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The Political Economy of Global Oil


Article # : 17162 

Section : CURRENT ISSUES
Issue Date : 12 / 1990  3,188 Words
Author : Cyrus Bina

       Saddam Hussein has committed his second blunder in a decade. This time the Iraqi leader had three major objectives in mind when he invaded Kuwait and called for union of the "Kuwaiti branch" and the "Iraqi tree."
       
        Fist, since his coming to power the Iraqi leader has sought to command the leadership of the Arab world, a vast and resourceful region plagued by economic despair, political and ideological division, and, above all, a deep sense of frustration. But he did not possess adequate understanding about the global polity or even regional politics in his own backyard. His outrageous invasion of neighbors, Arab and non-Arab alike, is cause for concern. Yet Saddam Hussein, in the minds of many Arabs, is a bold leader who promises to restore Arab dignity, to uplift the spirit of pan-Arabism, and to put an end to denigration of Arabs both regionally and internationally.
       
        People in the Arab world have long wondered why the United States has been so disinclined to counter the Israeli occupation of Palestinian territories in the same fashion and with the same enthusiasm as it has countered the recent aggression by the Iraqi government.
       
        So, despite the dangers imposed by Saddam's aggression, the Arab psyche is still deliberating on how to grapple with the present crisis.
       
        Saddam, on the other hand, stands to benefit from these uncertainties - especially from the legacy of colonialism and neocolonialism - and from the growing gap between the haves and have-nots, reflected upon the Al-Sabah family or the shaky foundation of the House of Saud, whose protection is now guaranteed by good, not so old, American blood that oil money can buy.
       
        Deployed U.S. forces, therefore, are confronted with mounting pan-Arabic sentiment and plain anti-Americanism. This certainly favors Saddam in the short run. In the long run, however, when the UN-sponsored sanctions materialize, he may be in trouble.
       
        The second motivation for the Iraqi invasion is economic. Saddam Hussein wished to have a say over OPEC oil policies. With the annexation of Kuwait, Iraq will be in control of 20 percent of the world oil reserves and up to 25 percent of OPEC oil production. This instantly diminishes the Saudis' economic influence and enhances that of the Iraqis. The catch here is that Iraq becomes OPEC's largest oil producer overnight, without resorting to overproduction.
       
        With the UN embargo of Iraq, about five million barrels of oil have to be replaced daily. This cannot be achieved even with additional Saudi, United Arab Emirate (UAE), and Venezuelan oil production. Besides, the threat of war creates panic in the market. Thus, a worldwide real or perceived shortage that often accompanies a price increase of high magnitude remains the principal feature of the oil market. But in the short run, price gouging at the pump is the No. 1 enemy of the consumer's pocketbook. This presents us with a conundrum: The greater the success of the embargo and economic sanctions, the deeper will be the magnitude of the oil crisis.
       
        Finally, the very projection of external aggression presents Saddam with an opportunity to legitimize the brutal suppression of the internal political forces opposed to his
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