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March 10, 2005

The World Over a Barrel: The Politics of Energy

Moderator: David Buchan
Panellists: Marcell, Colitti, Alastair Morrison, Gary Hart, Roger Diwan

In the panel, The World over a Barrel: The Politics of Energy, most participants agreed that the energy industry was a target for terrorists, although it was debatable how significant the impact of potential attacks was. The most important effects, the panellists argued, lay in the perceived security risk which contributed to the rise in energy prices. At the political level, one panellist maintained that the forceful democratisation of the Middle East was counterproductive, because it maintained high oil prices, which allowed autocratic regimes to ‘buy off’ internal opposition. The panel was organised in collaboration with the Instituto de Empresa.
Religion and Religious Extremism


Complete audio of the conference

Transcription / Transcripción

Moderator. David Buchan
I’m your moderator, David Buchan.

I think I would just like to kick off by pinpointing some general issues we might touch on and then the panellists will take over.

I think it is important to stress exactly what it is we are talking about. We are talking about the risks of terrorism to the energy industry. The risk factors: the ways in which the energy industry behaves around the world can be a risk factor for creating, fermenting and encouraging terrorism. I suppose geographically the risk imposed by global terrorism to energy supplies inevitably centres more on the Middle East than anywhere else.

Of course, the risk exists elsewhere. There are violent social protests in Nigeria, political strikes in Venezuela, pipeline bombings in countries like our local gorilla movement in Colombia; which are all focused on the energy industry.

But the global threat to the energy industry arises out of the Middle East, in the form of the Al Qaida movement or franchise. It is true it can take anonymous conferences focused on discussing those localised forms, such as perhaps citizens of Western countries being inspired by Al Qaida perhaps attacking their local nuclear power station, so we are not necessarily talking about Middle East citizens attacking Middle East targets. This is a world problem.

Nonetheless, I think the Middle East will be a focus of our discussion because that’s where the main reserves are and it has also been the origin of the Al Qaida movement, a movement that wants to get foreign oil workers, as well as soldiers, out of the Arabian peninsula.

And of course, there is the whole general lack of spare capacity in the world’s oil industry, and the particular balance or imbalance between supply and demand at the moment creates a certain volatility and vulnerability in energy markets.

Now, what are the targets?

It is probably true that the oil industry is not the principal target of terrorists. The travel or airline industry has been the target and there was a panel on that topic yesterday. However there are obvious targets: oilfields, pipelines, terminals, gas pipelines, natural gas ships, and human targets such as foreign oil workers. There are obvious concerns where there are big energy supplies, such as in Saudi Arabia where there are very concentrated energy reserves, representing another obvious potential target.

To what extent can risk be reduced and if so by whom?

Probably the best way international oil companies can reduce the risk of terrorism is to avoid exacerbating local social or political tensions on which global terrorism feeds. The problem with these international oil companies is that they operate in states that have weak laws and widespread corruption. Therefore a lot of local people believe that the oil majors are ripping them off and their governments are also often being ripped off. Because of this, the oil majors’ energy companies probably need to adopt higher standards of corporate social and environmental responsibility.

In terms of physical security, governments can help too and we have someone who will speak on this area later: Alastair Morrison from KROLL. However governments have a very important part to play in physical security and also in holding emergency energy stocks and one possible issue is whether these stocks which were set at a certain level back in the early70s, need to be increased.

And finally we might examine what governments can do to reduce energy dependence on the Middle East. Of course there are supply side means- getting more oil from non Middle East areas, from OPEC areas, in addition to the possibility or necessity of governments to promote the use of alternative resources, renewable energy, wind, solar energy, etc.

On the demand side there are efforts to reduce consumption and emissions in line with the Kyoto treaty, which is enforced in European and Australian countries, but we don’t really know what that will do to energy consumption, as the Kyoto treaty has only just started

Finally on the question of reducing the demand for Middle East oil, the biggest question is: can the US, the world’s biggest consumer, reduce its appetite for imported oil. I think this is fairly unlikely, it has been tried many times in the past and although there is talk of George Bush re-launching an effort to get a comprehensive energy bill through Congress. It would only possibly be comprehensible in a sense that it covered various forms of energy. It certainly would not be comprehensive in terms of being adequate in reducing demand. The Bush proposals have tended to be very much on the supply side.

