The War for Oil

After World War I, the oil companies carved up Iraq. Shell, BP, Exxon and Total all had stakes in the Iraq Petroleum Company. They paid pennies for each barrel of oil and built a pipeline to take it away.

In 1972 the Iraqis nationalised the industry and threw the foreigners out. From then on Western oil companies could only dream of Iraq’s oil reserves - the second largest in the world.

With Saddam Hussein came decades of war followed by sanctions and Iraq's massive reserves lay largely untouched. But with Hussein's regime under threat, at last there was a chance to get back in.

Dwindling discoveries

It's not greed that’s driving big oil companies - it's survival. The rate of oil discovery has been falling ever since the 1960's when 47 billion barrels a year were discovered, mostly in the Middle East.

In the 70's the rate dropped to about 35 billion barrels while the industry concentrated on the North Sea. In the 80's it was Russia’s turn, and the discovery rate dropped to 24 billion. It dropped even further in the 90's as the industry concentrated on West Africa but only found some 14 billion barrels.

Shrinking production

In America, always the greediest consumer of oil, production has been falling for 30 years. Americans guzzle 20 million barrels of oil a day, but now they have to import over 60% of it.

That pattern is being repeated elsewhere. Geologist Dr Colin Campbell predicted a decline in the North Sea several years ago and claims by 2015 Britain may have to import over half its oil needs. "In 1999 Britain went over the top and is declining quite rapidly," he says.

"It's now 17% down in just three years, and this pattern is set to continue. That means that Britain will soon be a net importer, imports have to rise, the costs of the imports have to rise, and even the security of supply is becoming a little uncertain," Campbell adds.

In Norway the government forecasts that in the next ten years its North Sea production will halve. In Argentina oil production has been down for several years and in Columbia, which was a big producer in the 90's, production is now past its peak.

US energy security

When George Bush took power two years ago, his administration was already worried about the vulnerability of America’s oil supplies - the buzzword was ‘energy security’.

"I think it’s quite possible that the United States realises the key importance of the Middle East generally to world supply in fact, and especially its own, and that it sees Saddam Hussein as a ready-made villain," points out Campbell.

"It finds this a convenient way in which to establish a military presence in the Middle East - aimed partially at Iraq by all means but with a wider significance to control the production elsewhere there."

The US pushed its allies hard to support military action against Iraq. With resolution 1441 last November they seemed to be making progress. But in December America’s energy security took yet another turn for the worse. Venezuelan oil workers went on strike and oil prices soared - hitting $35 a barrel.

Iraqi oil for Iraqi people

As preparations for war gathered pace there were massive demonstrations around the world. The widespread view that it was all about oil worried the US and British governments so much that they came up with a plan - they would safeguard Iraq’s oil for the Iraqi people.

"We will make sure that Iraq’s natural resources are used for the benefit of their owners, the Iraqi people," President Bush told the world.

But even if the post-Saddam regime retains control of oil exports, at least the boost in Iraqi output will provide a growing supply to the West.

For a war supposedly not about oil, military planners made a high priority of securing the oilfields. Apart from a handful of wells torched by Iraqi troops, the huge southern oilfields were taken largely intact. But other major oil-producing regions are still in Iraqi hands and there is still a danger that, as in Kuwait 12 years ago, massive sabotage may hit oil production for years to come.

Terminal decline

Whatever happens, rebuilding Iraq will be a huge job and only US companies have been invited to bid for contracts.

Opposition leader Dr Salah Al-Shaikhly, of the Iraqi National Accord, admits Britain and America will benefit from helping remove Saddam. "Well definitely those who have helped us, all along, with regime change. Obviously they should have a little edge over the rest. I think even in economics, this is quite acceptable… as well as the politics."

But even if Iraq does boost its oil production ironically the effect could be short lived. Its vast reserves represent just four years of world consumption and by the time Iraqi oil is flowing freely, global oil production may already be in terminal decline.

Campbell thinks the decline will start by 2010. "It starts with a price shock due to control of the market by a few countries, and it is followed by the onset of physical shortage, which just gets worse and worse and worse," he says.

So if alternatives to oil are not found soon the changes could be radical. Unlimited use of cars and cheap flights around the world may well be a thing of the past. While international trade - the very basis of the global economy - will suffer.

This programme was broadcast on BBC2 in the UK, Wednesday 26 March 2003.

http://www.thedossier.ukonline.co.uk/Web%20Pages/BBC%20MONEY%20PROGRAMME_Oil%20War.htm