Put a Tyrant in Your Tank
NEWS: You thought ExxonMobil was bad? Meet the new kings of crude.
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Jeroen van der Veer is no pushover. The 60-year-old CEO stands out as a tough guy in an industry filled with them. In 2004, after taking the helm of Shell, the frugal, hawk-faced chief executive forced the $300 billion oil company through a painful restructuring. He borrowed a management model from his Dutch military days, deliberately holding strategy sessions in cramped rooms where his subordinates had to stand while their leader remained seated.
This tough demeanor was glaringly absent, however, when van der Veer met with Russian president Vladimir Putin in the winter of 2006. Shell had toiled for a decade to develop Sakhalin-2, a vast $22 billion oil and gas project on Russia's remote eastern coast, when Putin seized the reins and handed them off to Gazprom, the state energy concern. To retain a financial stake in the project, Shell reportedly had to pay the Kremlin a special dividend worth hundreds of millions of dollars annually. Yet in announcing the deal, the hard-assed CEO came off more like a cheerleader. "Thank you very much for your support," van der Veer gushed, addressing Putin as the two men stood together in an ornate Kremlin stateroom. "I think for us, the great news is there's now stability, so we can all work together."
Groveling may not come naturally to guys like van der Veer, but they'd best get used to it. Soaring oil prices have emboldened Russia and other petrostates to stand up to Western execs and build up their own state-run petroleum operations. While some oil multinationals continue to haul in record profits, they're rapidly losing global clout, and with their holdings on the decline, executives have little choice but to grin and bear it. We're "seeing a further shifting in the oil industry in which national oil companies are the power brokers," says Andrew Neff, senior energy analyst at economic forecaster Global Insight.
Anyone inclined to celebrate Big Oil's recent misfortunes had better hold off on the champagne. For however badly the Western firms may have behaved, the new global oil barons could one day leave environmental and social activists nostalgic for the bad old days of ExxonMobil.
A decade ago, Western petroleum companies still ruled the world. To entice these firms to develop their oil resources, cash-strapped exporters such as Venezuela and Russia gave away the store. Fairly typical was the original Sakhalin-2 agreement, which let Shell recoup all the money it had put in before Russia earned a dime in oil revenues, and generous incentives from Caracas lured some 60 firms to Venezuela's oil sector during the 1990s.
Funny how a sevenfold price increase changes the game. Years of global terrorism, war in Afghanistan and the Middle East, rebel attacks in Nigeria, and assorted other mayhem recently helped oil broach $100 per barrel. Asian industrialization has done the rest: China, once able to produce all the crude it needed, is projected to import three-quarters of its petroleum by 2025, and consume half as much as the United States. The booming demand has transformed Russia from a pauper state into one that sits atop nearly $500 billion in liquid assets, while Iran, with the world's third-largest supply of crude, now earns record annual revenues from oil.
Pay 'em not to drill Ecuadoran president Rafael Correa says his country will leave nearly a billion barrels of oil untapped in the Yasuní, a delicate stretch of rainforest, if rich nations pony up $4.6 billion—half of the expected revenues. Seems like a pump dream, yet Spain has committed $4 million, others are interested, and the Clinton Global Initiative has embraced the project. But even supporters fear betrayal, so Ecuador will issue certificates redeemable if the Yasuní is later exploited. Correa recently approved drilling in another sensitive area, but still, sitting on Ecuador's largest oil prospect would be truly historic.
—Mark Engler and Nadia Martinez
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Big Oil, by contrast, faces a grim future. During the 1960s, multinationals such as Mobil, BP, and Shell had access to more than 80 percent of global oil and natural gas reserves. These days, Western multinationals control just 10 percent of the world's oil, while state-run firms, according to a November 2007 paper from Rice University's James A. Baker III Institute for Public Policy, exercise exclusive domain over roughly 77 percent. America's own oil production has been in a prolonged slide, and exploration prospects appear limited—Iraq, once the great Western hope, has barely recovered to prewar production levels.