So I think they are some of the issues we might touch on.

I’d like to ask Roger Diwan to kick off the discussion. Roger will probably introduce himself. He is the managing director of Petroleum Finance Corporation, now renamed PFC, in Washington, and he is a considerable oil energy expert

Why don’t you give us an overview and then we’ll go to the other speakers and panellists.

Roger Diwan
Thank you. Thank you for inviting me.

When I talk about energy prices I’ll be talking mainly about oil. The main risk is price risk; price will rise to a level that will really have an effect on the economy. So of course there is a security risk but the security risk becomes an economic risk through prices.

It’s a good time to have this discussion because yesterday prices reached an all time high. There are multiple reasons for that. I’ll try to talk about that and the whole issue of security

If we have very high prices now, it’s largely due to a function of supply and demand. Demand is growing very fast and supply is not catching up, so we are running a very tight system. The real change though, which I would call a paradigm shift, is that over the last century, the oil industry in general has always worked with some sort of cartel, which makes sure that in managing the supply function, they don’t put too much oil on the market. So the restriction has always been to make sure that the supply is restricted by some sort of cartel, the OPEC, Texas Fairway Commission, Seven Sisters, etc. So we have always had a lot of slack in the system in terms of excess capacity and this mention of excess capacity is really the key here. Because three years ago the system was running at 6% excess capacity so we were running at 94 positionally. Right now we are running at 98% and by the end of the year it will probably be even tighter than that. Which means we are running at more than full capacity. So imagine 98 % of 86 million barrels per day moving around the world, being refined, distributed, etc. It leaves no room for any problem to happen in the world

And this is the main reason why we are having a crisis, we don’t have any spare capacity. Moreover the little spare capacity we have, around 1 and a half to two million barrels a day out of a total of 84 million barrels a day, is all in the Middle East. Of these 2 million at least three quarters are in Saudi Arabia and the other quarter is in Kuwait and the United Arab Emirates. You can see that these reserves are very geographically and politically very concentrated and this combination of lack of spare capacity, terrorism in Saudi Arabia over the last three years and general sense of instability in the Middle East is largely figged, but that doesn’t matter; it is perception that matters. Together these three things have really added a very large risk premium to the oil prices. And not only that. It means that the chance that prices will increase versus decrease is very high. So risk is asymmetrical on the upside, which provokes something else, as anyone who wants to bet money is going to bet money on prices rising. So there is a huge amount of money flowing into the oil sector at the moment directly through people buying oil contracts, speculating from the outside and knowing everything that happens, directly pushes prices further up, to create a price wall tax so that the more oil you buy, the more you tighten supply, the more prices go up. Stocks in general are very low because prices are very high, nobody wants to hold stocks when you have to keep the money unused.

So what we have created here is a system that is very sensitive to any news and in particular to any security news. The market can react quite unexpectedly. I feel prices are very serendipitous in the way they are set. If you look at where we are right now, 56 $. We were at 42$ in mid December so there has been quite a change in something, while supply and demand haven’t really changed that much. What triggered the initial build up in prices was a bomb attack in Saudi Arabia and from there it just built up more and more.

So the risk is that anything happening will create a shortage. I think this is a fake risk to a large extent, because there are very few events that can really create a big shortage of oil. The oil facilities are widely spread out and while it’s true that the Middle East has three quarters of the reserves, they have little more than a third of production. And facilities are also quite spread out. Attacking an oil field may mean you can blow up two or three wells, but it doesn’t have much of an impact. The question is the concentration of targets in the Middle East, which is interesting, and the fact that there are only four or five facilities in the world which, if you take out one, can really cripple the system for a very long time. All of these are in the Middle East. There is one facility in Saudi Arabia called Ab [...], which has basically centralised a lot of the crude coming in from the fields, which means water is removed from it here. And these facilities have 5 million barrels going through it every day. That is by far the largest target in the world in terms of the oil system. The other is probably the loading port in Saudi Arabia, or the Straits of Hormuz. In the Straits you can block supplies, but if you take out Ab[?], the system would be crippled for many years.

