWatch]

Unocal Bid Denounced at Hearing, By Steve Lohr, New York Times, July 14, 2005.
A former director of central intelligence testified Wednesday that a Chinese company's bid for Unocal should be seen as part of that government's strategy for energy security in competition with the United States and that the American government should consider preventing such a deal.
"This is a national security issue," R. James Woolsey, director of the C.I.A. in the Clinton administration, said in a hearing of the House Armed Services Committee. "China is pursuing a national strategy of domination of the energy markets and strategic dominance of the western Pacific."
Testimony before the committee came as Unocal's directors were preparing to meet on Thursday in El Segundo, Calif., to review the $18.5 billion bid from the China National Offshore Oil Company, or Cnooc, executives involved in the negotiations said.
Unocal's board will look at several new provisions that Cnooc has offered as it seeks to persuade directors to accept its bid. Cnooc is racing an Aug. 10 deadline, when Unocal shareholders get to vote on a $16.8 billion offer made by Chevron in April.
Cnooc, which has been in talks with Unocal's management since June 22, has added several concessions and safeguards to its offer, seeking to ease worries that the deal could be stalled or blocked by the United States government. These include a commitment to divest certain assets if needed to secure government approval, an escrow account of $2.5 billion to protect Unocal if Cnooc were to break any part of its deal and a separate $500 million break-up fee.
Cnooc may still hold another card. The company's board has authorized its management to increase the bid if necessary, the executives said.
Still, Cnooc may face more than just financial obstacles. In Washington Wednesday, Representative Duncan Hunter, chairman of the armed services committee, said he might introduce legislation to block Cnooc from buying Unocal, even if a deal were approved by shareholders and by the government committee that reviews corporate takeovers by foreign enterprises.
"I think it would be a mistake to let a Cnooc deal go through," Mr. Hunter, a California Republican, said. "I want to keep all options open."
Congress has the power to "regulate commerce with foreign nations," under the Constitution, Article I, Section 8. Yet it is uncertain that legislation to thwart a single takeover - the step Mr. Hunter mentioned - would go very far.
But Mr. Hunter's comment, and other comments at the Congressional hearing, point to the depth of political opposition that Cnooc faces in its bid for Unocal. The more political uncertainty that surrounds the Cnooc bid, the greater the financial risk for Unocal shareholders.
Three of the four witnesses at the hearing made the argument that Cnooc's attempt to buy Unocal, a midsize American oil company, should be regarded as a matter of national security. Their case, in summary, is that Cnooc is an arm of the Chinese government, which is engaged in a strategic campaign to control oil assets worldwide and that its energy strategy helps feed China's military ambitions. Aiding these Chinese aims, they said, may also strengthen the hand of a centralized communist government often criticized for its human rights record.
The government-owned Cnooc, Mr. Woolsey said, was "an organ, effectively, of the world's largest communist dictatorship." Allowing Cnooc to buy Unocal, he added, "should be beyond the pale, given the nature of the Chinese government."
The witnesses making the national security argument had intelligence and military backgrounds. Jerry Taylor, an energy economist from the Cato Institute, a libertarian free-market policy group, presented a very different view of the Cnooc bid.
The fear that Cnooc might be a step in a Chinese mercantilist strategy of buying and hoarding energy assets to obtain an "oil weapon," Mr. Taylor said, was "very ill-founded."
Oil, he noted, is a widely traded, global commodity. Owning petroleum in the ground gives a nation no real security from sudden spikes in oil and gas prices.
In the late 1970's, Mr. Taylor said, Britain was self-sufficient in oil because of its North Sea fields. Japan, by contrast, was entirely dependent on imported oil. Britain paid as much for its oil as Japan did.
"Because you have a world market for oil, it did not matter that Britain had reached the holy land of oil self-sufficiency," Mr. Taylor said.
But the witnesses concerned about national security pointed to statements by Chinese government officials emphasizing the importance of owning oil and gas reserves to enhance China's energy security. China, they added, has been paying high prices to buy oil and gas assets worldwide for the last few years. "The Chinese don't care what the price is, they want access to the oil," said C. Richard D'Amato, chairman of an advisory panel to Congress on economic and security matters.
Mr. D'Amato and other witnesses called for legislative change to broaden the mandate for the Committee on Foreign Investment in the United States, or Cfius, a multiagency government group that reviews takeovers by foreign companies for national security concerns. The witnesses said national security reviews must include economic security, including oil supplies, and that Congress must oversee the committee's deliberations.
The investment committee reviews, said Frank G. Gaffney Jr., a former senior Defense Department official in the Reagan administration, should be "a far more rigorous, transparent and national security-minded process for evaluating Chinese investments like Cnooc's proposed purchase of Unocal."
Mr. Hunter said he and Congressional colleagues were working on amending the 1988 law that created the committee on foreign investment, to "make sure we bolster the Cfius process." That work, he said, will continue regardless of what happens with the Cnooc bid.

Before the resignation of Sandra Day O'Connor, official Washington was awash with the news that the Chinese government, through its China Offshore Oil Corp, might purchase Unocal, the 9th largest U.S. based oil company. It's obvious why the Chinese government might want Unocal -- just for starters, it has significant oil and gas reserves in Asia and some promising proprietary oil exploration technology. And perhaps it's obvious why ChevronTexaco wants it -- the dramatic rise in oil prices has left Chevron, as well as its fellow giant Exxon, with literally tens of billions in cash sitting in the bank.

Dozens of legislators have written Mr. Bush asking him to seriously consider the national security implications of the Chinese communists owning this once proud American oil company. According to Roll Call, most of this bipartisan group had received campaign contributions from Chevron. Both sides have hired lobbyists with close ties to the Bush Administration to press their case. The House has already passed legislation that seeks to bar the Chinese takeover.

I, for one, would have felt much better about appealing to the President if these same legislators had raised a dozen other national security issues with Mr. Bush, ranging from our world-worst car fuel efficiency to growing nuclear proliferation.

It is worth noting that Unocal is an oil company with a distinctly unpleasant aroma to it -- drawn to oil and gas exploration and distribution in precisely those areas with the greatest human rights violations. Of most note is Unocal's pipeline in Myanmar -- the former Burma. Unocal operates there despite official U.S. policy and with full knowledge of the brutal human rights record of the generals who run the country.

And who can forget from Fahrenheit 911 that it was Unocal that was lobbying the Bush Administration to allow it to construct a pipeline through Afghanistan in a financial arrangement that would have enriched the Taliban? I am not making this up!

Some years ago, Unocal was the subject of a very rare effort by a group of California consumers and environmentalists to have its corporate charter revoked by the state of California. No doubt they deserved the fate, even though the effort failed.

China's demand for oil and gas is skyrocketing -- one of the key factors in the rise in oil prices over the past year. As a nation -- through its state owned oil companies and through joint venture -- China is aggressively seeking access to oil. It clearly wants to own and control oil resources where it can rather than relying on the vagaries of the international oil market -- hardly a surprise for a communist regime. Due largely to cheap labor and an undervalued currency, the U.S. trade deficit with China has exploded, providing cash reserves that make it trivial for CNOOC to purchase Unocal.

Do progressive have a stake in this battle between Chevron and China? Here are a few questions to ponder.

In a pinch -- say, a future conflict where oil exports to the U.S. are cut off temporarily in a dispute with Venezuela or a Shiite regime in Baghdad -- would China or Chevron be more likely to seek political or commercial advantage against American consumers from the Unocal resources?

Is China or Chevron more likely to pressure Myanmar to release from periodic house arrest Nobel Peace laureate Suu Kyi? One clue is that China is one of the largest international investors in Burma, as well as a major supplier of arms to the Burmese military.

This debate is another bit of evidence that the Bush Administration's economic and energy policies are failures. If oil prices were lower due to lessened demand for gasoline, perhaps Chevron would not have enough idle cash to purchase its competitors. And if China's exports to the United States were half what they are, Unocal would not be such a tempting target.

Perhaps the best approach is a pox on all their houses. Unocal should go out of existence, and progressives should pressure both China and Chevron to join the campaign for democracy in Burma.

Michael Kieschnick is the President and CEO of Working Assets.

This year there are real, physical issues for the humans on Planet Earth. We hear hints of them when our mainstream media can tear itself away from runaway brides and the gong-show in Rome, where old men in red dresses and lacy rochets fiddle around with edicts about sex and sin while AIDS smolders, populations explode, and fossil fuels burn steadily worldwide.

This decade has brought a new reality of terror, torture, and high-tech war, all obscured by secrecy, forgeries, lies, distorting frames and red-herrings that serve the purposes of Power and Money. The Newsweek/ Koran-flushing story was a massive conflagration that effectively bedazzled everyone into disregarding fundamental questions of torture. (Even this paragraph is more about the abuses of communication than about the abuses of real flesh-and-blood human beings.)

This new millennium, hailed as the dawn of a golden future, is suddenly facing the sunset of the oil that sustains Western economies and lifestyles. And while fossil fuel supplies dwindle, human population and per capita consumption of hydrocarbon fuels are growing rapidly, spawning vast carbon dioxide emissions that are warming our planet by disrupting the atmospheric and oceanic systems that regulate our planet's climate.

This week global warming is again in headlines. A White House aide resigned after charges that he changed federal science reports to downplay the effects of greenhouse gasses to global warming. The US contribution of CO2 was updated: each US citizen's share of the national total CO2 releases is about 6 tons/year. For comparison, each citizen of India accounts for about 0.3 ton/year.

