Thursday, June 19, 2008

Oil Geopolitics Part II: The Rise of Petrolstates

Of all the sources out there, Mother Jones has a very thoughtful piece on the fall of oil multinationals and the rise of the state-owned oil companies. The author correctly points out that while the normal Mother Jones audience will probably clap at oil companies downfalls, the reader should fear the geopolitical consequences. Now, freedom-minded share holders can no longer force companies to pressure undemocratic countries to induce reforms for oil deals. The juntas, dictatorships, and all around mean governments can do as they please because high revenue gives government leverage over oil multinationals. In the past, governments would allow for-profit multinational companies to set-up shop, put in their drilling rigs, hire their own employees for a certain cut, or percentage, of the revenues. Now that drilling is more lucrative governments are willing to force-out the private sector completely and reap all of the benefits (case study Venezuela). And, Catholicgauzette is quick to point out that government-owned companies tend to be riddled with inefficiencies.

The Economist points out that national oil companies (NOCs) manage over 90% of the world's oil. The largest oil companies, according to Wikipedia, are all government-owned and in places where freedom is suppressed at best and non-existent at worst. The list rated by oil reserves owned follows:

  • Saudi Arabian Oil Company
  • National Iranian Oil Company
  • Qatar Petroleum
  • Abu Dhabi National Oil Company (United Arab Emirates)
  • Iraq National Oil Company
  • Gazprom (Russia)
  • Kuwait Petroleum Corporation
  • Venezuela Petroleum (owner of Citgo)
  • Nigerian National Petroleum Corporation
  • National Oil Corporation (Libya)
  • Sonatrach (Algeria)
  • Rosenft (Russia again)

The Petrolstates have already used oil to sway things their way. Russia has used Gazprom to pressure Ukraine not to drift to far West, to press reforms in Transnistria, and keep Germany supporting Russian foreign policy goals. Domestically petrol dollars are used for infrastructure improvements but can also be used for ill. Venezuela's oil money is financing social relief programs (good) but also Chavez's police state and funding FARC's terrorism and drug running. PetroChina's parent, the state-owned CNPC, is in bed with the Sudanese government (such as killing in Darfur and funding terrorism).

History in a way is repeating itself. In the 1980s the high price of oil extended the life span of the Soviet Union and blinded many observers to its imminent collapse. Some world watchers state that if oil were to "collapse" back to pre-2004 prices (~$35) countries like Venezuela and Iran would face economic ruin and civil unrest.

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