US Diary: it's the oil, stupid

OIL AND U.S. DIPLOMACY: Determining Factor -- by John B. Judis

It's not fashionable to say this, but the Iraq war was about oil. Not entirely, but certainly more than it was about weapons of mass destruction or a link to Al Qaeda. The 1991 war with Iraq was also about oil, and if the United States goes to war in the future with Iran or with China, it will likely be about oil.

Oil is a scarce resource that is vital to the American economy. Domestic production peaked in the early 1970s. The United States currently imports about 60 percent of its oil. World supplies are expected to peak in a decade or so . Yet American oil consumption is rising steadily--it went up by 3.9 million barrels a day between 1995 and 2004--and is almost matched by the rise in consumption from China--2.8 million barrels a day during the same period. With demand continuing to rise, and supply failing to keep pace, prices can be expected to rise, and at a certain point to skyrocket. That could spell doom for the American economy.

A whole range of enterprises--from agriculture to transportation--depend on oil. They'll have trouble surviving. Rising oil imports, combined with the existing, and growing, trade deficit in manufactured goods will drive up America's overseas debt, threatening the dollar. If the dollar loses value to the Euro and other currencies, oil producers will be tempted to denominate oil in other currencies, making it more expensive for Americans to purchase. The trade deficit will rise still further, threatening the abandonment of the dollar as the world currency and the subjection of the United States to the same onerous demands for budget cuts and tax increases as other countries that perpetually run big trade deficits.

The United States can ease or even halt this process, but it won't be easy. Americans would have to agree to a program of drastic conservation, particularly for automobiles. But that's not a winning political program in a country built around cars, suburbs, and highways. That leaves another, even more unsavory alternative: The United States can seek privileged access to the world oil supplies and prevent other countries from gaining similar access. That can lead to war.

The Bush administration's program for conservation is nugatory. It consists of relying on technological breakthroughs such as hydrogen cars. But the administration is also preparing for the possibility of war. The Pentagon's Quadrennial Defense Review, released this February, highlighted the threat of war with China. China, the report said, "has the greatest potential to compete militarily with the United States and field disruptive military technologies that could over time offset traditional U.S. military advantages absent U.S. counter strategies."

In the administration's revised National Security Strategy, released this March, the White House suggested war might break out if China's leaders diverge from a "peaceful path" by "acting as if they can somehow 'lock up' energy supplies around the world" and "supporting resource-rich countries without regard to the misrule at home or misbehavior abroad of those regimes." Those are both references to oil. Humanitarians might construe "resource-rich countries" as a reference to China's arrangements with Sudan, but it more likely refers to China's deals with Iran and Venezuela, two countries hostile to the United States. (The Bush administration, which recently rolled out the red carpet for Equatorial Guinea's Teodoro Obiang Nguema, is certainly not punctilious about supporting misrulers.)

Secretary of State Condoleezza Rice summed up the challenge from China, Iran, and Venezuela in testimony in April before the Senate Foreign Relations Committee. "We do have to do something about the energy problem," she said. "I can tell you that nothing has really taken me aback more, as secretary of state, than the way that the politics of energy is--I will use the word 'warping'--diplomacy around the world. It has given extraordinary power to some states that are using that power in not very good ways for the international system, states that would otherwise have very little power. It is sending some states that are growing very rapidly in an all-out search for energy states like China, states like India that is really sending them into parts of the world where they've not been seen before, and challenging, I think, for our diplomacy."

China is rapidly building up its navy--not in order to attack Taiwan, but to protect its oil routes to the Middle East. And the United States is now following what it calls a "hedge" strategy toward China. "It is U.S. policy to encourage China to emerge as a responsible international partner," said Pentagon spokesman Bryan Whitman. "However, there is also a lack of transparency and some uncertainty surrounding China's future path. Therefore, we and others have to naturally hedge against the unknown." Hedging in this case means a major naval and air buildup in Guam. Pentagon official James Thomas described "the hedging strategy" to The Washington Times . "We're looking at the deployments of bomber elements to Guam on a more routine basis," he said. "We're also looking at making adjustments in our naval posture globally, shifting to six carrier battle groups in the Pacific region, given the shift in global transport and trade, as well as over the next several years shifting approximately 60 percent of our attack submarine fleet to the Pacific."

The U.S. nuclear deal with India was also all about oil. The United States abrogated the nuclear non-proliferation treaty by selling India nuclear materials that could be used for military as well as civilian purposes. By using them in civilian reactors, India would reduce its demand for oil, and by also using them to build bombs, it balances China's power in Asia. It's win-win for the United States.

America's tensions with Iran are also basically about oil. If they weren't, an Iranian nuclear weapon would not pose a direct threat to the United States. Israel, too, has the means to deter Iran. But by elevating Iran within the Persian Gulf, nuclear weapons would put it in a position to influence other oil producers. (That was part of the American fear with Saddam Hussein.) Iran has already declared its intention to price its oil in Euros rather than the dollars, although it doesn't yet have the financial superstructure, or the support from other oil states, to do so.

Why did the United States invade Iraq? Well, there were lots of reasons, but one reason was to create a petroleum counterweight to OPEC . Neoconservatives within the administration assumed that a pro-American Iraq would quit OPEC , and, with its plentiful reserves, drive down world prices. That didn't happen, of course. Now one reason the Bush administration feels it must stay in Iraq is to prevent the destruction of oil-rich Kirkuk in a civil war and to ensure that a new Iraqi regime will not join Iran in attempting to frustrate American oil needs.

The United States could follow a different strategy, combining drastic conservation at home with an attempt to work a new international oil agreement that would prevent competition over supplies giving rise to war. Call it green internationalism. But don't expect the Bush administration to undertake either of these steps. And don't, unfortunately, expect a cautious Democratic administration to do so either.

(John B. Judis is a senior editor at The New Republic and a visiting scholar at the Carnegie Endowment for International Peace.)