Dire forecasts are being made. In "The Long Emergency "James Howard Kunstler predicts that both American society and the global consumer economy will crash as cheap energy disappears, and that it is already too late to mend our ways: "It is no exaggeration to state that reliable supplies of cheap oil and natural gas underlie everything we identify as the necessities of modern life - ... central heating, air conditioning, cars, airplanes, electric lights, inexpensive clothing, recorded music, movies, hip-replacement surgery, national defense -- you name it." (read http://www.commondreams.org/views05/0413-28.htm )

Jared Diamond, in "Collapse", postulates four reasons why societies or civilizations collapse: environmental destruction, climate change, increase in hostilities, and decrease in friendly relations. And he adds a fifth, overarching reason: failing to address any of the first four.

Meanwhile President Bush fancies that "clean nukes" and soy biodiesel fuel will solve all our problems, and the punditocracy dismisses environmentalists and anti-globalizationists as "people with the right moral fervor and ethical viewpoint" but "a knee-jerk antipathy to capitalism" (Jeffrey Sachs)

We have a big problem: civilization is being physically crunched between not enough energy and too much CO2. The more we burn hydrocarbon fuels, the worse it is for life on earth. This energy-carbon crunch won't be well addressed by throwing money at it - neither taxpayers' money nor private capital. In fact, any money thrown at it will come out of public pockets either as rate-payers for fuel and power, or as taxpayers, - or it will come from Social Security to pay for tax breaks for the wealthy.

Nuclear power is no panacea for the energy-carbon crunch - it's neither clean nor cheap, and has uncertain long-term consequences. It could help tide us over until we can cut consumption, increase efficiency, develop alternatives, and reduce transmission & transportation costs. It could buy us time to tune human fertility, human politics & economics, and personal lifestyles & habits to more renewable, sustainable, equitable and humane energy systems.

But right now we need to recognize that we can't fuel our life-styles or cool the planet with faith-based science, marketing ideologies, or the coercion of war, terror and torture. The crunch between scarce energy and excessive CO2 will finally have to be dealt with by the crunched - us.

We need a new revolution - not an armed, adversarial revolution, but a peaceable revolution in what we buy, how we use energy, how we distribute and assess information, and in how we allow ourselves to be governed.

The most successful revolution of all time was one in which individuals saw the menace of rule from above and the opportunity for ruling themselves, and took matters into their own hands. In a rather broad sense, George Washington didn't so much raise an army to fight the British as take command of an army that had already arisen to meet a public need.

Carbon dioxide/global warming. War, terror and torture. Oil depletion. Hunger, poverty, water scarcity, pollution. Environmental destruction and climate change are already here; hostilities have increased , and friendly relations - treaties, the Geneva conventions - have deteriorated. We have trouble even finding out about them, let alone addressing them.

These are serious challenges to humankind that we are unlikely to address until we tune out the farcical sit-coms produced by middle-aged men with good hair and tasteful neckties in Washington playing word-games, staging tantrums, pastposting their bets on Iraq, nuclear weapons, and free markets, and claiming Divine Privilege for their conceits and superstitions.

Recent articles in major newspapers suggest that the "American Dream" is largely dead for most Americans. Only powerful large corporations can dream, and their dreams are mostly: "All those lovely consumers, how can we make them buy what we sell?" And even more tellingly, "How can we make profits selling things people crucially need - like water, electricity, medical care, education, transportation?"

We environmentalists may well be deluded by notions of preserving the commons, beguiled by the romance of fuel cells, solar panels or windmills, or infatuated with biodiesel fuel or hybrid cars. We are probably naive about a few amateurs changing the world. But the environmentalist vision of renewable, sustainable, equitable and humane energy systems - in the hands of the people who use them - is certainly preferable to Cheney's calculated imperial algorithms of power, or the faith-based, strategic ignorance of our President.

Caroline Arnold served 12 years on the staff of Senator John Glenn and is now active with the Portage Democratic Coalition and Kent Environmental Council.

Caspian oil pipeline opens. By Mark Tran, The Guardian [UK], May 25, 2005.

Officials today inaugurated the first section of a 1,100-mile pipeline bringing oil from the Caspian Sea to the west, a project that has sparked environmental and human rights concerns.

The presidents of Azerbaijan, Kazakhstan, Georgia and Turkey attended a ceremony at the Sangachal oil terminal, about 25 miles south of the Azeri capital, Baku, to open the taps for the first drops of oil to enter the Baku-Tbilisi-Ceyhan (BTC) pipeline...

Most Caspian oil exports have previously moved through Russian pipelines. The new pipeline from Baku to the Turkish Mediterranean port of Ceyhan is seen as a significant move toward reducing western dependence on oil from the Middle East.
The largest private construction project in the world, the pipeline is part of a $20bn (£10.9bn) series of energy developments to produce and transport oil and gas from the landlocked Caspian.

The $3.2bn BTC pipeline, with a capacity of 1m barrels a day, is the first direct oil link between the Caspian, thought to contain the world's third largest oil and gas reserves, and the Mediterranean.

Built by a consortium led by BP , it passes through Georgia en route to Turkey. Countries involved in the project hope to earn substantial revenue through transit fees and royalties.

While the governments involved enthusiastically endorse the project, environmental and human rights have strongly criticised the scheme.
A report published last September by the Kurdish Human Rights project, the Corner House, Friends of the Earth and Environmental Defence expressed shock at the extent "the project is being breached of agreed standards, particularly on issues of land acquisition".
The groups voiced particular concern at the extensive use of emergency powers in Turkey to expropriate land for construction prior to compensation being paid to landowners...

Giant Caspian oil pipeline opens, BBC News, May 25, 2005

The pipeline has been an international effort and was built by a consortium led by UK oil giant BP, which has a 30% stake.

Other consortium members include Azerbaijan's state oil company Socar, Amerada Hess, ConocoPhillips, Eni, Inpex, Itochu, Statoil, Total, TPAO and Unocal...

Caspian oil set for fast flow to the West, By Kieran Cooke, BBC News, May 5, 2005.

[L]ong before work started on the pipeline in early 2003, concerns were raised about running it through such a volatile political region.

In Azerbaijan, the pipeline goes close to the ceasefire line separating the forces of Azerbaijan and Armenia, its neighbour and bitter enemy to the west.

The two countries are locked in a bloody territorial dispute and, despite the ceasefire, clashes often occur.

Elsewhere en-route, concern has been raised about the pipeline's vulnerability to attack from anti government groups.

Georgia battles various separatist conflicts, while in Turkey the pipeline skirts the heartlands of Kurdish areas.

"We have secured the pipeline to the highest standards," insists Tamam Bayatly, BP's communications manager in Baku.

"Governments involved are responsible for security. The pipeline is buried and no one will be able to see where it runs.

"Unarmed local people, trained by BP, will guard the length of the pipeline."

Non-governmental organisations have complained.

Some about human rights being abused, others about the pipeline's environmental impact.

Green groups question the presence of such a project in what is a highly active seismic zone, saying any rupture of the pipeline would cause widespread damage.

In Georgia in particular there have been strong protests about the pipeline's route through the Borjomi Valley, one of the country's most scenic areas and a centre of tourism.

"I cannot say that there are not any problems," says Faig Askerov, who monitors the environmental impact of the project for BP.

"We use technology that makes the minimum impact on the environment. We are not ideal, but we're good."

 Western governments and financial institutions have given strong backing to the project.

The United States has given significant political support, seeing the pipeline as a way of transporting vital energy supplies out of the Caspian, avoiding alternative routes to the south through Iran, or to the north through Russia.

But Russia has been unhappy with the project, seeing it as further evidence of the West seeking to exert power and influence in an area Moscow has traditionally seen as its own backyard.

The Caspian Sea's oil and gas riches have long been known, but difficulties in transporting energy reserves to markets outside the landlocked area have been a handicap to further exploration work.

BP says the pipeline is the solution to the problem, but critics say the future is uncertain, insisting that the pipeline is a big gamble in an unstable region.

From Washington to New Delhi, Caracas to Moscow and Beijing, national leaders and corporate executives are stepping up their efforts to gain control over major sources of oil and natural gas as the global struggle for energy intensifies. Never has the competitive pursuit of untapped oil and gas reserves been so acute, and never has so much money as well as diplomatic and military muscle been deployed in the contest to win control over major foreign stockpiles of energy. To an unprecedented degree, a government's success or failure in these endeavors is being treated as headline news, and provoking public outcry when a rival power is seen as benefiting unfairly from a particular transaction. With the officials of numerous governments coming under mounting pressure to satisfy the needs of their individual countries -- at whatever cost -- the battle for energy can only become more inflamed in the years ahead.

This struggle is being driven by one great inescapable fact: the global supply of energy is not growing fast enough to keep up with skyrocketing demand, especially from the United States and the developing nations of Asia. According to the U.S. Department of Energy (DoE), global energy consumption will grow by more than 50% during the first quarter of the 21st century -- from an estimated 404 to 623 quadrillion British thermal units (BTUs) per year. Oil and natural gas will be in particular demand. By 2025, global oil consumption is projected to rise 57%, from 157 to 245 quadrillion BTUs, while gas consumption is projected to have a 68% growth rate, from 93 to 157 quads. It appears increasingly unlikely, however, that the world's energy firms will actually be able to deliver such quantities of oil and gas in the coming decades, whether for political, economic, or geological reasons. With prices rising all over the world and serious shortages in the offing, every major consuming nation is coming under increasing pressure to maximize its relative share of the available energy supply. Inevitably, these pressures will pit one state against another in the competitive pursuit of oil and natural gas.