The petrostates haven't been shy about wielding their power. In addition to negotiating the Shell coup, the Kremlin pushed British energy giant BP to sell its stake in Kovykta, a major Russian gas field. In spring 2007, Venezuela, which ranks seventh in oil reserves, took control of projects owned by foreign companies in the rich Orinoco Belt, a move that cost America's ConocoPhillips 10 percent of its oil holdings and nearly erased the firm's profits for that quarter. "They won't be missed," president Hugo Chávez said of the Westerners. In nearby Bolivia, president Evo Morales nationalized his oil and gas fields in 2006, and Ecuador has forced foreign firms to cough up more in taxes. "They understand the way energy markets have changed, and they're reinforced by Chávez's success," says Michael Shifter, vice president for policy at the Inter-American Dialogue, a Washington, D.C., nonprofit.
The state-run firms have exploded in size and number and now include 15 of the world's top 25 oil companies, according to Petroleum Intelligence Weekly. Gazprom is the biggest natural gas company on earth, and Aramco and the National Iranian Oil Company may be the globe's most powerful oil concerns. The United Arab Emirates has amassed so much oil wealth that it boasts a state-owned investment fund worth an estimated $1.3 trillion. Kazakhstan, where the world's biggest new oil field was discovered in 2000, has also taken advantage of the power shift. After letting a consortium of multinationals develop the massive project, last fall the government began pressuring the firms to boost its stake. In December, the country's deputy finance minister told the Financial Times that the days of Western dominance were "ancient times."
Can't muster sympathy for the captains of industry? Well, consider this. In the past, activists pushing for improvements from oppressive oil regimes such as Burma's got leverage by launching PR campaigns to embarrass their Western oil partners. But those days are over. Given their waning power, the multinationals are more likely than ever to overlook the abuses. To get their hands on the petroleum of Libya, a nation with an abysmal human rights record, oil companies have offered dictator Moammar Qaddafi nearly all the proceeds from any partnership deals. Six months after the Kremlin took back Sakhalin-2, Putin met with a collection of leading CEOs at a forum in his hometown of St. Petersburg where they competed to suck up to him. "The president is very open and straightforward," Christophe de Margerie, head of French oil giant Total, fawned to the press afterward. "We'd like to invest more." And even as the Kremlin turned the screws on BP to muscle it out of a key project in Russia, chief executive Tony Hayward turned on the charm, declaring that BP was "pleased to be a minority shareholder in Rosneft," another state-controlled oil firm.
If Big Oil is willing to overlook the petrostates' abuses, there's another global partner that can even protect them from international sanctions. China, after all, has veto power over United Nations Security Council resolutions. PetroChina, Beijing's state-run behemoth, is the world's most valuable company, and its parent firm, China National Petroleum Corporation, is trolling for oil around the globe. These firms share the multinationals' hunger for oil investment but resemble Gazprom in their lack of accountability. Consumer campaigns in America mean little to autocratic regimes when China is knocking on the front door.
Most years, the triennial World Energy Congress plays out like a celebration of plutocracy. Over several days in some global metropolis, the heads of the world's biggest energy companies gather to talk business and schmooze with politicians. But last fall in Rome, the high rollers were feeling some trepidation. Facing an expectant audience was Rex Tillerson, head of the world's largest multinational oil company. ExxonMobil inspires fear and admiration in the industry for its ruthlessness and success—in 2007, it recorded the most profitable year of any firm in American history, with net income of $40.6 billion. Yet world events had Tillerson worried. "At a time when we should open doors to trade, resource nationalism closes them," he warned. "At a time when we should be building bridges of international partnership, resource nationalism builds walls."
America's political and military leaders are perhaps the most concerned they've been since the 1970s Arab oil embargo that exporters might use oil as a blunt instrument. In an internal study, the Pentagon's Southern Command, responsible for Latin America, cautioned that the rise of state-dominated companies could threaten U.S. access to South American oil; Venezuela, for instance, is America's fourth-biggest oil supplier, and president Hugo Chávez could damage the U.S. economy were he to make good on threats to cut off shipments. He roiled global oil markets in February with just such a threat after ExxonMobil won an injunction freezing up to $12 billion in Venezuelan oil assets in retaliation for the Orinoco takeover. The loss of Venezuelan oil, according to a 2006 study by the Government Accountability Office, would reduce U.S. gross domestic product by more than $20 billion and lead to an increase in gasoline prices. Meanwhile, at a 2006 closed-door Washington meeting sponsored by several government agencies, intelligence analysts fretted that the rapid entry of Chinese companies into Africa, a continent the United States has cultivated as an alternative to the Middle East, may undermine vital energy supplies there as well.
