Saturday, October 20, 2012

Oil And Defense Spending

Last spring I was interviewed on our local NPR outlet about energy economics.  Among other things I pointed out the well-established costs of pollution from fossil fuels relating to global warming and health issues from SOX and NOX.  I urged the standard well-known green technologies along with thorium nuclear reactors, noting the irony that the US did not pursue this technology after carrying out the first thorium fission experiments in the 1950s because this could not be used to make nuclear weapons, along with other now desirable features (safer, more thorium around than uranium, etc.).  The show was rebroadcast recently without anybody telling me, and many more apparently heard it and I was bombarded by various comments and inquiries.  One friend asked why I did not note the defense spending costs associated with oil as part of the issue.  Given that my friend George McGovern now lies in a hospice at age 90 no longer responding to the communications from his family, perhaps this is an appropriate time to address this more closely.

I responded to my friend's inquiry (which came through facebook) by noting that in contrast to global warming or health costs of SOX and NOX, it is much harder to determine how much of defense spending is for "protecting our sources of oil."  Indeed, this is a very difficult matter, although thinking about carefully suggests to me that not much really is, which also suggests to me that the position I agreed with and helped support of McGovern's that we did not need nearly as large of a DOD establishment as we had and have remains correct.  Its budget is often justified to the public on precisely these grounds, but the reality is quite another story.

So, let us simply focus on the Gulf wars as an example, and, to sort of simplify things let us focus on the second of these, our recently concluded war in Iraq (although we continue to spend DOD money there with some residual troops, etc.).  For starters there is disagreement on how much it cost.  At the upper end are estimates by Stiglitz and coauthors of as high possibly over the long run as $3 trillion.  This includes all the medical costs of everybody wounded and much else.  The direct military costs appear to be just a bit under $1 trillion, which gives us a reasonable range.  But how much of this was really about "protecting our sources of oil"?

Indeed, my response to my inquirer was that this is a matter of great uncertainty, and the more I think about it, the less I think that it had anything to do with it, even when those running policy thought that it did.  Now indeed it is not a new position of mine that the Iraq war was not "really" about oil, although many people whom I respect think quite the contrary, that it was all about that and nothing else.  Well, I will grant that the real motivation of the first Gulf war under Bush, Sr. was about oil.  When Indonesia invaded and annexed East Timor, nobody did squat, and likewise when India did the same in Sikkim (although there was more noise about that one, given the glamor connections of some of the wives of the Sikkimese royal family).  But Bush Sr. arranged a global alliance to push Saddam Hussein back out of Kuwait, even though it appears that his goals were fairly modest, to grab a small slice of Kuwait, based on old border disputes from the setting of those borders by the British after WW I.  The Saudis and Bush feared Saddam really wanted to run all the way down the Gulf to grab the big prize of al Ghawar in Saudi Arabia out of which nearly 5% of the world's oil supply flows.  And maybe that was his goal, along with conquering Mecca and declaring a new Caliphate as some have argued.  In any case, Bush Sr. succeeded in pushing him back out of Kuwait and wisely listened to the Saudis who said, "Do not go to Baghdad," much to the annoyance of some of his underlings, most significantly, Dick Cheney.

So, when Bush Jr. came in, his VP Cheney played a nasty game with him, playing to his masculine insecurities vis a vis his dad, urging him to be like Reagan and "finish the business and take out Saddam," although Reagan pulled out of Lebanon the minute terrorists attacked our embassy in Beirut and killed a bunch of Marines.  For Bush Jr., this was what the war in Iraq was about, not oil. And for a bunch of his other advisers who pushed the war it was also not about oil, but about Israel, the neocons such as Wolfowitz, given Saddam's ridiculous habit of paying the families of Palestinian suicide bombers $25,000 when they died.  Oil had zip to do with this, indeed, the matter of Israel has always been a contradiction in the story of US Mideast foreign policy, with the US oil companies viewing US support of Israel as an annoying distraction from their love fest with the Saudis and other Arab and Muslim (Iran once upon a time) oil producers.

Of course, Cheney was a different story.  He had personal interests, notably the company that he formerly ran, Halliburton, and it remains a scandal that Halliburton made so much money out of the war in Iraq, whatever Cheney's personal take from that was, although in the end the major portion of this had to do with supplying the US military with all sorts of goodies rather than actually making money out of engaging in oil business in Iraq or elsewhere in the Gulf.  Now, Cheney does appear to have been plotting more generally to be a pinup boy for an old imperialist vision: bring back the major US oil companies in a serious way into the Gulf oil business, or at least at a minimum, into the Iraqi oil business.  And some of the neocons also were under the delusion that the Iraqis would be so grateful to us that they would pay for our invasion of their country from their oil revenues, like the Kuwaitis did for Bush Sr., the main reason the first place to be taken in Baghdad was their Oil Ministry building.

But in the end, this was all for nought, a pathetic farce and delusion. The war is over, and not only have the Iraqis not paid us a penny for our efforts, the US oil companies have been cut out of the action almost entirely in Iraq, where indeed oil production is reviving gradually after the collapse that occurred as a result of our invasion.  Of course, oil production in Iraq is now controlled by two distinct political entities, Iraq and Iraqi Kurdistan, where rising oil production involves a variety of foreign oil companies, although not universally legally recognized.   Most of the companies in Kurdistan are small independents out of Norway and Canada and other such places, with the only US companies involved there being some owned by the Hunt brothers, one of whom sat on Bush Jr.'s Foreign Intelligence Advisory Board.  This created a minor scandal at the time, that he was profiting from inside intel info, but that faded away, leaving them the only US oil companies making money out of the definite gains for the Kurds from our invasion of Iraq.  As for the main oil fields in the rest of Iraq, US companies viewed them as too risky due to ongoing military conflicts to seriously bid, and as a result, the old operators in Iraq got most of the deals, namely the Russians and the French companies, along with the new big player, the Chinese.  To the best of my knowledge, no major US oil company is making any serious money out of Iraq, although I think there a few minor deals going on.

