Yep, "yikes" is right.
From:
rice.edu
<<<1. Deter and Manage International Supply Shortfalls
Recent oil market-price volatility has been driven by a number of complex factors. However,
three key drivers continue to fuel upward pressure on prices: OPEC policy and the
organization’s lack of spare productive capacity; the policies of Iraq and concerns about the
reliability of its U.N.-monitored oil exports; and fears of a possible flare-up in the
Arab-Israeli conflict. These factors have created uncertainty in markets that has at various
times outweighed considerations of immediate market supply availability, fueling speculation
and pushing prices above $30––$35 a barrel at various times in recent months. Although
these situations cannot be solved overnight, certain steps could be considered to ameliorate
their negative impact on oil market stability.
a.Develop a diplomatic program ensuring GCC allies remain prepared and
willing to maintain stable prices to promote global economic growth and also to
fill any unexpected supply shortfalls in times of turmoil in the oil markets,
whether created by accident or by the adverse political actions by any
producing nation. The vast majority of all unused, spare oil productive capacity is
located in Saudi Arabia and the United Arab Emirates. It appears that Kuwait might
soon be added to that list. Saudi Arabia has over 1 million b/d of spare sustainable
capacity and considerably more surge capacity that could be brought online for several
weeks in a crisis. The UAE has some limited spare capacity of several hundred
thousand barrels a day. Kuwait might soon have a similar amount. These are all very
important countries for the United States, with a fundamentally positive attitude toward
cooperation and support, and with the only meaningful spare production capacity in
the world. They all deserve being cultivated as special priorities of U.S. policy.
Over the past year, Iraq has effectively become a swing producer, turning its taps on
and off when it has felt such action was in its strategic interest to do so. Saudi Arabia
has proven willing to provide replacement supplies to the market when Iraqi exports
have been reduced. This role has been extremely important in avoiding greater market
volatility and in countering Iraq’s efforts to take advantage of the oil market’s
structure. Saudi Arabia’s role in this needs to be preserved, and should not be taken
for granted. There is domestic pressure on the GCC leaders to reject cooperation to
cool oil markets during times of a shortfall in Iraqi oil production. These populations
are dissatisfied with the "no-fly zone" bombing and the sanctions regime against Iraq,
perceived U.S. bias in the Arab-Israeli peace process, and lack of domestic economic
pressures. A diplomatic dialogue that emphasizes common U.S.-GCC goals and
programs should be pursued at the highest levels to minimize the potential for tension
over these other issues. Goodwill efforts such as a U.S. offer to buy oil from spare
capacity for the Strategic Petroleum Reserve when market circumstances warrant and
a willingness to discuss coordinated response to supply emergencies can be used to
offset anti-American sentiment among elite groups in these countries.
There are, however, some trade-off issues. Working together with the GCC could
restrict some of the U.S.’ freedom of movement on security and foreign policy actions
that might be desirable with regard to Iraq or the Arab-Israeli conflict from a U.S.
point of view.
b.Prepare for contingencies and gain agreement on coordination in the IEA in
efforts to deal with any attempts by adversaries to remove oil from
international markets. Some European country positions on economic sanctions
against Iraq differ from the U.S. position, most notably France but also some other
IEA countries including Japan. Still, the IEA must be assured of efficient joint
decision-making in the event of a supply disruption under tight market conditions. This
includes any possibility that Saddam Hussein may remove Iraqi oil from the market for
an extended period of time and that Saudi Arabia will not or cannot replace all of the
barrels. (This is a contingency that hangs over the market given the ability of Baghdad
to continue to earn revenues through smuggling and other uncontrolled oil exports,
even if it officially cuts off exports that are permitted through U.N. procedures.) IEA
member countries should be in agreement in advance of such an event on what joint
actions it will take. The IEA has been very successful in recent years in providing
definitive and forceful statements of its intentions, and these statements have improved
the maintenance of orderly markets. The administration needs to ensure that recent
events do not derail this past success.
c.Minimize public conflicts with OPEC and other independent oil-exporting
countries but emphasize importance of market factors in setting prices. The
previous administration engaged in public exchanges with OPEC over the producer
organization’s decisions to push oil prices higher. This fueled anti-American sentiment
among certain sectors of the population in the Middle East, lent support to the claims
of Saddam Hussein, and brought pressures on some U.S.-friendly regimes in the
region. The United States needs to prevent aggravation of this situation by avoiding
public discussion of the targeting of particular price goals and emphasizing common
interests of promoting and protecting growth in the global economy. Such growth
maintains demand for OPEC’s oil. Rather than specify a price level that is "good for
the United States"—which creates an "us-against-you" mindset on oil-pricing
policy—the United States should emphasize as a first line of policy its position that
market forces should be left to set the price of oil. Specific discussion of price should
be kept to private diplomatic discussion whenever possible. Although short-term
political gains can be garnered at home in the United States for jawboning OPEC,
longer term this activity is likely to stimulate more entrenched positions within that
organization, leading to higher oil prices and eventually wearing down any short-term
public relations benefit inside the United States.
d.While moving to defuse tensions in the Arab-Israeli conflict through conflict
resolution and negotiations, maintain energy and political issues in
U.S.–Middle East relations on separate tracks. The timing might not be
appropriate for a major initiative to solve the Arab-Israeli conflict in a comprehensive
manner, but it is important to reduce immediate tensions and violence in that conflict.