With America's growing oil consumption, the rise of state-run companies, and booming competition for foreign oil, higher prices at the pump are all but inevitable. The U.S. government estimates that Americans will use more than 4 million additional barrels of liquid fuels per day by 2030—at which point gasoline could make organic milk seem like a bargain.
Given the political fallout of sky-high fuel costs, Congress and the White House have paid much lip service to improving the nation's energy independence. (See "The Seven Myths of Energy Independence.") President Bush has even set a goal to slash Middle Eastern oil imports some 75 percent by 2025. "The best way to break this addiction is through technology," he proclaimed in his 2006 State of the Union speech. In reality, his budgets have called for cuts in renewable energy programs, and his administration has fought proposals to mandate energy-efficiency standards for utilities.
The Democratic Congress seems just as shortsighted. Like it or not, ethanol is being pushed as a major oil alternative, but rather than supporting research to produce it sustainably from agricultural waste, Congress has overwhelmingly subsidized corn-based ethanol production, which expends about as much energy as it produces and spews more greenhouse gases than it ultimately prevents.
In the meantime, an Iowa State University study concluded that importing cheap ethanol from democratic Brazil—whose sugarcane ethanol could be environmentally superior given land-use restrictions to prevent rainforest clearing—would prompt Americans to use some 300 million extra gallons of ethanol (and presumably less gasoline). But Midwestern legislators have convinced Congress to maintain massive tariffs on ethanol imports, protecting agriculture giants such as Archer Daniels Midland, which stand to gain significantly from the wasteful corn-fed process.
Illustration: Sean Mccabe
Read with an understanding of the history of modern warfare, it is also easy to see why some historians believe that oil access has played a fundamental role in every conflict of the 20th century.
Finally, the financial numbers, attitudes and personalities described in this article provide support for one of my main theories about the power behind the anti-nuclear movement. Since nuclear power is the only new source of energy that actually has succeeded in taking market share from fossil fuel, I believe that purveyors of coal, oil and gas have provided some of the financial support used by the anti-nuclear activists to slow down the growth of the industry. The competition would reduce their money and grip on power.
The idea that CEOs of companies that receive billions in revenue would grovel before dictators just shows me that most of them have no sense of morals at all and are willing to sell their souls for a bit of coin. Incredible.
"American corporate tyrants are *nicer* & *better* than foreign corporate tyrants"
*sigh* okay... I'll bite.
Tell a resident of 'The Other Americas' about the *benevolence* of American corporations...
...or an African...
...or a Asian...
... or the PEOPLE WHO GET SHOT BY AMERICAN CORPORATIONS who are trying to prevent privatization, resource exploitation or unionization
Its called REGIME CHANGE, WHINSEC & private contractors.
You just didn't THINK it was Americans... "just those 'brown' or 'yellow' peoples who seem to be always fighting or throwing rocks at one another", right?
ITS BEEN GOING ON, its just that the residents of the United States didn't have to stare it in the face every day. Meanwhile, they made the armaments & consumed the benefits.
Why do you *think* everybody BUT the US had such high oil prices for decades? *duh* You aren't even CLOSE to the prices of petroleum paid by non-US residents for decades.
excepting that the oil is being bought by military might, & will be subject to compound interest & international courts of settlement.
all nicely sanitized by "*The* American" mass media.
you know, the mass media that stomps local culture & information into obscurity...
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"We, two, form a Multitude" ~ Ovid.
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"Silent Freedom is Freedom Silenced"
"Do no harm"
Funny Fact: In Denmark the price of gasoline is 50% higher than the price of organic milk.
Tyrants do not allow elections OR accept the results of elections that go against their will.
Therefore: Chavez is not a tyrant and the USA is for cancelling or challenging elections in Central America, Vietnam, Korea, and lately in Iraq because they did not like the results.
Tyrants do not give a "flip" about the poor and only pay attention to them in the form of "bread and circus" handouts.
Therefore: Chavez is not a tyrant because he has done more against poverty in his country than anyone before him and the USA is a tyrant because the poor people of America, of which there are many, receive very little from the government other than lip service.
So much for identifying the tyrants.