In that sense I feel that the targets are fairly small, so it’s very difficult to cripple the system for very long. You can blow up a field but it doesn’t change anything. It can increase the risk and the insurance rates. It will have an effect on prices and then they will come back down.

So the risks are small and very concentrated and I can assure you that the countries in which these facilities are located, protect them very heavily. In many ways the Eastern provinces of Saudi Arabia where the oil is produced, is a security fortress. You have to go there to see it.

But the problem is that the system knows it is vulnerable. I think there’s a lot of money spent on security. So we have wide spread risk in the sense that you can blow up anything, anywhere in the world but I think the crippling targets are fairly well secured

How do you mitigate those risks? I’ll touch upon that. One is spare capacity. We don’t have that and I don’t think we’ll have it over the next few years so we’re going to be living in this world of very tight spare capacity. The other one is to build a strategic stock on the consumer side, and industries did this in the 70s and its currently finishing filling its SPRs (strategic petroleum reserves).

So actually we have a lot of strategic reserves on the consumer side.

There’s only one problem, no one knows when or how to use them. We don’t have a policy for when to use them. We didn’t do it when we had a really crippling event two years ago, which was the Venezuelan strike. We didn’t do it during the Iraq war, we haven’t done it at 56$ a barrel so its not clear whether there is a policy or sets of measures which, when something happens we know how to use them. It’s ad hoc. The reserves are managed by Europe, so we need consensus among a large number of countries, and no one knows when and how we would use them. Is it a price issue? Is it a physical destruction issue? What level of physical destruction must be involved? If something happened in Venezuela it doesn’t concern the Europeans, so should they be involved or not?

It is really the policy makers who have built these huge reserves and I personally don’t know any real way to use them, which is quite interesting given that we have spent a lot of money on building them.

I’ll stop here.

I’ll just ask one little supplementary question. Do you think there should be an active policy of using strategic reserves to break down crises?

Roger Diwan
It depends what your goal is. I tend to believe that if OPEC are crippling the economy, yes you should use them. At 50$ you’re not there yet. And I think a lot of people like me are quite surprised at 50$ not having quite as big an impact on the global economy but yes I think you should be using the reserves. The debate on whether to use spare capacity is based on the notion that we don’t intervene in the market. Well, we don’t have a market, we have a cartel. The oil market has never functioned as a market. You always have some people who are making sure that there is just enough supply. So you can create incentives to build stocks, and one way to do that is to change the way prices are set.

There’s a lot of debate about when and how to use the spare reserves and it’s never going to be an issue that is easy to resolve. Not only that, every time a government changes in one of the OECD countries, the whole rationale, in terms of policies, changes. I’ve been involved a lot with the industry on these issues. Every few years we go through it and there are still no policies.

That is where we could move to the issue of physical security. We have the great energy industry expert, Alastair Morrison, chairman and chief executive of KROLL Security International.

What can KROLL add to what the Saudi National Guard and the Iraqis already do and basically what can the private sector bring to the area of protecting energy from terrorism.

Alastair Morrison
I think that whenever you are looking at risk and ways to mitigate it, you look at two things. First of all the intention of the people who are going to try and do something against the facilities you are trying to protect and secondly their capability. In the case of the modern day terrorist in the era in which we live, it would seem a natural assumption because of the dependence in the west and then the First World on energy to support our economy. It would seem that the energy industry would be a natural target.

And yet when you look deeper into it, is it really a target? And is it in the packet of things that terrorists want to do?

The modern day terrorist since 9/11 has demonstrated a penchant for wanting to use weapons of mass effect, hence the successful operation in their eyes against New York and Washington. Hence the operation here in Madrid.

Those were both operations that had a mass effect against some population. So the first question you ask yourself is: is an attack on the energy industry going to have a mass effect, and the answer is: probably not.

Industry attacks will certainly effect the economy and I think one will see more industry attacks on the more vulnerable sectors of the oil industry. And I’ll come on to those in a second. The thought of a mass concentrated attack against civilians globally is pretty unlikely in my view. So then one has to look at their capability, assuming that they want to attack the industry, what capacity do they have globally for bringing the industry to its knees?