While this is a tenet of U.S. foreign policy for other reasons, it can also be helpful to
the oil situation in ensuring that the two issues do not become linked and are kept on
separate tracks. Iraq has been engaged in a clever public relations campaign to
intersect these two issues and stir up anti-American sentiment inside and outside the
Middle East. The bombing of Iraq by the United States led coalition in February 2001
spurred anti-U.S. demonstrations in support of Iraq in traditional U.S. allies such as
Egypt. Moreover, Saddam Hussein is trying to recast himself as the champion of the
Palestinian cause to some success among young Palestinians. Any severe violence on
the West Bank, Gaza, or Southern Lebanon will give Iraq more leverage in its efforts
to discredit the United States and U.S. intentions. A focus on the anti-Israeli
sympathies of some Arab oil-producing countries diverts attention from the repressive
nature of the Iraqi regime. Instead it rewards Iraq in its claim to Arab leadership for
"standing up to the United States for ten years." Israel will assert its right to defend
itself from terrorist or other attacks, so it is important that both sides of the
Arab-Israeli conflict are given a stake in avoiding conflict and violence. Creating an
atmosphere where both sides are willing to show restraint can be an important goal for
U.S. diplomacy on this issue.
e.Review policies toward Iraq with the aim to lowering anti-Americanism in the
Middle East and elsewhere, and set the groundwork to eventually ease Iraqi
oil-field investment restrictions. Iraq remains a destabilizing influence to U.S. allies
in the Middle East, as well as to regional and global order, and to the flow of oil to
international markets from the Middle East. Saddam Hussein has also demonstrated a
willingness to threaten to use the oil weapon and to use his own export program to
manipulate oil markets. This would display his personal power, enhance his image as a
"Pan Arab" leader supporting the Palestinians against Israel, and pressure others for a
lifting of economic sanctions against his regime.
The United States should conduct an immediate policy review toward Iraq, including
military, energy, economic, and political/diplomatic assessments. The United States
should then develop an integrated strategy with key allies in Europe and Asia and with
key countries in the Middle East to restate the goals with respect to Iraqi policy and to
restore a cohesive coalition of key allies. Goals should be designed in a realistic
fashion, and they should be clearly and consistently stated and defended to revive U.S.
credibility on this issue. Actions and policies to promote these goals should endeavor
to enhance the well-being of the Iraqi people. Sanctions that are not effective should
be phased out and replaced with highly focused and enforced sanctions that target the
regime’s ability to maintain and acquire weapons of mass destruction. A new plan of
action should be developed to use diplomatic and other means to support U.N.
Security Council efforts to build a strong arms-control regime to stem the flow of arms
and controlled substances into Iraq. Policy should rebuild coalition cooperation on this
issue, while emphasizing the common interest in security. This issue of arms sales to
Iraq should be brought near the top of the agenda for dialogue with China and Russia.
Once an arms-control program is in place, the United States could consider reducing
restrictions on oil investments inside Iraq. Like it or not, Iraqi reserves represent a
major asset that can quickly add capacity to world oil markets and inject a more
competitive tenor to oil trade. However, such a policy will be quite costly as this
trade-off will encourage Saddam Hussein to boast of his "victory" against the United
States, fuel his ambitions, and potentially strengthen his regime. Once so encouraged
and if his access to oil revenues were to be increased by adjustments in oil sanctions,
Saddam Hussein could be a greater security threat to U.S. allies in the region if
weapons of mass destruction (WMD) sanctions, weapons regimes, and the coalition
against him are not strengthened. Still, the maintenance of continued oil sanctions is
becoming increasingly difficult to implement. Moreover, Saddam Hussein has many
means of gaining revenues, and the sanctions regime helps perpetuate his lock on the
country’s economy.
Another problem with easing restrictions on the Iraqi oil industry to allow greater
investment is that GCC allies of the United States will not like to see Iraq gain larger
market share in international oil markets. In fact, even Russia could lose from having
sanctions eased on Iraq, because Russian companies now benefit from exclusive
contracts and Iraqi export capacity is restrained, supporting the price of oil and
raising the value of Russian oil exports. If sanctions covering Iraq’s oil sector were
eased and Iraq benefited from infrastructure improvements, Russia might lose its
competitive position inside Iraq, and also oil prices might fall over time, hurting the
Russian economy. These issues will have to be discussed in bilateral exchanges.........
.............Virtually all actions available to remove obstacles along the supply chain in the very short
term involve tradeoffs with other policy objectives, including environmental, national security,
and foreign policy concerns..............Proper policy must consider measures that will prevent the public from keeping U.S. energy security perpetually beyond reach.>>>
Note that this report, compiled by James Baker, was published a little over 2 years ago in April of 2001. Also, scroll down to note the contributors to this report. A partner in Henry Kissinger's firm, Kenneth Lay formerly of Enron, two reps from Dynegy, two top investment banking firms are represented, CEOs from BP, Texaco and Shell, and the list goes on.
To date, I've only been able to find two very obscure articles that even mention the Baker Report, and not one single source that ties this report to the war in Iraq or the current situation in Israel. The truly remarkable part of the total lack of media attention is that this report is available from the actual source of the report itself. The report isn't mentioned in a single 9/11 timeline I've run across, is not part of any Congressional investigation, and not even the peaceniks have touched it.
When the top criminal minds in the energy sector talk about keeping the public out of the loop, in the interest of "energy security", America should finally comprehend the true meaning of the word terror. |
