Dilip Hiro: The power of oil

A geopolitical game has been underway ever since oil became a strategic commodity just before World War I. Once dominated primarily by Western nations, the game now includes many non-Western ones, with the countries dependent on oil imports increasingly reluctant to antagonise those endowed with oil.

A case in point, Western capitals have abandoned threats of placing Iran in the dock at the UN Security Council "" at least for the time being. On January 10, to the chagrin of the International Atomic Energy Agency (IAEA), Iran resumed research in enriching uranium that it had voluntarily stopped earlier

Last September, the European Union Troika (EU3) succeeded in convincing the IAEA Board of Governors to declare that Iran was in non-compliance with the nuclear Non-Proliferation Treaty (NPT) it had signed. But the EU3 did not take the next logical step of referring Tehran to the UN Security Council.

Backed by the United States, the EU3 opted for a consensual resolution at the subsequent IAEA board meeting in November, urging that Iran and the EU3 restart talks that had precipitately been terminated by EU3 less than four months before. The fresh negotiations, to be resumed without any preconditions by either side, will start formally later this month.

What explains the softening of Western capitals toward the Islamic Republic? Western leaders realise that UN sanctions, including an oil embargo, are the only effective way to punish Iran for non-compliance with the nuclear NPT. But that step would inevitably lead to increases in petroleum prices and damage Western economies.

A secondary factor is the change in the rotating membership of the 35-strong IAEA Board and India's position on the issue: Three pro-Western countries that voted with the EU3 and the US in September were then replaced by Belarus, Cuba and Syria, all of them anti-Western. Also, India, which had voted for the EU3 resolution in September to raise the "yes" tally to 22, was expected to abstain on any fresh anti-Iranian resolution, thus reducing the pro-Western total to a bare majority of 18 for a vote on referring Tehran to the UN Security Council, hardly a propitious move.

The anticipated change in New Delhi's stance stems from the proposed $22 billion worth supply of Iranian natural gas to India for the next quarter century. Between now and 2025, the imports of hydrocarbon energy required by a fast industrialising India will rise from 70 per cent to 85 per cent.

This is only the latest instance of how the scramble for petroleum by developing countries worldwide is reshaping the global geopolitics in favour of the oil-rich nations.

Along with India, fast industrialising China has joined the geopolitical race: Last year China's state-owned oil companies signed a 25-year natural gas deal worth $20 billion with Tehran and acquired rights to exploit a vast Iranian oilfield on buy-back terms.

Another recent example of oil diplomacy was on public display at the summit of the 34-strong Organisation of the American States at Mar del Plata in Argentina in November. There, US President George W. Bush, the world's most powerful person who is known to speak Spanish, barely managed to engage other leaders in friendly conversations, leaving the field open to his adversary, President Hugo Chávez of Venezuela. By all accounts Chávez was a focal point both inside and outside the summit venue.

Part of Chávez's popularity stemmed from the Petrocaribe Initiative that Venezuela's state-owned oil company, Petroleos de Venezuela SA, signed last June with 13 Caribbean and Central American countries. It codified a scheme dating back to October 2000 which gave the signatories up to 15 years to pay for Venezuelan oil with a nominal 2 percent interest at $20 a barrel, one-third less than the prevalent price of $30. The updated scheme enabled the signatories to pay only $40 a barrel instead of the market rate that shot up to nearly $70 in October.

Venezuela "" producing petroleum since the 1920s and among the top four suppliers of crude oil to the United States "" belongs to the middle-income nations of the world.

But even newcomers to the game can wield geopolitical power they could not have imagined a decade earlier. This is the case with Sudan, one of the poorest countries on the planet.

Khartoum acquired a geopolitical leverage with the assistance of China, a veto-wielding permanent member of the UN Security Council. The China National Petroleum Corporation (CNPC) won an oil exploitation contract in Sudan in 1995. Two years later when Washington put Sudan on the list of countries that support international terrorism, American oil companies had to withdraw from the country. The Chinese quickly filled the subsequent void.

In 2000, Sudan gave a contract to a consortium headed by CNPC in the Melul Basin region, which proved a prolific source of petroleum. Besides developing oil fields, the Chinese have erected refineries and laid pipelines. Sudan, an oil importer before the arrival of the Chinese, now earns $2 billion in oil exports annually, half of which goes to China. Khartoum is now the second largest African supplier of oil to China, after Angola.

When the UN Security Council debated the massacres in the troubled Sudanese western region of Darfur in September 2004, the United States wanted to impose economic sanctions against the Sudanese regime. Beijing threatened to veto such a resolution. As a result the Security Council passed a weakened resolution on Darfur.

As yet, the significance of these developments appears to have been lost on the policy-makers in Washington. Though seemingly disparate, they collectively represent a trend that will come to dominate global geopolitics in the coming decades.

The overarching fact is that political leaders all over the world are committed to raising living standards through economic growth, heavily dependent on energy in the form of oil and gas. That includes the United States.

Ever since 1932, when American oil companies acquired a stake in the oil resources of Saudi Arabia, Washington's policies have been geared to securing Middle East oil at the expense of all else "" including human rights and democratic regimes.

So the US administration cannot rush to criticise other rising world powers for following its example over the past seven decades. In any case, the US lacks the power to unilaterally punish the countries that are supping with the devil for their own economic welfare.

Ultimately it is the logic of economic competition that prevails in buying or selling oil and gas. So how can the US, the prime upholder of capitalist values, oppose such a state of affairs?

Dilip Hiro is the author of Secrets and Lies: 'Operation, Iraqi Freedom' and After, and most recently The Iranian Labyrinth: Journeys through Theocratic Iran and its Furies, both published by Nation Books.

Reprinted with permission from YaleGlobal Online, (http://yaleglobal.yale.edu ) a publication of the Yale Centre for the Study of Globalisation. Copyright © 2006 Yale Centre for the Study of Globalisation.