The answer is, not a lot, although Al Qaida and its copycat organisations are certainly growing in both capacity and global expansion. They don’t have the capacity to have a serious impact on the industry. They can do pinpoint attacks, things that certainly damage things, but in my view they won’t do anything that would be catastrophic to the industry.

As far as prevention is concerned, I think the industry itself is probably more sophisticated in dealing with crises than any other industry. The major oil companies in particular have had to deal with crises over the last 40-50 years, be it environmental, be it dealing with local government or upheavals and so on, and they are capable of dealing with them. I think one tends to forget the sophistication of the oil companies as opposed to government and their ability to deal with any incident that happens against their facilities.

The process is what can be done to protect the industry facilities. First of all, as Roger was pointing out, the facilities tend to be in quite remote areas, and attacking them is actually quite difficult. If you take Saudi Arabia for example it is so difficult to penetrate and do serious damage against a singular installation.

You can certainly attack the linear targets, the pipelines, you can certainly attack the tankers, which is probably the biggest danger. Which is going to have an environmental as well as economic impact but not a vast one.

If you look at what happened in Kuwait at the end of the first Gulf War when Saddam Hussein set fire to the oil fields in Kuwait it only took 7 months before an industry that had been 90 % devastated, to get back on its feet. It actually took 90 days for the first installation to start producing again. So even when a country tries to destroy another country’s facilities it doesn’t take that long to get back on its feet.

Now to look at the most vulnerable assets: the pipelines. Again, what effect is the attack on a pipeline going to have? It certainly has an effect as Roger was saying. And a bomb attack on a work in Saudi Arabia has an effect on the oil prices. An attack on the pipelines for example in the north of the Turkish border has an effect on the oil price. Not a catastrophic effect, but an effect. How much effect does it have on the ability of the companies and countries to pump oil? Not a lot.

Nowadays, because of technology, it is possible to very rapidly identify any breach caused by technology failure or terrorism attacks and to close down the flow of oil by closing down the nearest pump station. This is the secret to dealing with the recovery; the less time the facility is down the less money one is losing, and the less effect it has on the economy .

On average in the more sophisticated locations a breach caused by a terrorist attack would normally have been repaired within one day, and that’s because one is able to identify the most likely place for the attack and be able to close down the nearest pump station and prevent the flow of oil. Although here Iraq is not a good example, as the technology and the equipment it uses is pretty outdated because of neglect over the past 15 years or so, meaning that it takes longer to repair pipelines. But it is different in Saudi Arabia or South America. Then you repair it by having pre-position pipelines ready, and teams ready to repair the problem. So it’s the recovery stage which is all important. Again one can’t see the terrorists having a mass effect by blowing up pipelines or a series of pipelines.

Obviously hitting a tanker is a different issue because that is spectacular. I would call that a weapon of mass effect. It’s something that is going to get the headlines, it is going to have an environmental effect, it’s going to effect people but it wont have a massive effect on the economy apart from creating a perception that the terrorists are able to do these sorts of things.

The final point I would like to make is something that was referred to in the opening comments.

The most effective way of dealing with security, particularly international security in the United Arab Emirates is by empowering the local people. I think you’ll find in industry that most major oil companies through experience have learned the hard way, and are now going into new areas where they immediately set up social programmes that benefit the local people so the local people feel that the facilities are their facilities. And anyone coming into the area, is going to be attacking their facilities, not some foreign company’s facilities. Local social programmes like building roads, infrastructure, hospitals, schools, empower people, which is vital with these programmes.

I think I’ll stop there.


Fascinating how the actions and corporate social responsibility actually can produce a positive benefit in the security area.

I’d now like to call on Gary Hart who will be known to all of you. He was the co chairman of the US Commission on National Security for the 21st century, which I think forecast a 9/11-type attack a year before it actually happened. But before that he was a US senator from Colorado. Perhaps American energy policies might be different had his candidate in 1972, George McGovern won. Senator Hart might actually have succeeded for the presidency. Anyway I think he may have some dissident remarks on the current state of US energy policies and other matters.