Frenzied Search

In the past, such zero-sum contests between major powers over valuable resources have often led to war. Whether that will prove to be true in the case of oil and gas remains to be seen. But the pressure to maximize supplies is already shaping the foreign policy decisions of many states and generating fresh international tensions. Consider, for example, the following recent developments:

* A decision by Japan to initiate natural gas production in a disputed area of the East China Sea sparked massive anti-Japanese protests in China on April 16, the worst outpouring of such animosities in over 30 years. Although leaders of both countries sought to diffuse the crisis by promising fresh efforts at reconciliation, neither side has backed off its claims to the offshore territories. While other issues also fed into Chinese popular discontent, notably Japan's reluctance to express regret for atrocities committed by its forces in China during World War II, Tokyo's unilateral move to extract natural gas from the East China Sea was the precipitating factor. At stake potentially is the ownership of a vast undersea gas field in disputed waters lying between China's central coast and Japan's Ryukyu island chain. Because the offshore boundary between China and Japan has not been established, neither side is willing to countenance the extraction of gas by the other in the disputed "national territory." Thus, when Tokyo announced on April 13 that it would allow drilling by Japanese companies in waters claimed by China, Beijing had no compunctions about allowing an unprecedented, weekend-long display of nationalistic fervor.

* During her first visit to India as Secretary of State, Condoleezza Rice called on New Delhi to back away from a plan to import natural gas by pipeline from Iran, claiming that any such endeavor would frustrate U.S. efforts to isolate the hard-line clerical regime in Tehran. "We have communicated to the Indian government our concerns about the gas pipeline cooperation between Iran and India," she said on March 16 after meeting with Indian Foreign Minister Natwar Singh in New Delhi. But the Indians let it be known that their desire for additional energy supplies trumped Washington's ideological opposition to the Iranian regime. Declaring that the proposed pipeline will be necessary to meet India's soaring energy needs, Singh told reporters, "We have no problem of any kind with Iran."

* One month after her meetings in New Delhi, Rice flew to Moscow and pressured President Vladimir Putin to open up Russia's energy industry to increased investment by American firms. Noting that Moscow's crackdown on the privately-owned energy giant, Yukos, along with proposed restrictions on foreign investment in Russian energy projects would discourage U.S. companies from collaborating in the development of Russia's vast oil reserves, Rice implored Putin to adopt a more inviting posture. "What Russia can do is to adopt policies in its energy sector in terms of the development of its energy sector that will increase the supply of oil both in the short term . . . and the long term," she avowed. But while embracing Rice's call for enhanced U.S.-Russian relations, Putin evinced no inclination to back off from his plans to bolster state control over Russian energy companies and to use this authority to advance Moscow's geopolitical objectives.

* On April 25, President George W. Bush met with Crown Prince Abdullah of Saudi Arabia at his ranch in Crawford, Texas, and exhorted him to substantially expand Saudi petroleum output so as to bring down American gasoline prices. "The Crown Prince understands that it is very important to make sure that the price is reasonable," Bush observed before the meeting. "A high oil price will damage markets, and he knows that." Bush and Abdullah also discussed the Israeli-Palestinian conflict and the continuing threat of terrorism, but it was oil demand that dominated the Crawford summit.

Highlighting the degree to which energy issues had come to overshadow more traditional security concerns, both Secretary of State Condoleezza Rice and National Security Adviser Stephen Hadley emphasized the importance of boosting world oil output in their comments on the meeting. "Obviously, with the states like China, India, and others coming on line, there is concern about demand and supply," Rice observed. "And these issues have to be addressed."

Developments like these, and Rice's comments on the Bush-Abdullah meeting, capture the essence of the current energy equation: Demand is rising around the world; supplies are not growing fast enough to satisfy global requirements; and the global struggle to gain control over whatever supplies are available has become more intense and fractious. Because the first and second of these factors are not likely to abate in the years ahead, the third can only grow more pronounced.

Insatiable Demand

Economies -- all economies -- run on energy. Energy is needed to produce food and manufacture goods, power machines and appliances, transport raw materials and finished products, and provide heat and light. The more energy available to a society, the better its prospects for sustained growth; when energy supplies dwindle, economies grind to a halt and the affected populations suffer.

Since World War II, economic growth around the world has been fueled largely by abundant supplies of hydrocarbons -- that is, by petroleum and natural gas. Since 1950, worldwide oil consumption has grown eightfold, from approximately 10 to 80 million barrels per day; gas consumption, which began from a smaller base, has grown even more dramatically. Hydrocarbons now satisfy 62% of the world's total energy demand, approximately 250 quadrillion BTUs out of a total supply of 404 quads. But no matter how important they may be today, hydrocarbons are sure to prove even more critical in the future. According to the Department of Energy, oil and gas will account for 65% of world energy in 2025, a larger share than at present; and because no other source of energy is currently available to replace them, the future health of the global economy rests on our ability to produce more and more of these hydrocarbons.

The future availability of oil and gas also affects another key aspect of the global economic equation: the growing challenge to the older industrialized nations posed by dynamic new economies in East Asia, South Asia, and Latin America. At present, the industrialized countries account for approximately two-thirds of total world energy use. Because these countries, for the most part, possess mature and efficient economies, their demand for energy is expected to increase by a relatively modest 35% between 2001 and 2025, a conceivably manageable rate. But demand in the developing world is soaring. By 2025, developing countries are projected to hold a startling half-share in total world energy consumption. When their added demand is combined with that of the industrialized countries, the net world increase jumps 54% over the same set of years, a far more demanding challenge for the global energy industry.

The competition for hydrocarbon supplies will be particularly intense. According to the Department of Energy, oil consumption by the developing world will increase by 96% between 2001 and 2025, while consumption of natural gas will rise by 103%. For China and India, the rate of growth is even more dramatic: China's oil consumption is projected to jump by 156% over this period and India's by 152%. The struggle these countries, and other developing powerhouses like South Korea and Brazil, face in obtaining additional oil and gas for their growing economies will naturally pit them against the older industrialized countries in the competitive pursuit of energy. As suggested by Rice, "with the states like China, India, and others coming on line, there is concern about demand and supply."

Questionable Supply

Accommodating the growing Chinese and Indian demand would not be a significant problem if we had great confidence that the energy industry is capable of generating the necessary additional amounts. In fact, the Department of Energy wants us to believe that this is indeed the case. Future oil and gas supplies, DoE claims, will be more than adequate to satisfy anticipated world demand. But many experts dispute this view. World oil and gas supplies, they argue, will never achieve such elevated levels. This is true because much of the world's known hydrocarbon reserves have already been exhausted and not enough new fields have been discovered in recent years to make up for the depletion of older reservoirs.

Take the case of oil. The DoE predicts that global petroleum output will reach 120.6 million barrels per day in 2025 -- 44 million barrels more than at present and just a tad shy of the anticipated world demand of 121 million barrels per day. For this to occur, however, the major oil firms must discover massive new reserves and substantially increase their output from existing fields. However, few new large fields have been discovered during the past 40 years, and only one, the Kashagan field in the Caspian Sea, has been found in the past decade. At the same time, many older fields in North America, Russia, and the Middle East have experienced significant declines in daily production. As a result, many geologists now believe not only that the global petroleum industry will not be capable of rising to the 120 million barrel level but will fall far below it.

Predictions that global oil output will peak between now and 2025, far short of the DoE's projections, are highly controversial. This is not the place to consider clashing assessments in detail. But one way to get at this issue is to consider the all-important case of Saudi Arabia, the world's leading supplier and the most likely prospect for higher production in the future. According to the DoE, Saudi Arabian oil output will more than double between 2001 and 2025, jumping from 10.2 to 22.5 million barrels per day. If Saudi Arabia could, in fact, raise its output by this amount we would have some degree of confidence that total world supplies could satisfy anticipated demand even at the end of this period. But there are growing indications that Saudi Arabia is not capable of coming anywhere close to that figure. In a much-discussed 2004 article in the New York Times, business analyst Jeff Gerth reported that "[o]il executives and government officials in the United States and Saudi Arabia... say capacity will probably stall near current levels, potentially creating a significant gap in the global energy supply."

In response to Gerth's assertions, Saudi officials insisted that their country is fully capable of boosting daily production by a sufficient amount to satisfy anticipated world requirements. "Should [higher world demand] actually materialize... we're going to be ready to meet it," Saudi Oil Minister Ali I. Al-Naimi declared in February 2004. In particular, "we have looked at scenarios of 12 million [barrels per day] capacity, we have looked at 15 million capacity, and those are all feasible." Such pronouncements have provided some relief to those alarmed by Gerth's report. But note that Al-Naimi spoke only of "scenarios" for reaching 12 to 15 million barrels per day -- hardly an ironclad guaranty -- and even an increase of that size would fall far short of the 22.5 million barrels projected by the Department of Energy. Many energy analysts have suggested, moreover, that any drive by Saudi Arabia to boost its daily output above 10 million barrels for any length of time will cause irreparable harm to its fields and result in an inevitable long-term drop in production. As noted by one senior Saudi oil executive, an attempt to reach 12 million barrels per day would "wreak havoc within a decade."