Of course,  there is more controversial issue here. What really is the "US national interest" here?  Most think that it is a matter of keeping the oil flowing so that price of oil in the US for our consumers does not get too high.  Even now, the threat of Iran blocking the Strait of Hormuz, given our nuclear conflict with them, remains an apparent justification in the eyes of many Americans for our humongous defense spending, or at least some of it.  But in terms of Iraq, the main result of our invasion was to cause a decline in oil production in Iraq, something warned of by the major US oil companies in fact, who perhaps wisely foresaw that our intervention there was not going to make them any serious long run profits.  But this decline in oil production did help US companies, their one compensation, in that it led to a rising price of oil, which helped their profits in the short run, even as it sucked money out of the pockets of US consumers.  In terms of the official public traditional view of "protecting our oil sources," if this meant for US consumers enjoying lower prices it was a total flop, although it did lead to gains for Cheney's pals in the oil industry from the higher prices for awhile.

So, the bottom line here is that in fact nearly zero of the spending for the war in Iraq actually "protected our sources of oil," certainly not for consumers, and not even in the longer run for US oil companies.  Anybody trying to defend the scale of US defense spending on the grounds of "protecting our sources of oil" should be run out of town on a rail after being tarred and feathered.


jaz said...

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Peter Dorman said...


I agree entirely that large-scale US military spending and engagement is not about "protecting oil supplies": the value of having oil is in selling it, and "enemies" sell us oil as readily as "friends". What draws US military attention is oil *money*. It gives otherwise ignorable political leaders the wherewithal to challenge US interests. The US also enforces the global deal, such as it is, that the rich countries will allow the oil-endowed to pump up the price so long as revenues are recycled, one way or another, back to us. This is why Venezuela, which distributes oil revenues in social welfare projects, is so much more of a "threat" than, say, Nigeria, whose oil money finds its way to bank accounts in Switzerland, Luxembourg, the Caymans, etc.

media said...

I guess i'd have to disagree---even going so far as to plead complete nonsense, or even like junk DNA. Implicit in this view is the axiom that americans have a choice, but biologists at U Chicago and Penn have disproved this (eg a paper in PNAS a while back showing we are all not guilty---except maybe st/eve). In addition, using granger causality tests, one can show that it is not the us/military going after the oil or money, but rather the oil that attracts it---this why these are called oil 'potential' wells.

Information wants to be free, and mind is matter, and gravity entropy (verlinde), so free will has no choice but to follow the curvature of space due to massive oil deposits, even if some may spill.

Conceivably, this can also be formulated following entropic gravity approach, using combinatorial arguments a la lambda calculus (p(o)tent(i)a(l)) combined with 'whorfian economics' (see LanguageLog on some wack yale prof) to nature moves in mysterious ways, with strange attractors governing symbolic dynamics.
Smooth operators in fock space create and annihilate as shumpeter suggested, because its the path of least action.
Even if oil security was not a good reason for military buildups, its a pretty good pretense; maybe you could even get a Noble lie for it.

Myrtle Blackwood said...

Some background to the Iraq invasion that I've acquired over the last decade (see below). I get a strong sense that those holding the reigns of power in America at the turn of the millennium had a sense of impending doom. The times seem reminiscent of the 1920s when the global economy was reeling from the stupendous effects of World War II with vast material wealth destroyed and extremely high (and unsustainable) levels of world debt. Control over the key asset (oil) and control over its exchange process may have been more important than the acquisition of the commodity itself?

2000 – November 6th. Saddam Hussein switched to the Euro to price Iraq’s oil. The US dollar sank way and in July 2002 the situation was so serious that the IMF warned that the dollar might collapse.

2000 – Worldwide GDP per capita declining.

2000 – OPEC powerless to stem a surge in oil prices – limited spare production. [BjR: In December 2000 Phil Gramm deregulated energy commodity trading after George Bush inaugurated after an allegedly fraudulent election.] + Phil Gramm's legislation was in conflict with the explicit recommendations of the President's Working Group on Financial Markets. Prior to the bill’s passage power generators and power marketers intentionally withheld electricity, creating artificial shortages in order to increase the cost of power. Enron also took advantage of lax oversight following deregulation and formed a complicated web of more than 2,800 subsidiaries -- more than 30 percent (874) of which were located in officially designated offshore tax and bank havens

2000 – March OPEC powerless to stem a surge in oil prices that was reminiscent of the late 1970s – limited spare production resulting in OPEC abandoning its price band.

2000 – September. A report for The Project of the New American Century (PNAC) is published. It is entitled ‘Rebuilding America’s Defenses’. This document [was compared by some] to Hitler’s ‘Mein Kampf’. “New legislation requires the incoming administration to fashion a national security strategy within six months of assuming office..”

2000 – The top 200 global corporations employed 0.78 percent of the workforce with sales accounting for 27.5 percent of world economic activity.

Myrtle Blackwood said...

re: "reeling from the stupendous effects of World War II ..."

Sigh. I meant, of course, World War 1.

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