Gary Hart
It is often said that the US does not have an energy policy. We do in fact have an energy policy, and it can be stated very directly and very simply. It is the policy of the US to continue to rely, for about half of our petrol supply, on imported oil, so that we can continue to drive a very large, very inefficient vehicle, and thus, if supplies get cut off, to sacrifice the lives of our sons and daughters to guarantee that supply. That is the US energy policy.

There are two things wrong with that. It has never been stated directly to the American people that that is in fact our energy policy. And secondly it is immoral. Politically this is an energy policy that is also at war with our foreign policies, our national security policies and with global environmental health.

First of all, in January, president Bush announced that the centrepiece of US foreign policies was to promote, if not impose, demand around the world.

However given our dependence on oil from certain countries, which shall we say, are economic with democracy, the question is: what comes first, our demand for their oil, or our insistence that they change their forms and structures of government. I think the very statement of the question answers itself.

Our national security policy can never be a secure one as long as our dependence on oil makes us as vulnerable as we are. The sole most insecure part of America, both politically and economically is that unrealistic dependence on oil supplies from somewhere else. Whether in fact, as Mr. Morrison says, they can be re-established and replenished may be beside the point if in fact we are already internalising in the cost of that 54-plus $, the cost of disruption and insurance and all the rest of it.

Obviously, the question of relying on carbon based fuels has caused the demise of many people not only those in the US administration. Deep concern about greenhouse gas emissions and the catastrophic consequences of continued reliance on carbon based fuels. So American energy policy is fossilised with its foreign policies, its national security policies, or national security interest and environmental concerns.

We are dependent on a variety of governments who do not represent what president Bush believes to be in the best international interest of the US and the peoples of the world. Our petrol dollars are clearly being recycled to support Al Qaida, and in a way American energy policies is financing our own self destruction.

Now there are alternatives. And everyone knows what they are. They are: composed conservation, technology, and alternative supplies that are available. We can reiterate those and it is probably helpful to do so. Very briefly, first of all conservation. We should tax carbon-based fuels, we should tax oil imports, and we can use that money to develop alternative supplies and we should.

We should have much higher fuel efficiency standards in our vehicles. It’s ridiculous the kind of automobiles Americans are driving and will continue to drive because of relatively inexpensive energy.

Those taxes and fuel efficiency standards would bring on much more quick alternative kinds of vehicles, including hybrids. We can clean up coal combustion, which is not happening, but should, and the government can insist on that happening but is not. We can move much more rapidly to substitute national gas for coal, and finally somewhat controversially, my friends in the environmental groups, we can standardise a 500 megawatt pressurised water reactor, and go nuclear. That’s an expensive alternative but if you internalise as I think we ought to, both politically and economically, the cost of protecting oil supplies- costs that are almost never considered- would include a 450-500 billion $ annual defence budget. And one of the reasons for the size of the American military is in fact to guarantee oil supplies.

So I think if we were honest with ourselves and identified our economics right, we would probably find that we are paying 100$ a barrel for oil or something in that range. But we never consider those facts

Finally the hydrogen economy and fusion are over the horizon, as most experts, and I am not one, point out, the real issue is how to get from 2005 to 2040 or 2050 and it is believed that both hydrogen and fusion can produce very cleanly and perhaps less expensively the energy that the US currently has.

The issue isn’t the alternative policies that are available. Everyone knows what those are and to reiterate them is just to state the obvious. This isn’t a question of technology or how to solve the problem. It is a question of political will and right now there is virtually no political leadership in the US, certainly in power today, who are interested in any kind of alternatives policies. Let me suggest two fairly old if I may, radical, ideas.

If we are to continue pursuing the same policies in the US, people say and I have heard it said, if you become independent of oil, other countries still remain dependent, and therefore it is your job, the US’s job, to guarantee those oil supplies. Well I don’t think so. As small republican in 1991 I did not think it healthy to my country’s political structure for the Secretary of State of the US, Mr. Baker, to travel the world with a tin cup, collecting money from oil consumers, to pay for the US military to liberate Kuwait and their oil supplies, but that is exactly what we did.