The question of Saudi Arabia's future oil output is terribly important to this discussion because it is highly unlikely that any other supplier, or combination of suppliers, can make up the difference between Saudi Arabia's sustainable yield of 10-12 million barrels per day and the DoE's 22.5 million-barrel goal for Saudi output in 2025. Other big suppliers -- Iran, Iraq, Kuwait, Nigeria, Russia, and Venezuela -- are expected to have a hard enough time maintaining their own output at current levels, let alone filling in for the "missing" Saudi oil. This being the case, it appears highly unlikely that the global oil industry will be capable of satisfying anticipated world demand in the years ahead; instead, we should expect chronic petroleum shortages, higher prices, and persistent economic hardship.

Precisely because of this prospect, many national leaders are now placing greater emphasis on the acquisition of increased natural gas supplies. Because gas was developed later in the industrial cycle than oil, its principal sources of supply have not yet been fully exhausted, and new fields -- such as those in Iran and the East China Sea -- await full-scale development. Like oil, natural gas will eventually reach a global peak in output, but this is not likely to occur for a decade or so after oil has peaked. As petroleum output declines, therefore, natural gas is expected to take up some of the slack -- but only some, because there is not enough gas in the world to fully replace petroleum in all its myriad uses. And it is for this reason that many governments seek to gain control over or access to major gas reserves now, before they are locked up by someone else.

Intensifying Struggle

What can we expect from this intensifying struggle over valuable energy resources? Certainly, national leaders are placing ever greater emphasis on the competitive pursuit of energy as Condoleezza Rice made clear in her recent jaunts around the world. Whether in India, Russia, or Latin America, she has raised the energy issue at every turn, pressing America's allies and business partners both to supply us with more oil and to ignore the appeal of "rogue" producers like Iran and Venezuela. Other world leaders like Vladimir Putin of Russia and Junichiro Koizumi of Japan have behaved in a similar fashion. Striking, in fact, is the degree to which the quest for energy has been elevated into the realm of national security, on an equal plane with efforts to combat nuclear proliferation and international terrorism. Thus, it was the President's adviser for national security affairs, Stephen Hadley, who briefed reporters on the outcome of the Crawford summit between Bush and Abdullah. "The news that came out of the meeting today ought to be good news for the [energy] markets," he declared on April 25 -- not good news in the war against terror or in the drive to promote peace between Israel and the Palestinians.

Secretary of State Rice, however, offered the most telling observations after the April 25 meeting. The problems arising from insufficient supply to meet rising world oil demand, she said, "have to be addressed, not by jawboning, but by having a strategic plan for dealing with the problem." Anyone familiar with the Bush administration lexicon cannot help but be troubled by this call for a "strategic plan" to obtain additional energy, redolent as it is of the administration's bellicose, pre-emptive strategy for dealing with terrorism, "rogue states," and weapons of mass destruction. Just exactly what Rice means is not yet entirely clear, but it certainly suggests that energy issues will be paramount in U.S. foreign and military policy in a Bush second term.

And what is true for the United States is also likely to prove the case for other major oil-importing countries. Warning that China has outperformed India in the pursuit of new oil and gas reserves, Indian Prime Minister Manmohan Singh declared in January that New Delhi would have to accelerate its efforts in this area. "I find China ahead of us in planning for the future in the field of energy security," he told a convention of Indian oil and gas executives. "We can no longer be complacent and must learn to think strategically, to think ahead, and to act swiftly and decisively."

Japanese leaders, too, have stressed the need for decisive action. Energy-poor Tokyo's decision to proceed with drilling in contested areas of the East China Sea is just one indication of this outlook. Equally striking is Japan's effort to convince the Russians to extend a new Siberian oil pipeline to Nakhodka on the Sea of Japan. Originally, Moscow had expected to terminate the pipeline at Daquing in China as part of a plan to strengthen Sino-Russian energy cooperation. But after Prime Minister Koizumi flew to Moscow and offered billions of dollars in additional aid and technology to Russia, President Putin indicated a preference for the Nakhodka route, which will, of course, facilitate oil deliveries to Japan. This has not deterred Chinese leaders from seeking a reversal of this decision, claiming that the "strategic partnership" between Moscow and Beijing outweighs the purely mercantile interests of Japan.

So far, none of these efforts has led to more than verbal sparring -- "jawboning," to use Rice's term -- along with high-stakes bidding wars and the occasional outbreak of street protests, as in Shanghai and Beijing. But if history is any guide, such friction -- when combined with other sources of animosity like China's smoldering resentments over Japanese atrocities during World War II -- can lead to more violent forms of competition. This is certainly the case in the East China Sea, where Chinese and Japanese planes and gunboats have already made threatening passes at one another.

Tensions are sure to rise, moreover, if Japan actually commences drilling in waters claimed by China. "If real exploration starts, we cannot totally exclude the possibility of Japanese private company ships having to face Chinese military ships," Junichi Abe, an analyst at the Kazankai Foundation in Tokyo, told a reporter for the New York Times. And if this were to occur, the Japanese government would come under enormous political pressure to protect those private vessels with planes and warships of its own, thereby setting the stage for an armed confrontation with China, whether intended or not.

Similar escalation could occur in other cases of disputed energy claims. In the Caspian Sea, for example, Iran seeks control over offshore oil and gas fields also claimed by Azerbaijan, an ally of the United States. In July 2001, an Iranian gunboat steamed into the contested area and chased off an oil-company exploration vessel operating there under Azerbaijani auspices. In response, the United States has pledged to help Azerbaijan build a small Caspian navy, to better protect its offshore energy claims. On April 11, John J. Fialka of the Wall Street Journal revealed that the U.S. Department of Defense will spend $100 million over the next few years to establish the "Caspian Guard," a network of police forces and special-operations units "that can respond to various emergencies, including attacks on oil facilities." Russia is also expanding its Caspian Fleet, as it too presses its claims to offshore fields in the region. Under such circumstances, it is all too easy to imagine how a minor confrontation could erupt into something much more serious, involving the U.S., Russia, Iran, and other countries.

Territorial disputes of this sort with significant energy dimensions can be found in the Red Sea, the South China Sea, the Persian Gulf, the Gulf of Guinea, and the Bakassi Peninsula (a narrow stretch of land claimed by both Nigeria and Cameroon) among other regions. In each of these areas, opposing claimants have employed military force on occasion to assert their control or to drive off the forces of a challenger. None of these incidents has led to a full-scale conflict, but lives have been lost and the risk of renewed fighting persists. As the global struggle for energy intensifies, therefore, the danger of escalation will grow.

It is important to recognize that energy-related pressures are bound to increase as global demand continues its upward course and the supply of oil and natural gas fails to keep pace. The Bush administration, in particular, is aware of these pressures, having analyzed the global energy equation in its May 2001 report on U.S. energy requirements. While administration officials have repeatedly denied that oil played any role in the 2003 decision to invade Iraq, they clearly believed that control of the country would provide the United States with enormous advantages in any coming struggle with competitors like China over Persian Gulf energy.

Indeed, once a problem like energy security has been tagged as a matter of national security, it passes from the realm of economics and statecraft into that of military policy. Then, the generals and strategists get into the act and begin their ceaseless planning for endless "contingencies" and "emergencies." In such an environment, small incidents evolve into crises, and crises into wars. Expect a hot couple of decades ahead.

Michael T. Klare is a professor of peace and world security studies at Hampshire College and the author of Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Oil (Metropolitan Books) among other works.

As the United States gears up for an attack on Iran, one thing is certain: the Bush administration will never mention oil as a reason for going to war. As in the case of Iraq, weapons of mass destruction (WMD) will be cited as the principal justification for an American assault. "We will not tolerate the construction of a nuclear weapon [by Iran]," is the way President Bush put it in a much-quoted 2003 statement. But just as the failure to discover illicit weapons in Iraq undermined the administration's use of WMD as the paramount reason for its invasion, so its claim that an attack on Iran would be justified because of its alleged nuclear potential should invite widespread skepticism. More important, any serious assessment of Iran's strategic importance to the United States should focus on its role in the global energy equation.

Before proceeding further, let me state for the record that I do not claim oil is the sole driving force behind the Bush administration's apparent determination to destroy Iranian military capabilities. No doubt there are many national security professionals in Washington who are truly worried about Iran's nuclear program, just as there were many professionals who were genuinely worried about Iraqi weapons capabilities. I respect this. But no war is ever prompted by one factor alone, and it is evident from the public record that many considerations, including oil, played a role in the administration's decision to invade Iraq. Likewise, it is reasonable to assume that many factors -- again including oil -- are playing a role in the decision-making now underway over a possible assault on Iran.

Just exactly how much weight the oil factor carries in the administration's decision-making is not something that we can determine with absolute assurance at this time, but given the importance energy has played in the careers and thinking of various high officials of this administration, and given Iran's immense resources, it would be ludicrous not to take the oil factor into account -- and yet you can rest assured that, as relations with Iran worsen, American media reports and analysis of the situation will generally steer a course well clear of the subject (as they did in the lead-up to the invasion of Iraq).

One further caveat: When talking about oil's importance in American strategic thinking about Iran, it is important to go beyond the obvious question of Iran's potential role in satisfying our country's future energy requirements. Because Iran occupies a strategic location on the north side of the Persian Gulf, it is in a position to threaten oil fields in Saudi Arabia, Kuwait, Iraq, and the United Arab Emirates, which together possess more than half of the world's known oil reserves. Iran also sits athwart the Strait of Hormuz, the narrow waterway through which, daily, 40% of the world's oil exports pass. In addition, Iran is becoming a major supplier of oil and natural gas to China, India, and Japan, thereby giving Tehran additional clout in world affairs. It is these geopolitical dimensions of energy, as much as Iran's potential to export significant quantities of oil to the United States, that undoubtedly govern the administration's strategic calculations.

