The Three Energy Wars
Walid Khadduri Al-Hayat - 31/07/06//
"We are practically in an energy war. The price of a barrel of petrol has multiplied threefold" (in the last two years), the French Finance Minister Thierry Breton told Europe 1 radio station on July 25.
Contrary to the contention of the French minister, the world in fact is locked in three energy wars, not one: a price war, an investment and deals war, and a geopolitical war.
The first war, which Breton talked about, is economic due to the factors of supply and demand. Prices soared due to a 'sudden' demand for oil, resulting from the strong economic growth in India, China and Brazil at a time when sustainable growth in the US continues without stopping or slowing down. Meanwhile, the number of the widespread and developed refineries that can process heavy high-sulfur oil has declined. The problem with this war lies in the demand rather than any shortage of supplies or a policy for deliberate cut down of production. The oil-exporting countries have been producing at almost full capacity for the past three years in order to fix prices. It is not a war but an interaction with the market mechanisms that prevail in the world these days.
The second war is on oil and gas investment deals. In Latin America, agreements are reconsidered and reneged under the pretext that the previous contracts were unfair to the oil producers. In Russia, there is an overt conflict with the European countries that try to have a share in Russia's oil industry. However, Moscow argues that its companies should be given the same rights and concessions demanded by Western companies, which tried to treat this issue in the G-8 Summit in St. Petersburg, but to no avail. In Algeria, which adopted last year the most liberal oil law in the Arab countries and allocated vast areas for ownership and operation to foreign companies at the expense of the state-owned Sonatrach oil company, everything has changed. Algerian President Abdelaziz Bouteflika decided to grant Sonatrach once again many concessions that were once withdrawn from it.
It is not important in these cases to search for the motives of such policies, be they the power of the producing countries due to price rises, Russia's attempt to restore its influence which it lost in the early 1990s, or more popular policies adopted by the Algerian President to gain the support of the masses for a third presidential term in office. Most important, an increasing number of oil-producing countries have controlled the issue and started to impose their opinions and political and material interests on foreign companies and the major and regional countries that support these companies. This 'neo-nationalism', as it is called, is a factor in the increase of prices, because it prevents global companies from setting foot in fresh oil reserves.
The third war is armed conflicts within the oil-producing countries, not only in the Middle East but also in Nigeria. These wars have already started since the September 11, 2001 attacks, followed by the occupation of Iraq and, now, the Israeli aggression on Lebanon. Of course, the war in Palestine has been going on for decades, but its impact on oil was very limited in recent years. However, the eruption of simultaneous wars on Iraq, Palestine and Lebanon, with the possible spread of hostilities to include Iran due to its nuclear file, or to Syria, increases fears in the markets, hikes prices, and gives an opportunity for speculators to make tremendous profits.
Despite all talks about unrest in the Middle East, the real risk to the oil supplies is in Nigeria, the biggest oil producer in Africa. Its production has declined 800,000 barrels per day (bpd) since last February, 200,000 barrels of which were last week. The Movement for the Emancipation of the Niger Delta (MEND), which is responsible for sabotaging facilities and pipelines, threatened that it will launch a fresh campaign on the oil sector as of mid-August. This Movement carried out its threats in the past.
It goes without saying that the world's oil industry is in a very critical situation at present due to these challenges, as well as other potential ones, such as expected hurricanes in the Gulf of Mexico. Thus, any of these factors may actually raise prices to higher rates unless there are policies that lead to détente here and there.
*Dr Walid Khadduri is an energy expert and director of al-Hayat business desk
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