I don’t want that to happen in the future. I don’t want the US army becoming a mercenary army for the first time in its history, which is what happened in 1991. Instead we should create some sort of force, lets use NATO as an analogy, such as a Persian Gulf treaty organisation of consumers and producers and all of those nations producing oil and all of those consuming oil, to guarantee those oil supplies. I’m trying to get away from the idea that it is a America’s obligation to guarantee the oil supplies of the world

I suppose we can afford it, although it is a fairly heavy tax demand on the American tax payer, but more important it is our sons and daughters who are dying in these Gulf wars.

David Buchan
Actually just on that last suggestion, I would make this comment, it is not just the US army but also the US navy who are taking part. Although many people would object to the US army blundering in to secure oil supplies and to foster or impose demand. I suppose a lot of US citizens in the rest of the world are rather grateful that the US navy is their sort of guarantee, or at least one assumes it would guarantee, or try to assure security if there were anyone trying to block someone or to choke points for the shipping such as the straits in Singapore, the strait of Hormuz in the Gulf, the strait of Gibraltar not too far from here.

That kind of US naval role -assuring the freedom of the seas- is something that is in a way a lot less controversial, but also rather valuable.

Anyway would anyone, in the audience like to have a go, take up some of the ideas presented by the panel?

Gentleman just here.

Delegate from the floor
David I just briefly wanted to ask Gary on the alternative power options and about nuclear energy. Environmentally its kind of a plus, but most forms of reactors have by-products, which can be reprocessed into this material which is a far greater terror concern, in terms of the multiplication of that stuff lying around the world. When we think of it we only think of it in far away places, but what is created in the US and the former Soviet Union seems to be particularly problematic. Does your alternative energy thing have some kind of safeguards to keep it from building a different set of problems?

First of all I think if you are going to have to protect your oil supplies I think it’s much easier to protect energy plants in America than in lengthy pipelines in the Persian Gulf. I think there are ways, and I think there are technologies experts, and I’m not one, coming up with ways to recycle nuclear fuels in ways that are much more secure compared to the extended vulnerability we have by depending on Persian Gulf oil. It is one piece of the puzzle. I don’t particularly like nuclear power, but on the other hand the French proved you could use it fairly efficiently. I don’t exactly know what they have done to resolve their waste problems. These are considerable and costly.

I think if the economists here could tell us how much it is costing us to internalise the cost of all energy production, you would get a much different equation and by internalising what I mean is: for example, the cost of the US military -army and navy- protecting oil supplies, and the disposal of nuclear waste and all of the other externalities or internalities. Then the economic equation of energy production and consumption would change enormously. But from the stand point of sufficient replacement alternatives to the oil industry, I don’t thing you can get there in the interim in the next 30 years without some dependence on the standard, and let me repeat the form, a 500 megawatt, standard, press water reactor. That’s a reactor that is about half the size of Three-Mile Island, and I conducted the senate investigation on Three-Mile Island.

If you standardise the reactor then it’s pretty simple.

Delegate from the floor
Can you talk us through the situation in some of the areas of the world where oil has tended to be a destabilising influence, such as in Nigeria and the Niger delta, maybe Colombia, and what’s being done in some of these areas? And also what some of the planning is, if there is any, in some of these areas, when it comes to natural gas? In South America there’s a huge amount of natural gas. So if you can talk about that, and some of the things the industry is doing to mitigate this or if you talk a little bit about S[...], which is a relatively minor part of it.

I can start. You are talking about problem-producing countries, and it’s not just in Nigeria and Colombia. All the oil exporting countries have ‘domestic issues’ to put it this way. But typically when you have an industry like oil, it generates a huge amount of revenue without having to go into the domestic economy. You see the creation of states or more importantly regimes, that rely on foreign sources of funds rather than taxation. So the global system has been completely turned on its head and a regime is established that depends solely on the oil price cycle, not on its population or taxation, to create a vibrant economy. And you see this situation in Colombia, Nigeria, Saudi Arabia, wherever you have oil in central Asia. There are really very few oil economies that are real democracies. That is pretty much it. Oil is a disease, it’s a drug, and it’s a drug for the regimes and for the people ruling the regimes, because they don’t rely on anybody else. They can get the money, do what they want with it, create guards to stay on top. So this is what oil does, it is not what the oil companies do; it is what the regimes do. And the oil companies will not have an option; it will have to give the money to the state, not to the people in the state. So that structure, which is the same for the entire extracting industry is what it is and there’s very little that can be changed. All these states are structured that way, and there’s not much we can do here. That’s the oil disease on the producing side, so it’s not just the consuming side.