Having said this, let me proceed to an assessment of Iran's future energy potential. According to the most recent tally by Oil and Gas Journal, Iran houses the second-largest pool of untapped petroleum in the world, an estimated 125.8 billion barrels. Only Saudi Arabia, with an estimated 260 billion barrels, possesses more; Iraq, the third in line, has an estimated 115 billion barrels. With this much oil -- about one-tenth of the world's estimated total supply -- Iran is certain to play a key role in the global energy equation, no matter what else occurs.

It is not, however, just sheer quantity that matters in Iran's case; no less important is its future productive capacity. Although Saudi Arabia possesses larger reserves, it is now producing oil at close to its maximum sustainable rate (about 10 million barrels per day). It will probably be unable to raise its output significantly over the next 20 years while global demand, pushed by significantly higher consumption in the United States, China, and India, is expected to rise by 50%. Iran, on the other hand, has considerable growth potential: it is now producing about 4 million barrels per day, but is thought to be capable of boosting its output by another 3 million barrels or so. Few, if any, other countries possess this potential, so Iran's importance as a producer, already significant, is bound to grow in the years ahead.

And it is not just oil that Iran possesses in great abundance, but also natural gas. According to Oil and Gas Journal, Iran has an estimated 940 trillion cubic feet of gas, or approximately 16% of total world reserves. (Only Russia, with 1,680 trillion cubic feet, has a larger supply.) As it takes approximately 6,000 cubic feet of gas to equal the energy content of 1 barrel of oil, Iran's gas reserves represent the equivalent of about 155 billion barrels of oil. This, in turn, means that its combined hydrocarbon reserves are the equivalent of some 280 billion barrels of oil, just slightly behind Saudi Arabia's combined supply. At present, Iran is producing only a small share of its gas reserves, about 2.7 trillion cubic feet per year. This means that Iran is one of the few countries capable of supplying much larger amounts of natural gas in the future.

What all this means is that Iran will play a critical role in the world's future energy equation. This is especially true because the global demand for natural gas is growing faster than that for any other source of energy, including oil. While the world currently consumes more oil than gas, the supply of petroleum is expected to contract in the not-too-distant future as global production approaches its peak sustainable level -- perhaps as soon as 2010 -- and then begins a gradual but irreversible decline. The production of natural gas, on the other hand, is not likely to peak until several decades from now, and so is expected to take up much of the slack when oil supplies become less abundant. Natural gas is also considered a more attractive fuel than oil in many applications, especially because when consumed it releases less carbon dioxide (a major contributor to the greenhouse effect).

No doubt the major U.S. energy companies would love to be working with Iran today in developing these vast oil and gas supplies. At present, however, they are prohibited from doing so by Executive Order (EO) 12959, signed by President Clinton in 1995 and renewed by President Bush in March 2004. The United States has also threatened to punish foreign firms that do business in Iran (under the Iran-Libya Sanctions Act of 1996), but this has not deterred many large companies from seeking access to Iran's reserves. China, which will need vast amounts of additional oil and gas to fuel its red-hot economy, is paying particular attention to Iran. According to the Department of Energy (DoE), Iran supplied 14% of China's oil imports in 2003, and is expected to provide an even larger share in the future. China is also expected to rely on Iran for a large share of its liquid natural gas (LNG) imports. In October 2004, Iran signed a $100 billion, 25-year contract with Sinopec, a major Chinese energy firm, for joint development of one of its major gas fields and the subsequent delivery of LNG to China. If this deal is fully consummated, it will constitute one of China's biggest overseas investments and represent a major strategic linkage between the two countries.

India is also keen to obtain oil and gas from Iran. In January, the Gas Authority of India Ltd. (GAIL) signed a 30-year deal with the National Iranian Gas Export Corp. for the transfer of as much as 7.5 million tons of LNG to India per year. The deal, worth an estimated $50 billion, will also entail Indian involvement in the development of Iranian gas fields. Even more noteworthy, Indian and Pakistani officials are discussing the construction of a $3 billion natural gas pipeline from Iran to India via Pakistan ¬ an extraordinary step for two long-term adversaries. If completed, the pipeline would provide both countries with a substantial supply of gas and allow Pakistan to reap $200-$500 million per year in transit fees. "The gas pipeline is a win-win proposition for Iran, India, and Pakistan," Pakistani Prime Minister Shaukat Aziz declared in January.

Despite the pipeline's obvious attractiveness as an incentive for reconciliation between India and Pakistan -- nuclear powers that have fought three wars over Kashmir since 1947 and remain deadlocked over the future status of that troubled territory -- the project was condemned by Secretary of State Condoleezza Rice during a recent trip to India. "We have communicated to the Indian government our concerns about the gas pipeline cooperation between Iran and India," she said on March 16 after meeting with Indian Foreign Minister Natwar Singh in New Delhi. The administration has, in fact, proved unwilling to back any project that offers an economic benefit to Iran. This has not, however, deterred India from proceeding with the pipeline.

Japan has also broken ranks with Washington on the issue of energy ties with Iran. In early 2003, a consortium of three Japanese companies acquired a 20% stake in the development of the Soroush-Nowruz offshore field in the Persian Gulf, a reservoir thought to hold 1 billion barrels of oil. One year later, the Iranian Offshore Oil Company awarded a $1.26 billion contract to Japan's JGC Corporation for the recovery of natural gas and natural gas liquids from Soroush-Nowruz and other offshore fields.

When considering Iran's role in the global energy equation, therefore, Bush administration officials have two key strategic aims: a desire to open up Iranian oil and gas fields to exploitation by American firms, and concern over Iran's growing ties to America's competitors in the global energy market. Under U.S. law, the first of these aims can only be achieved after the President lifts EO 12959, and this is not likely to occur as long as Iran is controlled by anti-American mullahs and refuses to abandon its uranium enrichment activities with potential bomb-making applications. Likewise, the ban on U.S. involvement in Iranian energy production and export gives Tehran no choice but to pursue ties with other consuming nations. From the Bush administration's point of view, there is only one obvious and immediate way to alter this unappetizing landscape -- by inducing "regime change" in Iran and replacing the existing leadership with one far friendlier to U.S. strategic interests.

That the Bush administration seeks to foster regime change in Iran is not in any doubt. The very fact that Iran was included with Saddam's Iraq and Kim Jong Il's North Korea in the "Axis of Evil" in the President's 2002 State of the Union Address was an unmistakable indicator of this. Bush let his feelings be known again in June 2003, at a time when there were anti-government protests by students in Tehran. "This is the beginning of people expressing themselves toward a free Iran, which I think is positive," he declared. In a more significant indication of White House attitudes on the subject, the Department of Defense has failed to fully disarm the People's Mujaheddin of Iran (or Mujaheddin-e Khalq, MEK), an anti-government militia now based in Iraq that has conducted terrorist actions in Iran and is listed on the State Department's roster of terrorist organizations. In 2003, the Washington Post reported that some senior administration figures would like to use the MEK as a proxy force in Iran, in the same manner that the Northern Alliance was employed against the Taliban in Afghanistan.

The Iranian leadership is well aware that it faces a serious threat from the Bush administration and is no doubt taking whatever steps it can to prevent such an attack. Here, too, oil is a major factor in both Tehran's and Washington's calculations. To deter a possible American assault, Iran has threatened to close the Strait of Hormuz and otherwise obstruct oil shipping in the Persian Gulf area. "An attack on Iran will be tantamount to endangering Saudi Arabia, Kuwait, and, in a word, the entire Middle East oil," Iranian Expediency Council secretary Mohsen Rezai said on March 1st.

Such threats are taken very seriously by the U.S. Department of Defense. "We judge Iran can briefly close the Strait of Hormuz, relying on a layered strategy using predominantly naval, air, and some ground forces," Vice Admiral Lowell E. Jacoby, the director of the Defense Intelligence Agency, testified before the Senate Intelligence Committee on February 16th.

Planning for such attacks is, beyond doubt, a major priority for top Pentagon officials. In January, veteran investigative reporter Seymour Hersh reported in the New Yorker magazine that the Department of Defense was conducting covert reconnaissance raids into Iran, supposedly to identify hidden Iranian nuclear and missile facilities that could be struck in future air and missile attacks. "I was repeatedly told that the next strategic target was Iran," Hersh said of his interviews with senior military personnel. Shortly thereafter, the Washington Post revealed that the Pentagon was flying surveillance drones over Iran to verify the location of weapons sites and to test Iranian air defenses. As noted by the Post, "Aerial espionage [of this sort] is standard in military preparations for an eventual air attack." There have also been reports of talks between U.S. and Israeli officials about a possible Israeli strike on Iranian weapons facilities, presumably with behind-the-scenes assistance from the United States.

In reality, much of Washington's concern about Iran's pursuit of WMD and ballistic missiles is sparked by fears for the safety of Saudi Arabia, Kuwait, Iraq, other Persian Gulf oil producers, and Israel rather than by fears of a direct Iranian assault on the United States. "Tehran has the only military in the region that can threaten its neighbors and Gulf security," Jacoby declared in his February testimony. "Its expanding ballistic missile inventory presents a potential threat to states in the region." It is this regional threat that American leaders are most determined to eliminate.