Mother Jones was a brave and tireless advocate of justice but she must be spinning like a top right now due to MJ magazines' bs articles like this one.
On the other hand, the nationalist oil giants are just responding to the example that multinationals and their supportive governments have done prior to the rise of nationalist oil interests.
Your article speaks from the perspective that the past is not that relevant. I beg to differ. And so does the truth.
rm
This Bush administration made it inevitable that tyrants in the oil-producing countries have got an upper hand (habeas corpus? tortures? secret courts?) Those who have arranged the disastrous Bush epoch were sitting tightly at the source of oily money.
A lot of blood-covered money...
Who’s to blame for this change? The wealthy-powerful few who control policy. They’ve sold our future for short-term profit. Greed and corruption by disgustingly wealth individuals have led to this change. That’s individuals, not a whole country, corporations or governments.
What to do? Embrace the change. Change is good. Lets get gas to $10/gallon or higher. That’ll push us all to make the right change and get off our oil diet. So, thank you wealthy one-percenters for this change.
One World, under the sun.
Peace.
I would however, not include Venezuela in the mix as Rick Little points out. They do have a democratically elected leader who has done much to improve the lot of his country's poor.
With China & India quickly becoming big oil consumers and the supplies dwindling, I would say $10.00 a gallon is on the horizon.
Shall we continue to use our military to keep our hand on Iraq's oil spigot just so Americans can continue drive Expeditions and Hummers? Can we really blame the corporations when we so eagerly lap up their product?
This time, However, I am of the opinion that homework was done, and someone looked into all aspects, and found just what it says.
kudos to you, and sorrow to us.....
Cyborg (Mike Sartor Sr)
Go this way and you will sure get a job in the George W. White House...It is only a couple of months to go, but you can still get rich..
After reading most of the comments to this article I guess is all said.
Once upon a time, before dear ol' gasoline, there was another way of generating the old electromechanical forces. It was called 'steam'. You heat water past 212F, doesn't really matter how, the water doesn't really have any special preferences to take into consideration, no boutique fuels that it likes better than the others, anyway, 212+F and the water wants to Go Away, somewhere cooler, kind of like when people in Texas head north for summer vacation or something. Only, water wants to leave NOW. Think Robert Fulton, think 1800's choo-choo, think Stanley Steamer, where there's a will, there's a way, and if the Stanley Steamer could do a buck and a quarter on a sandy beach a hundred years ago, imagine what they might be able to do these days if Detroit et. al. really put their minds to it. Lots of things can be burned to give off heat, and done a lot more efficiently than in an 'otto' engine, and if people work on this stuff at home, then other folks who might try to monopolize the technology or twist the law in their favor in an anti-competitive way will be out twisting in the wind as millions of people drive to work in SPITE of them. But, maybe instead, the petro-peeps might decide to have a little change of heart, there, and see about dropping those prices a notch. Either that, or sell the land they've got their gas stations built on...decisions, decisions...where there's a will, there's a way.
The sooner we get whiped off the face of this earth the better.
But as reported in the November/December 2006 issue of Mother Jones, (It's Not Easy Being Green by Paul Roberts) as "BP put $500 million into solar power between 2000 and 2005, it spent $8.4 billion exploring and producing petroleum in 2004 alone." It also at one time lobbied hard to get ANWR open to drilling.
Rex Tillerson, head of ExxonMobil was quoted as saying "At a time when we should open doors to trade, resource nationalism closes them." I, and I'm sure many others, don't take this quote to heart since it comes from a huge corporation that has not only helped lead our country down the road of imperialism, but has also exploited other nation‚s oil like Iran & Venezuela for their own personal gain and said to hell with any mutual benefit.
The underlying feeling I get from the article is jealousy. Mr.
Kurlantzick creates a mood that is angry that the US no longer has the power it used to have over these countries and is now the beggar rather than the master. He attacks Chavez for supposedly consolidating his power by purchasing arms and helicopters despite the fact that he was democratically elected and refused to force his constitutional changes on the population when he lost the referendum.
How come we jsut don't make Venezuela our 51st state..? We should have knocked off that lame-ass dictator a long time ago. Since the prohabition aginst assassination of him is now LEGAL, maybe we should hook up with the "Freedom Fighters" in his country and make that country our 51st state..?
Oil forever, right..?
Bill