George Kerevan: Middle East faces Third Oil War

The storm clouds are gathering for a fresh conflict that will split the world into opposing factions, writes George Kerevan

An Iraqi commando in the al-Fauqa Field, one of a cluster of oilfields in Maysan province. Picture: Getty Images

THE first shots in the Third Oil War have been fired. But unlike the earlier western interventions in Iraq, the outcome – military and economic – is far less certain.

During the First Oil War in 1993, the easy expulsion of Saddam Hussein’s forces from Kuwait guaranteed the political stability of Saudi Arabia and the Gulf States, leading to a surge in oil production and a dramatic fall in energy prices. This in turn laid the foundation of the great economic boom that ended in the Credit Crunch of 2008.

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Round #1 to the West and the new bourgeoisie in China, whose export miracle was based on cheap oil from the Middle East. (Incidentally, the Saudis used Yasser Arafat’s support for Saddam as a pretext for expelling hundreds of thousands of Palestinian technicians and workers, forcing them back to Gaza and the West Bank.)

The overthrow of Saddam in 2003 – the Second Oil War – was designed politically to open Iraq’s vast oil reserves to western exploitation.

Originally, George Bush snr had calculated he could leave Saddam’s Sunni regime caged in Baghdad as a checkmate to Iran. Unfortunately, the United Nations economic sanctions which kept Saddam on the leash also had the unfortunate side effect of starving Iraq’s oil fields of investment. Clearly, Saddam had to go and a pro-western puppet regime installed.

The military bit of this plan worked like clockwork. So did the oil bit.

Despite continuing internal instability, Iraq overtook Iran as the second-largest producer of oil in Opec, the global petroleum cartel, at the end of 2012. The majority of Iraqi oil exports go to the United States or refineries in Asia. More important, some 60 per cent of Opec’s planned extra oil capacity is slated to come from Iraq.

What upset the apple cart was the arrogant and racist manner in which the US ran the occupation of Iraq. This triggered a Shia-Sunni civil war, creating the context for intervention by foreign Jihadists.

Predictably, the Shia regime in Tehran took the opportunity of the removal of Saddam’s secular nationalist dictatorship to extend its sphere of influence.

Baghdad is now effectively an Iranian puppet. One reason why the Americans can’t send ground troops back to Iraq – even if President Barack Obama wanted to – is because Tehran has vetoed any such move. Units of the Iranian Revolutionary Guard are already in Iraq, to stiffen the resolve of the crumbling Iraqi army.

The scene is now set for the Third Oil War – this time with everyone joining in on their own side.

Just to add spice, the White House is befuddled regarding strategy. In the coming conflict, the international Jihadists of Islamic State (IS) are the least of the problem, unless they actually succeed in provoking an uprising inside Saudi Arabia against the ruling clique (which is their aim).

Be very clear: this is going to be about oil. IS, for instance, is behaving quite unlike al-Qaeda and other Jihadist terror groups. IS considers itself a proper state: the reborn caliphate. As such it needs finance and that comes from selling oil. IS has not destroyed the petroleum infrastructure it has captured, but put it back into production.

Indeed, in typical Middle East fashion, the embattled regime of Bashar al-Assad in Syria has been selling oil from wells under IS control, and splitting the financial returns. Western oil companies, cynical as always, know this. Which might explain why oil prices have remained eerily stable. This won’t last.

What threatens to upset the balance is that IS forward units have started probing Kurdish territory – territory with oil. IS has captured large amounts of Syrian and Iraqi heavy weapons, rockets and transport. It is better equipped than the loose Kurdish militias.

What the Kurds do have is a large chunk of Iraq’s oil production, which they pump out to the West via Turkey. They are supposed to share the proceeds with Baghdad. But with the Shia regime preoccupied by the threat from IS, the Kurds have used the opportunity to pump more oil and keep the proceeds. IS would dearly like to get its hands on this oil.

The West does not really care about the plight of Iraq’s Christians or the Yazidi refugees. It cares about oil.

Barack Obama, in reality an isolationist, had calculated that the fracking boom in America would free the US economy from dependency on the Middle East.

That gamble allowed him to refuse to provide the Iraqi regime with combat aircraft, lest they end up flying with the Iranian Air Force against Saudi Arabia or Israel. But without air power, Baghdad could not stop IS.

Even after the capture of Mosul by IS, Obama did nothing. The only people who rushed combat planes to Iraq were the Russians – in return for hard cash. (As the Iraqis don’t have many trained pilots, I’m betting it won’t be long before Russian “volunteers” are seen in Baghdad cafés.) It was only when IS began probing Kurdish oil territory that Obama ordered air strikes. These have been limited to knocking out the odd IS truck.

Effectively, Obama is warning off IS rather than attempting to overthrow the new caliphate. But events are likely to get out of his control. To outflank IS and bolster the legitimacy of their regime, the Saudis are now set on confrontation with Iran.

Simultaneously, Tehran is wooing the West in order to escape UN sanctions, the better to modernise its decrepit oil industry and so arm itself against the billion Sunnis that Saudi Arabia is mobilising against them.

China is turning itself into a new imperialist power in Africa, in a bid to secure alternative supplies of oil. Obama’s isolationism will give way to a more interventionist American regime, with Britain – as always – in tow.

The coming Third Oil War will mark the end of the great wave of globalisation that followed the collapse of Communism. The world is about to split up into warring factions. No wonder David Cameron wants to hang on to North Sea oil.