In this sense, more than any other, the current planning for an attack on Iran is fundamentally driven by concern over the safety of U.S. energy supplies, as was the 2003 U.S. invasion of Iraq. In the most telling expression of White House motives for going to war against Iraq, Vice President Dick Cheney (in an August 2002 address to the Veterans of Foreign Wars) described the threat from Iraq as follows: "Should all [of Hussein's WMD] ambitions be realized, the implications would be enormous for the Middle East and the United States.... Armed with an arsenal of these weapons of terror and a seat atop 10 percent of the world's oil reserves, Saddam Hussein could then be expected to seek domination of the entire Middle East, take control of a great portion of the world's energy supplies, [and] directly threaten America's friends throughout the region." This was, of course, unthinkable to Bush's inner circle. And all one need do is substitute the words "Iranian mullahs" for Saddam Hussein, and you have a perfect expression of the Bush administration case for making war on Iran.

So, even while publicly focusing on Iran's weapons of mass destruction, key administration figures are certainly thinking in geopolitical terms about Iran's role in the global energy equation and its capacity to obstruct the global flow of petroleum. As was the case with Iraq, the White House is determined to eliminate this threat once and for all. And so, while oil may not be the administration's sole reason for going to war with Iran, it is an essential factor in the overall strategic calculation that makes war likely.

Michael T. Klare is a professor of peace and world security studies at Hampshire College and the author of Blood and Oil: The Dangers and Consequences of America's Growing Dependency on Imported Oil (Metropolitan Books).

Documents: U.S. condoned Iraq oil smuggling, by Elise Labott and Phil Hirschkorn, CNN.com, February 2, 2005.
Documents obtained by CNN reveal the United States knew about, and even condoned, embargo-breaking oil sales by Saddam Hussein's regime, and did so to shore up alliances with Iraq's neighbors.
The oil trade with countries such as Turkey and Jordan appears to have been an open secret inside the U.S. government and the United Nations for years.
The unclassified State Department documents sent to congressional committees with oversight of U.S. foreign policy divulge that the United States deemed such sales to be in the "national interest," even though they generated billions of dollars in unmonitored revenue for Saddam's regime.
The trade also generated a needed source of oil and commerce for Iraq's major trading partners, Turkey and Jordan.
"It was in the national security interest, because we depended on the stability in Turkey and the stability in Jordan in order to encircle Saddam Hussein," Edward Walker, a former assistant secretary of state for Near East affairs, told CNN when asked about the memo documents.
"We had a great amount of cooperation with the Jordanians on the intelligence side, and with the Turks as well, so we were getting value out of the relationship," said Walker, who served in both the Clinton and Bush administrations.
The memos obtained by CNN explain why both administrations waived restrictions on U.S. economic aid to those countries for engaging in otherwise prohibited trade with Iraq.
The justifications came at a time when the United States was a staunch backer of U.N. sanctions on Iraq imposed after it invaded Kuwait in 1990.
"Despite United Nations Security Council Resolutions," a 1998 memo signed by President Clinton's deputy secretary of state, Strobe Talbott, said, "Jordan continues to import oil from Iraq."
But Jordan had a "lack of economically viable alternatives" to Iraqi oil, Talbott's memo said.
Talbott's memo lauded Jordan's commitment to the Middle East peace process, citing the late King Hussein's personal efforts to broker a resolution to the Palestinian-Israeli conflict.
"Timely, reliable assistance from the United States fosters the political stability and economic well-being critical to Jordan's continuing role as a regional leader for peace," Talbott said.
Identical language was used four years later in a 2002 memo by Richard Armitage, undersecretary of state under President George W. Bush.
"Jordan has made clear its choice for peace and normalization with Israel," Armitage said, calling Jordan "an important U.S. friend" and citing its 2001 free trade treaty with the United States.
"U.S. assistance provides the Jordanian government needed flexibility to pursue policies that are of critical importance to U.S. national security and to foreign policy objectives in the Middle East," Armitage said.
Economic and military ties to Turkey were cited by Talbott and Armitage in justifying waivers of U.S. penalties to Iraq's northern neighbor. Indeed, their memos advocated hundreds of millions of dollars in aid to the U.S. allies.
Talbott's memo praised Turkey for deploying troops to the peacekeeping mission in the former Yugoslavia, policing heroin trafficking through Turkey, and cooperating with enforcement of the "no-fly" zone in northern Iraq by allowing U.S. and British jets to use Incirlik, Turkey, as a base.
Armitage's memo said Turkey "provides irreplaceable assistance in countering the threat the Baghdad regime poses" and lauded the U.S. ally for sending troops to Afghanistan after the September 11, 2001, attacks.
"The primacy of Turkey's role as a front-line ally in the war on terrorism is expected to assume even greater prominence and urgency as the global war on terrorism continues," Armitage said.
Deputy State Department spokesman Adam Ereli told CNN Tuesday the waivers were given to Jordan and Turkey every year since 1998.
He called both countries "special cases" in which the money Saddam made through the smuggling did not allow him weapons.
"With Jordan and Turkey the circumstances were unique," Ereli said. "We approached them in a way that preserved key alliances and didn't help the regime of Saddam Hussein."
He added that Saddam's smuggling to Syria, which the United States tried to curtail, raised far more concerns because of the possibility of "dual use" goods reaching Iraq.
Illicit revenue
Estimates of how much revenue Iraq earned from these tolerated side sales of its oil to Jordan and Turkey, as well as to Syria and Egypt, range from $5.7 billion to $13.6 billion.
This illicit revenue far exceeds the estimates of what Saddam pocketed through illegal surcharges on his U.N.-approved oil exports and illegal kickbacks on subsequent Iraqi purchases of food, medicine, and supplies -- $1.7 billion to $4.4 billion -- during the maligned seven-year U.N. oil-for-food program in Iraq.
The Government Accountability Office estimated last July that Iraq earned $5.7 billion from smuggling oil out of the country, especially to Jordan, Turkey, and Syria between 1996 and 2002.
A CIA-backed Iraq Survey Group report by former Iraq weapons inspector Charles Duelfer estimated last October that Saddam acquired $8 billion by smuggling oil to Jordan, Turkey, Syria, and Egypt through 2003, when oil for food ended with the toppling of Saddam.
The Senate Governmental Affairs Permanent Subcommittee on Investigations estimated last November that the Iraqi regime earned $13.6 billion by smuggling oil during the sanctions period it defined as 1991-2003, or five years before oil-for-food started.
The oil-for-food program is being investigated by U.S. congressional committees, the Justice Department, the Securities and Exchange Commission, and a special committee appointed by the United Nations and led by former Federal Reserve Bank Chairman Paul Volcker.
Volcker's committee is to issue an interim report on Thursday.
In an interview last month with the U.S.-based Arabic-language TV station Al Hurrah, Volcker said, "The big figures are smuggling, which took place before the oil-for-food program started, and it continued while the oil-for-food program was in place."
'Either silent or complicit'
Rep. Robert Menendez, a New Jersey Democrat on the House International Relations Committee, one of five panels probing the oil-for-food program, told CNN the United States was "complicit in undermining" the U.N. sanctions on Iraq.
"How is it that you stand on a moral footing to go after the U.N. when they're responsible for 15 percent maybe of the ill-gotten gains, and we were part and complicit of him getting 85 percent of the money?" Menendez asked.
"Where was our voice on the committee that was overseeing this on the Security Council?
"The reality is that we were either silent or complicit, and that is fundamentally wrong."
Former State Department diplomat Walker said, "It was almost a 'don't ask, don't tell' kind of policy. It was accepted in the Security Council. No one challenged it."
John Ruggie, a former senior adviser to U.N. Secretary-General Kofi Annan, said U.S. diplomats focused on assuring U.N.-approved shipments to Iraq were free of military components, and the United States felt Jordan and Turkey needed to be compensated for the adverse impact of the sanctions.
Ruggie said, "The secretary of state of the United States said each and every year that those illegal sales were in the national security interest of the United States. So it wasn't just that the U.S. was looking the other way."

###

Crisis Towers Over the Dollar, by By W Joseph Stroupe, Asia Times Online, Nov 25, 2004.
"... President Vladimir Putin has stated both publicly and privately that invoicing Russia's crude-oil and gas exports to the European Union in euros instead of in dollars makes very good sense for both Russia and the EU. Putin is known to have very close relations with "old Europe", primarily Germany and France. His statements and those of German and French leaders have even on occasion drawn attention to the fact that US global dominance fundamentally rests on the fact that the dollar is the international currency, and that if an exit from the dollar were to occur in the sphere of global petro-transactions, the effect would be seriously to undermine that global dominance. Furthermore, a number of oil-exporting countries have already gone on public record as to their preference to make an exit from petro-dollars in favor of petro-euros. They have indicated that if Russia begins such a move to petro-euros, they will rapidly follow Russia's lead. The net effect would be a rapid international abandonment of the dollar as the international currency, which would in turn "bring down the towers" of the heavily debt-ridden US economy.
Al-Qaeda has recently mounted a second attack on the fundamental framework of the US economy. Its clear strategy of attacking oil-exporting infrastructure around the globe to tighten global supply and drive up crude-oil prices is a further act of instigating a raging fire in the immediate vicinity of the US economic girders. Al-Qaeda knows crude oil is the economic lifeblood of industrialized economies. And it also knows the fundamental fragility and deep imbalances that exist in the US economy in particular. It fully understands that international support for the dollar is weakening and that a sustained elevated crude-oil price is the key to producing a set of circumstances in which persistent inflation returns, requiring a set of interest-rate hikes, which in turn will act like a needle to burst the credit, real-estate and stock-market bubbles. The resulting decline of the dollar will be steep and persistent, undermining what is left of international support for dollar..."

