Wednesday, April 26, 2006

End of a$$

Aside from playing a few (OK, quite a few) rounds of golf the past 2 weeks I've been doing some reading and thinking about the Middle East. The reading included a few books by British or American authors about recent (150 years) history, with a focus on oil concessions and the related political developments. The thinking included quite a few moments wondering just what the current US administration and oil industry execs think they are doing in Iraq. Have they so quickly forgotten how the US found itself in the driver's seat in the region following WWII?

For those to whom the universe of their senses, of the here and now, overwhelms the thought that the present is but one small part of a story still unfolding, it might be difficult to imagine that but a few decades previously the British were in almost complete control of Middle Eastern oil following the collapse of the Ottoman Empire. But they were.

The various rulers of the region had sold concessions to explore for and extract oil to quite a few individuals and companies on terms that demonstrated the rulers' ignorance of western business and the potential for oil. For instance, William D'Arcy in 1900-01 bought an oil exploration and export concession from Persia with a term of 60 years covering most of Iraq except a few northern provinces, for
£20,000 cash, £20,000 in shares in the company and 16% of annual net profits. These payments covered all tax and customs duties. This concession was the basis for the Anglo-Persian Oil Company.

I won't bore you with further examples but suffice it to write that the British government, as preeminent power in the region was able to drive a hard bargain. Despite this, the regional rulers would intermittently agitate for and receive improved deals over time. Barring genocide, the people in the region were and as Iraq demonstrates, are still capable of shutting down oil exports, admittedly at the risk of losing those revenues.

The trend, since those first concessions led to oil exports in the early 20th century has been for the regional governments to get a greater and greater share of the profits and control of the resource. This trend was accelerated when the US made it big move in the region, modifying its deal with the former Emir of Nejd, then King of Arabia, ibn Saud, to split profits of Aramco 50-50.

Think about this for a moment. While the British were involved in an acrimonious dispute with Iran that eventually led to Mossadeq's nationalization of the Anglo Iranian Oil Company and cessation of Iran's oil exports for a few years, the United States' oil execs agree to a 50-50 split with Saudi Arabia that leap frogged them into the driver's seat in the region.

Stepping back from the history for a moment, I'm a big believer in win-win deals. If you give the person with whom you are negotiating more than he expects, and more than the norm, that person is likely to work hard to hold up his end of the deal. If, on the other hand, you try to screw the person with whom you are negotiating, perhaps because you are a big guy or have a powerful military machine behind you, you may get the deal done, but the other guy just isn't going to work as hard.

So, my question is, why are US oil execs and the Bush administration trying to unwind the clock of these oil deals by getting Iraq to take much less than the norm? Do they really believe this "end of history" flatulence, as if history began with the Cold War between Capitalism and Communism?

Before the Bolsheviks rose in Russia, the Tsars were interested in oil and as is clear, Putin's non-communist Russia is also interested in oil. The same forces (locals wanting more control and profit, other powers out of the loop wanting in, regional leaders looking to expand territory) which were at work in the region for a century are still in operation today. End of a chapter in history, yes, end of history....nonsense. The great game continues.

Only now there is a new player on the field, China. Wouldn't it be funny, in a tragic sense, if, while the US was trying to roll back the clock a century and get these backward people to accept much less for their oil, first in Iraq and then, as the Neo-Cons put it, the rest of the Middle East, China puts its hundreds of billions of dollars and ever growing thirst for oil to work in the region on the regional rulers' terms. At that point, why not resist occupation, the payday will be huge? Why not overthrow governments that signed bad deals? Yes, the great game continues.

Pop quiz: Where did Chinese President Hu go after having China's national anthem introduced as that of the Republic of China (Taiwan) and being heckled by a Falun Gong member at the White House? Saudi Arabia, where he was actually treated to a state dinner, instead of a lunch.

This war in Iraq, it seems to me, can be ended quite quickly, by agreeing to a reasonable deal. Unless, that is, we have put a cloud on the US' name in the reqion, much as Britain found it had a few decades ago.