Bushido—The Way of Oil

America Goes Into the Energy Business With the Former Evil Empire

For decades, we've heard warnings that the West's overdependence on Saudi oil could have disastrous effects were anything to go wrong in the Middle East. But it's been a hard habit to break—the American public's support for the 1991 Gulf War is proof enough of that.

That was a war between Saudi Arabia, the world's largest oil reserve, and Iraq, arguably the world's second largest oil reserve. Now we are fighting a war against what sometimes seems like a virtual Saudi Arabia, and we may use Iraq to achieve victory. But this will not be a victory over Osama bin Laden, or over terrorism. It will be a victory over our dependence on Saudi oil, and Russia is going to help us win it. Maybe.

It is often said that hunting down and killing Osama will solve nothing. That after this Osama, there will be many Osamas. This is true, but not just because of abstractions like "poverty" or "ignorance." Osama is neither poor nor ignorant. The reason there may be more Osamas is that there is a network that grows them, and that network is, for the moment, indistinguishable from the Saudi elite.

illustration: Lloyd Miller

Committed to the conservative Wahhabite strain of the Muslim faith, much of the Saudi power structure has been deeply compromised by its support for the networks of militant Islam—how deeply is the great mystery of this war. But when President Bush made "You're either with us or against us" the war's mantra, he must surely have been talking to people who never had to make the choice before.

How deeply compromised are the Saudis? We don't know, because our government is keeping very quiet about this. But according to the book Ben Laden: La Verité Interdite, which grew out of French intelligence reports (and was the subject of James Ridgeway's November 27 column), the answer is pretty much . . . totally.

In a chapter called "Terrorism's Banker," for example, we learn that Osama's brother-in-law was once the biggest private banker in the world. Until relieved of his duties in 1999, he was also personal banker to the Saudi royal family. His name is Khalid bin Mahfouz, and he was last seen in a Saudi military hospital, being interrogated by U.S. officials about $2 billion gone missing, very probably to terrorist causes.

These are not the type of people lending institutions are comfortable doing business with. And many leading banks have responded predictably: They have taken Bush at his word, and declined to invest in the region. In an end-of-year prognosis published in London's Financial Times, Arthur Andersen partner Carl Hughes said: "The focus of the great geopolitical game will no longer be east versus west, but north versus south. The 'war on terrorism' will hasten this trend, slowing the reopening of the Middle Eastern companies to western oil capital."

The power of the Saudi state, of course, rests on 262 billion barrels of oil, the largest concentration of wealth on the planet. To do battle with that, one must do battle with OPEC, the 13-nation cartel dominated by Saudi Arabia. And nobody can do that better than what the oil industry calls "non-OPEC," led by Russia, the world's second-largest oil-exporter.

The latest skirmish was occasioned by OPEC's November 14 announcement that, in response to the continuing global recession and the resultant fall in the price of oil, OPEC was scheduling a cut in production for the third time last year. But whereas non-OPEC—and especially Russia—had taken advantage of the previous cuts to increase their global market share, this time they were told to contribute a quarter of the planned drop of 2 million barrels a day, scheduled for the first two quarters of 2002.

Mexico and Norway made cooperative noises. Moscow most definitely did not. Having been asked to pony up a cut of 150,000 barrels a day, Russia offered 30,000—just enough to be insulting. Andrei Illarionov, one of Putin's top economic advisors, came flat out against cutting production, calling OPEC "an unreliable partner" and "a historically doomed organization." Eventually, a compromise was reached: Russia promised to cut production the full 150,000, but for the first quarter only—when the Siberian winter forces down output naturally.

The last thing the U.S. economy needs now is higher oil prices. But the delicacy of current relations between the U.S. and Saudi Arabia led to administration murmurs of support for "price stability," instead of the all-out price war the Russians said they were prepared to wage. But soon after there was a slightly different message from America's inconspicuous but powerful secretary of energy, Spencer Abraham. "Obviously we want stability. At the same time, we don't want a recession that's artificially extended because of decisions that are made with only a short-term focus."

In fact, Abraham, previously best known for his opinion that many Department of Energy functions would be best served by privatization, could not be more supportive of U.S.-Russian oil initiatives. In October, for example, Exxon exercised a previously unused option to develop Siberian oil. It's a $12 billion investment, and will reap $35 billion in revenues over the next three decades—and that's just the Russian share.

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