Being "Over There:" Location, Location, Location, By Colonel Daniel Smith, Foreign Policy in Focus report, Nov 11, 2004.
Essay on energy security and U.S. military presence.

Bank lapses cited in Iraq oil program, By Bill Gertz, Washington Times, Nov 17, 2004.
The French bank that handled funds for the U.N. oil-for-food program in Iraq made tens of millions of dollars in fees and did not properly monitor transactions involving Saddam Hussein's oil sales, congressional investigators said yesterday.
The New York branch of the Banque Nationale de Paris-Paribas, or BNP Paribas, was the sole bank for administering the $64 billion U.N. program and did not have adequate checks on whether money was being funneled to terrorists, a House International Relations Committee probe found.
"We have uncovered what appears to be serious malfeasance on an international scale," said Rep. Henry J. Hyde, Illinois Republican and chairman of the committee. "There are indications that the bank may have been noncompliant in administering the oil-for-food program. If true, these possible banking lapses may have facilitated Saddam Hussein's manipulation and corruption of the program."
Committee investigators uncovered evidence that BNP Paribas made payments without proof that goods were delivered and sanctioned payments to third parties not identified as authorized recipients, Mr. Hyde said at a hearing yesterday.
Mr. Hyde said investigators think the bank "facilitated improper payments to companies that were shipping illegal goods to Iraq."
Investigators estimate that the bank received more than $700 million in fees under the U.N. program that began in 1996 and ended after the ouster of Saddam in March 2003, Mr. Hyde said.
"This is a lot of money, and it is reasonable to ask if BNP Paribas adequately supervised its compliance programs overseeing the administration of the oil-for-food program," he said.
Mr. Hyde said problems with the oil-for-food program prompted him to introduce legislation yesterday to require greater accountability at the United Nations. "We need international institutions that are transparent, answerable to outside scrutiny and beyond reproach," he said. The bill was co-sponsored by Rep. Tom Lantos, California Democrat.
The House inquiry is one of at least three congressional investigations into the oil-for-food program. In addition, the Bush administration is investigating the program, and the United Nations has started its own probe, led by former Federal Reserve Chairman Paul Volcker.
Everett Schenk, the chief executive officer of BNP Paribas in North America, told the committee that the bank followed the direction of the United Nations in issuing letters of credit under the oil-for-food program.
He denied that the bank improperly made payments under the program. Apart from "temporary backlogs" in administering letters of credit, the bank acted within U.S. laws and regulations, he said.
However, committee investigators said that in at least one case, the bank issued three U.N.-approved payments for Al Riyahd International Flowers that instead were paid to a company known as East Star Trading Co. Ltd.
"These third-party payments were an exception to BNP's procedures relating to the assignment of letter of credit proceeds," one investigator said. "BNP explained that a senior manager at BNP authorized this exception based on the request of Al Riyahd International Flowers and did so in accordance with BNP's procedures for the escrow account."
Committee investigators said eight government agencies notified the French bank about "deficiencies" in handling money in the U.N. program. Four internal audits and memoranda also found problems with the bank's procedures.
Mr. Hyde said some U.S. allies "did all they could to facilitate business" with Saddam's regime, and that committee investigators think Saddam used money obtained through oil sales to fund terrorists.
"According to the information provided to this committee, Saddam paid $25,000 rewards to the families of Palestinian suicide bombers through the Iraqi ambassador to Jordan out of accounts in the Rafidain bank in Amman, which held kickback money Saddam demanded from suppliers to his regime," Mr. Hyde said.
Mr. Lantos, the committee's ranking Democrat, said Russia and France were involved in helping the regime through commercial transactions and political support within the United Nations. He also said the State Department failed to act against illegal activities in the U.N. program.
"I'm stunned at the failure of our own State Department to put a halt to Saddam's larceny," Mr. Lantos said, adding that the committee should "turn our attention as far as Moscow and Paris, and as near as Foggy Bottom."
The panel investigators say Saddam was allowed to set the sale price of Iraqi oil 50 cents per barrel above market prices. That added amount was then paid back to his aides by oil purchasers and placed in banks in Jordan, Lebanon and Syria.
The U.S. and British governments first uncovered the kickback scam in 2001 and, through a diplomatic battle at the United Nations, ended the "spot-pricing" of oil.
Russia and France opposed the U.S. and British effort because both countries were making money from the illicit oil sales, the investigators said.

Chevron profit soars, David R. Baker, San Francisco Chronicle, October 30, 2004.
The same high oil prices that have rattled economists and horrified commuters gave ChevronTexaco Corp. a huge boost last quarter, driving up profit 62 percent from the same period last year to hit $3.2 billion.
That's not as much money as the San Ramon company made this summer, when quarterly profit reached a record $4.13 billion. Tighter profit margins and a devastating hurricane season in the Gulf of Mexico's oil producing region saw to that.
But with crude oil prices parked above $50 per barrel, ChevronTexaco and the world's other oil giants are reaping substantial profits.
Earlier this week, Royal Dutch/Shell Group reported profit of $5.4 billion, compared with $2.45 billion in the same quarter last year. ExxonMobil made $5.68 billion, up from $3.65 billion last year.
Those high profits may last well into next year...

In oil's wake... recession? History of price spikes points to an economic downturn for the world's economies. Reuters/CNNMoney.com, Oct 26, 2004.
A recession could be staring the world's major economies in the face by next summer if history repeats itself and a 30-year rule holds true that output slumps after oil prices spike.
Optimists say that the old relationship is dead, that companies are more competitive, energy efficiency is ingrained into corporate culture and today's high oil prices are driven by huge demand.
But others say the link between the four big oil price spikes of the past three decades and industrial production in the world's biggest economies means recession is inevitable after a year-to-date 70 percent surge in oil prices.
"The percentage increase from previous levels show the same pattern as the present one," Dieter Wermuth, consultant to UFJ Bank Ltd and partner of Wermuth Asset Management told Reuters.
"In the previous cases, such oil price increases were followed by a recession and one could come, even though the oil price increase is the result of a booming economy," he said.
U.S. light crude oil prices hit a record of $55.67 a barrel on Monday.
The strong inverse relationship between oil and U.S. and German industrial production has been observed since 1973, and confirmed in 1981, 1991 and most recently post 9/11 2001.
Recent moves in industrial metals prices also appear to support the view that the global economy is slowing more quickly than expected, especially after a sharp sell-off last week.
"If this sell-off were to gather momentum, it would provide one of the clearest signs yet that global growth might be about to enter a slower pace," said Merrill Lynch chief global investment strategist David Bowers.
Investors have cut speculative positions on the London Metal Exchange, with total open interest for LME metal and product contracts sinking by about 10 percent to around 800,000 lots in the week ending October 22.
But others play down the risks.
Slowing at the margin
"Higher oil prices have less effect on the industrialized economies than they had some decades ago, and the recent hikes have only marginally slowed growth in the major OECD economies," the OECD said in a report entitled Financial Market Trends. Like the OECD, many private sector economists expect red-hot oil prices to shave robust global growth by only about 50 basis points next year.
They say the industrialized world's substantial services sector is another factor balancing out the impact of higher oil costs on the comparatively small, albeit energy-intensive, manufacturing industry.
They also say the absence of inflation and low wage growth show that the risks to economic expansion remain muted.
Wermuth disagrees and says if policy makers fail to trigger counter-cyclical rate moves when the need arises, a recession cannot be ruled out.
He expects the U.S. Federal Reserve to pause in its rate tightening cycle after an increase at its November meeting and sees no hikes from the European Central Bank anytime soon.
"When you have such high oil prices it's not just investment but consumption that will be affected," Wermuth said.
More analysts are coming to this view on the back of slowing consumer spending.
"We see (U.S.) consumer spending growth slowing to 2.7 percent in 2005 from what looks to be a 3.5 percent advance this year. This would represent the softest pace since 2001 and second weakest since 1995," said Merrill Lynch economist David Rosenberg. Retail sales in the euro zone and the UK are starting to show signs of fatigue with rising utility and heating oil bills set to crimp consumer spending further going into the winter.
Industrial production is still inching up in the United States, but is becoming patchy in the euro zone, falling 0.6 percent in August after rising 0.2 percent in July.
In the UK -- which has been hiking rates since November 2003 to curb inflation risks that have worsened as oil has soared -- manufacturing output fell for the third month running in August and at the sharpest pace in nearly two years.
Oil prices are unlikely to shed the bulk of their recent big gains due to several factors including the demand/supply imbalance, lack of spare production capacity and security woes in Iraq and the Middle East, experts say.
Demand for oil in fast-growing China and India shows no sign of slowing either and that means prices are set to stay high -- further exacerbating the problems of industrialized economies.
"They will keep oil prices high even if we get a slowdown in the U.S.," Wermuth said.

The Independent Inquiry Committee into the United Nations Oil-for-Food Programme, which was created by Secretary-General Kofi Annan, [on October 21, 2004] released a list of more than 3,000 companies that had dealings with the Iraqi government of Saddam Hussein during the life of the program, which was allegedly rife with corruption. The Committee found that 248 companies received and paid for Iraqi oil under contracts totaling $64 billion, while another 3,545 firms exported goods to south and central Iraq while the program was in effect as part of the sanctions imposed on the Hussein regime. Among the oil companies involved were units of ExxonMobil and ChevronTexaco. (from the Dirt Diggers Digest No. 56, Oct 25, 2004).