As for gas, it’s pretty much the same thing. As long as it’s exported, it creates the same diseases, it’s just a lot more expensive to produce and to transfer than oil. So oil companies do not fear the investment as long as they continue, and I think in the next 10-15 years there will have to be a lot more natural gas than oil because they don’t have the ability to produce a lot of oil.


Alistair Morrison
I agree, I think that the major problem is that a lot of both natural gas and oil is in areas where democracy is not a word that is spelled very correctly and I think that the major oil companies are more sophisticated than they were even 20 years ago in their being aware of their social responsibility. I think that it’s becoming a bribe, that they are able to put pressure on governments to modify the way they treat the local people either by threatening to withdraw, as in the case of Shell in Nigeria, which would have a devastating effect on the Nigerian economy and the Nigerian government.

So there is a certain amount of pressure, but it’s only a certain amount. I think that the problem is that an oil company goes into places like Colombia, it develops programmes in these area, it supplies opportunities for employment that weren’t there before but it also underlies and underscores the great division between the super-rich, like government people, and the local people. This is a problem that’s going to take a long time to solve and its only going to be solved if these countries move into a more democratic stance.

I think that the pressure we put on companies and government is pretty obvious. I think most major oil companies have pressure from various groups demanding that their programmes are much more aligned to the democratic process and that companies have no supplier relations with groups such as death squads, as was the accusation in Colombia -that the oil companies were funding them indirectly by funding the police. So I think pressure comes from two sides, one is the public and the second is from the companies themselves.

Gary Hart
Let me support the views of my colleagues. I will refer you to a book by a man called Fareed Zakaria, published about two or three years ago called “The Future of Freedom”. He documents exactly what my colleagues have said. And that is that some of the least democratic, most repressive governments in the world are those rich in resources, because they don’t need to reform because there is no pressure from the bottom. They filter down enough money from the wealth of those resources to keep people pacified, but it’s not a realistic economy, and they are under no pressure at all to reform or open up.

And second, if George Bush were really serious about democratising the world, the fastest way to do that would be to drop oil prices because that would force a lot of governments in the Persian Gulf and elsewhere to begin to undertake some political reforms that they are under no pressure to do right now.

It is more than that because the more you put pressure on the Middle East the more you create tension, the more oil prices go up, the more government regimes have money, the more they can buy off the opposition, so the higher the oil prices the less reform you’ll have. And you see that already in the Gulf, where three or four years ago a lot of these countries were bankrupt and they had to face the issue of reform and demographics they had. And now with higher oil prices they can fake reform. You can have elections in Saudi Arabia, but we don’t have much democracy yet. It means that these countries will again have the resources to play the patronage game that they know better than anyone else. So higher oil prices in a way is the anti-reform and it is very difficult to imagine talking about real reform in the Middle East when there are very high oil prices.

So it’s a vicious circle.

Delegate from the floor
In the last few years a new factor in the energy market has been the enormous increase in the demand for oil due to the very high rates of economic growth in China and India. China is increasingly dependent on Gulf region oil and also on the policing role of the US of that region and, and it will to be dependent in the future. However it is a double dependence that makes China very uncomfortable. And I wonder what this dependence will bring in the next ten years as a strategic factor in international relations. Could you comment on that?

Who would like to comment?

(Continued in: Balancing the Agenda, part 2).


Roger Diwan, Managing Director, PFC Energy, USA, and moderator David Buchan, Senior Editor for Energy, Financial Times, United Kingdom, on the session 'The World Over a Barrel: The Politics of Energy'. (Photo: Club de Madrid)

Alastair Morrison, Chairman and CEO, Kroll International Security, United Kingdom; Gary Hart, former United States Senator; Roger Diwan, Managing Director, PFC Energy, USA; and moderator David Buchan, Senior Editor for Energy, Financial Times, United Kingdom, on the session 'The World Over a Barrel: The Politics of Energy'. (Photo: Club de Madrid)
With the collaboration ofSafe Democracy Foundation
Members of the Club de Madrid

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