Is OPEC Finished? Anglo-American Oil Monopoly's Time May Be Up
Pacific News Service, Commentary, Franz Schurmann, Posted: May 05, 2004
Editor's Note: OPEC, long one of the main Anglo-American control mechanisms over global oil, may be in danger, the writer says. Recent suicide bombings in Saudi Arabia, combined with China's own efforts to secure a future supply of fossil fuels, threaten not only the old oil monopoly, but also the dollar's position as king of currencies.
The suicide-bombings in the Saudi Red Sea port of Yanbu were not just messages to the Americans and the Saudi monarchy. The attacks could mean the beginning of the end for one of the main Anglo-American control mechanisms over global oil -- the Organization of Petroleum Exporting Countries, or OPEC.
Saudi Interior Minister Prince Nayef bin Abdul-Aziz says he thinks Al Qaeda was behind the Yanbu attacks. If that is correct, then the attacks, by targeting oil workers, might be Al Qaeda's declaration of war on the Anglo-American oil and liquefied natural gas (LNG) industry.
Discovered by former Secretary of State Henry Kissinger in 1970 as an obscure international office in Vienna, OPEC was quickly promoted by Kissinger and President Nixon to one of the most powerful agencies in the world. It helped that Saudi Arabia and Iran, both top-grade American allies, became the two pillars of OPEC. But even after the Iranian Islamic revolution the two countries still worked together to maintain Anglo-American domination of world oil and natural gas.
It now looks like OPEC is in trouble. One cause is Al Qaeda. Al Qaeda wants to overthrow the Saudi monarchy, and its chances have improved since the suicide-bombings in Yanbu. With not only families fleeing Saudi Arabia but non-Saudi technicians as well, a meltdown in the industry is not inconceivable.
Another cause for OPEC's possible demise is China. China is desperately looking for oil and LNG to keep even its pared-down boom going. China seems to be undergoing a capitalist "great leap forward" in which everything it touches makes money. But without fossil fuels, a large part of China's industry will shut down, and a large segment of the population will live without electricity.
The Anglo-Americans have refused membership in their exclusive club to Russia and France. China has no interest in joining the club, but has the clout and the money to roil the oil and LNG markets. In fact, they have already started doing this. China is regarded as the biggest industrial "workshop" in the world. If all China-made products were suddenly to disappear, the elegant gentlemen of the oil and gas club would take their place in the soup kitchen lines.
Italian oil news analyst Mauricio D'Orlando reported last January that Shell Oil and Chevron Texaco reneged on a liquefied natural gas (LNG) deal destined for the booming South China markets. Why the two companies reneged is not clear. But the news laid bare China's energy vulnerability. China now has bigger U.S. dollar reserves than even Japan. But even its immense piles of dollars couldn't help it sway the two big Anglo-American oil companies.
But the Chinese leaders found another way of getting more natural gas. They empowered a state-run energy company, Zhuhai Zhenrong, to sign a $20 billion dollar deal to purchase from Iran 110 million tons of LNG over a 25-year period, starting in 2008. On the surface, it seems that China only trumped Shell Oil and Chevron Texaco. But the deal also gave a boost to the dollar.
With Japan no longer propping up the dollar in currency markets, China has become the U.S. dollar's biggest prop. So when Chinese Prime Minister Wen Jiabao announced that he was going to dampen his country's red-hot economic boom through manipulating interest rates, Japan's all-mighty yen plunged on currency markets. The no longer all-mighty dollar remained stationary because Wen's predecessors had pegged the RMB (a.k.a. yuan) to the dollar.
A big question then follows: will the head (the dollar) still wag the tail (the RMB)? Or could it be that the RMB is morphing into a head and the dollar into a tail?
The answer to the first question is yes, the dollar still wags the RMB. The reason for this is that, aside from big barter transactions, all fossil fuels are denominated in U.S. dollars only. Three-fourths of all fossil fuel fields or off-shore derricks are, directly or indirectly, possessed by Anglo-American companies.
However, Fed chairman Alan Greenspan is deeply worried about oil and LNG prices. Recently he warned that they are going to go up and up. If that happens, the global economy could disintegrate. When, during the October 1973 Yom Kippur War, the Saudis suddenly slapped an oil boycott on the world, Kissinger warned that this could mean the end of Western civilization. And, in fact, the 1974-75 recession was the worst since the Great Depression of the 1930s.
"Western civilization" has many facets, but its current foundation is oil and LNG pipelines that securely pump fossil fuels over long distances. And the Anglo-Americans have control over most of the globe's pipelines.
There is a possibility that China will play a bigger role in Iraq, after June 30 or even before. The Chinese leaders know that, at this point of time, America needs China more than China needs America. If, on June 30, America turns Iraqi sovereignty over to a U.N.-legitimated government, then China -- in return for construction and security services, and even possibly troop deployments -- might be at the head of the line for Iraqi fossil fuels.
But if Saudi Arabia undergoes a revolution like Iran's, the century-old Anglo-American monopoly on oil will crumble. The dollar will then become just another currency and Americans will have to work harder to defend its value.
China's RMB is already showing more and more strength and freely circulates in an increasing number of countries. China already props up the dollar. Maybe at some point soon people will say, "It looks like the RMB is the head and the dollar is the tail."
PNS contributor Franz Schurmann (fschurmann@pacificnews.org) is emeritus professor of history and sociology at U.C. Berkeley and the author of numerous books.
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