Oil Spending Balloons Nearly $300 Billion, Creating Historic Transfer of Wealth. AP/ABCNews.com, Oct 25, 2004.
While Americans wince as they fill up their SUVs with $2-a-gallon gasoline, market forces are smiling on the Saudi Arabias and Exxon Mobils of the world.
A transfer of wealth of historic proportions is taking place as worldwide spending on oil is expected to grow this year by about $295 billion, or 27 percent, compared with 2003, according to government data. Consumers and businesses are paying substantially more for gasoline, heating oil, diesel and other products derived from crude as demand and prices surge.
While the corresponding windfall of profits for oil exporting nations and petroleum companies is sapping strength from the international economic recovery, it's not causing the kind of financial shock that followed the oil crises of the 1970s.
Still, experts warn that the market constraints underlying high and volatile energy prices suggest that higher oil price could be here to stay. "There's not a consensus out there, but the question is being asked more now than it has been at any time in the last 20 years," said Jim Rising oil costs are linked as much to America's apparent drive-at-any-price car culture and China's raging industrial expansion, as they are to the world's unusually thin supply cushion, a condition that has magnified anxieties about potential supply disruptions in Venezuela, Russia and Nigeria.
Consumption continues to rise in spite of higher prices that are expected to slow global economic growth by about 0.5 percent in 2005. Much sharper financial pain will be felt in poor, developing countries that are net oil importers.
"As with most things, the global impact is not spread evenly around the world," said Jeffrey D. Lewis, manager of international finance research at The World Bank. Lewis predicted that, without emergency funding, much of the organization's $2.5 billion aid to struggling nations this year will have to be reallocated to fuel purchases by local governments, leaving health and education programs grossly underfunded or scrapped altogether.
With oil futures marching to the $55 a barrel level this month up from about $30 a year ago the list of winners is topped by Saudi Arabia, Russia, Norway, Iran, Venezuela and other leading exporting nations. Saudi Arabia alone supplies about 12 percent of the world's daily oil fix.
Exxon Mobil Corp., Royal Dutch/Shell Group and the rest of the private petroleum giants are also flush with cash as profits and stock prices soar. The same goes for oilfield services firms such as Schlumberger Ltd. and Baker Hughes Inc., as well as the countless smaller providers of the equipment, ships and workers needed to produce and transport some 82 million barrels a day.
The extra $295 billion spent on oil this year comes courtesy of, but not without complaint from, motorists, homeowners, manufacturers, airlines and truckers. The biggest share would come from (no shocker here) Americans, who account for nearly one quarter of global daily oil demand.
United States consumers are expected to shell out an additional $40 billion this year just to heat their homes and fuel their cars and trucks. The greatest financial squeeze is felt by low- and fixed-income families, who spend about three times as much of their wealth on energy as do middle-income families.
European economies are generally worse off, with the prospects for rising inflation and unemployment in the region somewhat higher, according to a report by the International Energy Agency and the International Monetary Fund.
European countries do not have as much of their own oil production as the United States, where roughly 2 out of every 5 barrels consumed is pumped domestically.
To keep consumption in check, European nations levy significantly higher fuel taxes than the United States, which helps to explain why the total imports of Germany, France, Italy and Spain are about a third smaller than America's. Even so, the four countries combined will spend about $25 billion more for oil in 2004 than they did in 2003.
In Germany, Europe's largest economy, experts are worried that the country's nascent financial turnaround could falter next year, in part because of higher energy prices, but also because of an indirect oil-price pinch as exports to China and the United States taper off. This comes at a time when Germany's unemployment rate is around 10 percent and consumer demand has barely risen in three years.
In Asia, the picture is somewhat mixed.
In China, where daily oil imports have risen an estimated 35 percent, or roughly 700,000 barrels a day, and have helped propel global demand and prices to unexpectedly high levels, the rising cost of fuel is merely contributing to a minor slowdown of the country's economic boom. Put another way, mammoth industrial growth is dwarfing any negative impact caused by higher energy prices.
In Japan, the country's near-total dependence on imports is offset significantly by the economy's relatively high fuel efficiency. But like Germany, it is very concerned about the weakening financial power of its trading partners due to soaring oil prices.
East Asian countries are likely to be hit harder, according to the Asian Development Bank, which recently predicted the region's growth would decline by 0.8 percent in 2005.
To limit fuel consumption the Phillippines has banned unofficial use of government vehicles, Thailand has ordered gas stations to close early and South Korea has cut back field maneuvers for its 650,000 troops.
With some exceptions, the world's mushrooming oil tab falls hardest on developing nations, particularly those in Asia and sub-Saharan Africa, which tend to be the most dependent on imports and the least energy efficient.
"We in the rich countries complain a lot about higher prices but it is not our countries that will be hurt the most," said Fatih Birol, chief economist of the Paris-based International Energy Agency.
Yet despite the severe economic hardship likely in low-income energy importers such as Laos, Mongolia, Pakistan and Ethiopia, according to World Bank estimates, the oil price spike of 2004 has not delivered nearly as much economic punishment in the developed world as the energy shock of a generation ago, which was marked by recessions and fuel shortages.
A major difference is that the per-barrel cost of crude peaked at $80 in 1981, or about $25 more than the current futures price, on inflation-adjusted terms. Greater fuel efficiency has also helped blunt the effects of higher energy prices this time around.
The U.S. economy is holding up better than most, several economists said, because billions of petro-dollars flowing out of the country eventually are recycled back through it as Saudi Arabia and others buy U.S. Treasury securities, in addition to investing in their own countries.
Developing countries are likely to have a harder time attracting such investment, particularly if their financial prospects are weakened by rising oil costs, according to the World Bank's Lewis. So far, though, emerging markets such as Brazil, India, South Africa and others have not had to borrow money in order to cover higher fuel bills, he said.
Even if today's high energy prices have less abrupt and dire consequences than the oil crises of the 1970s, a "meaningful economic shift" is taking place, according to William Ferer, president and director of research at W.H. Reaves, a New Jersey-based firm that invests in the oil sector.
That's because while the amount of energy needed to run factories and drive trucks is lower as a percentage of the total cost of production and transportation, the world now consumes 45 percent, or 25 million barrels, more oil a day than it did 30 years ago. Moreover, the industry's grip has been extended to many more parts of the world.
The countries and companies responsible for quenching this ever-increasing oil thirst are raking in the dough.
Based on Energy Department estimates, the value of Russian exports will rise by about $28 billion in 2004, while the value of Norwegian exports is on track to grow by $10 billion. The Russian and Norwegian industries rely on extensive investment from private companies, which are sharing in the growing wealth.
The Organization of the Petroleum Exporting Countries alone is expected to see its oil export revenues rise by $115 billion, or 47 percent, in 2004, according to Cambridge Energy Research Associates.
But while OPEC's members share the riches, they differ somewhat on how to spend the money.
Venezuela has been funneling billions of dollars into social programs for the poor, although some say this largesse from President Hugo Chavez could backfire if the state-run oil company's exploration and production budget suffers as a result.
In Saudi Arabia, the government is taking a more cautious approach to spending its petro-dollars than it did 30 years ago, when much of the funds went toward highways, airports and subsidized education and health care. This time, Crown Prince Abdullah has said the bulk of the surprise bonanza will go toward paying down the country's $176 billion debt.
Private oil companies are also reaping fatter profits money they're using to pay down debt, buy back stock and raise dividend payments to shareholders, who've already seen their investments flourish at a time when most major stock indexes have stagnated.
Shares of Exxon Mobil, the largest integrated oil company, are up 30 percent from a year ago, while those of Schlumberger, one of the largest oilfield services providers, are up 37 percent. By comparison, the Dow Jones industrial average is up about 2 percent.

In the first U.S. combat operation of the war in Iraq, Navy commandos stormed an offshore oil-loading platform. "Swooping silently out of the Persian Gulf night," an overexcited reporter for the New York Times wrote on March 22, "Navy Seals seized two Iraqi oil terminals in bold raids that ended early this morning, overwhelming lightly-armed Iraqi guards and claiming a bloodless victory in the battle for Iraq's vast oil empire."

A year and a half later, American soldiers are still struggling to maintain control over these vital petroleum facilities -- and the fighting is no longer bloodless. On April 24, two American sailors and a coastguardsman were killed when a boat they sought to intercept, presumably carrying suicide bombers, exploded near the Khor al-Amaya loading platform. Other Americans have come under fire while protecting some of the many installations in Iraq's "oil empire."

Indeed, Iraq has developed into a two-front war: the battles for control over Iraq's cities and the constant struggle to protect its far-flung petroleum infrastructure against sabotage and attack. The first contest has been widely reported in the American press; the second has received far less attention. Yet the fate of Iraq's oil infrastructure could prove no less significant than that of its embattled cities. A failure to prevail in this contest would eliminate the economic basis upon which a stable Iraqi government could someday emerge. "In the grand scheme of things," a senior officer told the New York Times, "there may be no other place where our armed forces are deployed that has a greater strategic importance." In recognition of this, significant numbers of U.S. soldiers have been assigned to oil-security functions.

Top officials insist that these duties will eventually be taken over by Iraqi forces, but day by day this glorious moment seems to recede ever further into the distance. So long as American forces remain in Iraq, a significant number of them will undoubtedly spend their time guarding highly vulnerable pipelines, refineries, loading facilities, and other petroleum installations. With thousands of miles of pipeline and hundreds of major facilities at risk, this task will prove endlessly demanding - and unrelievedly hazardous. At the moment, the guerrillas seem capable of striking the country's oil lines at times and places of their choosing, their attacks often sparking massive explosions and fires.

Guarding the pipelines

It has been argued that our oil-protection role is a peculiar feat