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University of Warwick
Dissertation
The return of resource politics: the case of oil
Eugenio Di Pasquale
29/08/2006
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Index
Introduction
Page 3
Chapter 1
A-theoretical-framework
Critiques; Oil myths and realities
Page 11
A double course
Page 15
Chapter 2 Case studies:
National Oil Corporations (nocs), the Venezuelan case
Page 19
The rebirth of Russia
Page 21
China
Page 23
Iran
Page 27
United States of America
Page 28
Chapter 3 Conclusions
Page 30
Annex: interview with Mr. Giorgio Geddes da Filicaia
Bibliography
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The return of resource politics: the case of oil
Abstract: The aim in this paper is to give a general overview about the current resource politics
about oil. In order to so do there will first be a presentation of the theoretical framework, then a
number of case studies which present some of key states involved.
Leonardo Maugeri, Group Senior Vice President for Corporate Strategies and Planning for the
Italian energy company ENI, makes it clear: the world is not suffering for oil shortage. Thanks to
technology humans will be able to shift from oil to something better naturally. The real problem is
international resource politics. When the oil price is low, nobody cares about resource politics.
When the price is high, everybody “cries wolf”. High prices are not a course, but a chance to
develop new technology that otherwise would be uneconomical. In periods of high prices, however,
different resource politics tend to be conflictual rather than cooperative; moreover, there is a shift of
power from the consumer countries to the supplier ones. During these periods of quick power
change, international relations can suffer from increases of strife.
Introduction:
After World War II there was a large change in international relations: the decline of war among the
developed states and the creation of a security community among them. These elements involve a
change of outlook and even of values among the general population, elites and national leaders.
This situation represents a truly revolutionary change in the world of politics; so, the concept of
security threat has changed in nature to some extent (Jervis, 1998: 985, 991). Economy now is the
arena where developed countries fight their conflicts, give rewards and punishments to each other.
This field is different from the military one because “the nature of the economic activity is such that
economic interactions take on a regular low-cost character which lacks the all-or-nothing quality of
wars (Gill and Law, 1988: 37)”. Moreover,
“The nature of the economic environment has already substantially changed […] the nature of
competitive games between states is not what it was. Instead of competing for territory (because
land was the prime of wealth, and therefore wealth and political power for the state could be
achieved through control over territory), states are now engaged increasingly in a different
competitive game: they are competing for world market shares as the surest means of greater wealth
and therefore, greater economic security” (Strange, 1987: 564).
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The world of economy took the field of the global strategic environment, because of its anarchic
character and, as a result, the rivalry to gain economic security is as powerful as the search for
strategic security.
In a modern society, however, when there is a breakdown in the supply of power it comes to a
complete standstill, energy is a vital factor of production. Industries all need large supplies of
energy, whether this comes from oil, coal, gas or nuclear power. Also, no modern economy can
function without transport: just think of roads, rails, sea and air transports.
Energy security for Western countries (with few exceptions) means mostly a reliable availability of
sufficient supplies at an affordable and stable price, but different countries read that concept in
different ways. The sellers, on the one hand, interpret energy security as the security of demand
which allows them to carry on the projects founded upon the overwhelming share of their
governments’ revenue. As in Russia, where Putin is winning the difficult fight to reassert state
control over strategic resources, regain dominance over the main pipelines and market channels
through which it ships its hydrocarbons to international markets, an heritage almost lost under the
Yeltsin era. What worries the exporting countries is, if the price falls again, as they did at the end of
the ‘90s, how the fluctuation of energy prices will influence their balance of payments.
For China and India, energy security now means their ability to regulate quickly their new needs
with the global markets. Until a few years ago they still were self-sufficient, while now they have to
compete, directly or indirectly, for every drop of oil they can have. For Japan, nothing really
changed as far as the country always had neither oil nor gas; thus, the Japanese are already used to
struggle to overcome scarcity of domestic resources through diversification, trade, investment and
the cut of energy waste. The Europeans are estimating how valuable is coming back to (clean) coal,
trying to bypass their vulnerability to gas, apart for those countries, like France and Finland, which
set a serious nuclear-power energy supply years ago. At last the United States must face their hard
reality, thereby admitting their deep energy problems, far from Richard Nixon’s popular mantra of a
new “energy independence”, son of the 1973 Persian Gulf oil embargo.
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Different realities about energy production and supply in an economical security world will be
explored in this essay..
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Chapter 1
A theoretical framework
“Oil is our doom. There is not any other system as economical and as easy to stock to produce the
same quantity of energy that comes from a liter of oil” (Bianchi,2006).
Realists believe in the supremacy of politics. It is impossible for them to draw a line between
politics and economics. Using a metaphor, the first one is the body, while the second one is the
lung; studying the lungs is possible, but pointless and incomplete if not in the body context.
“Realists thinkers believe in the necessity of public authority to translate individual interests into
universal good (N. Keohane1)” maximising state power and wealth is the best means of ensuring
public welfare. Raison d’état is a central economic principle, and the state interest does, and should,
determine economics in mercantilist theory.
Realists have “an approach of political economy that emphasises the collective action of societies,
and their governments, in an environment characterized by constant international economic
competition (Jones, 1988: 142)”. Those assumptions for Gill and Law are: international life is
inherently conflictual, with the rules of anarchy; power is the ultimate arbiter of politics; the
distribution of national power resources determines the pattern of relations between rival states in
the inter-state system; the state is the primary unit of analysis; it is assumed to aggregate and reflect
the sum of the interest of the members of civil society; the interests of each individual are founded
in the primary human impulse of survival, the search of security and the quest for power.
According to realism, each state is a rational actor that always acts towards its own self-interest, and
the primary goal of each state is to ensure its own security. Realism holds that, in pursuit of that
security, states will attempt to amass resources, and that relations between states are determined by
1
Quoted in G. T. Crane and A. Amawi, 1997
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their relative level of power. That level of power is in turn determined by the state's capabilities,
both military and economic.
Hans Morgenthau (2001) in his Politics among Nations stated that one relatively stable factor that
exerts an important influence upon the power of a nation is natural resources. A country that is selfsufficient has an enormous advantage over a nation that is not. The lack of raw materials, especially
the ones important for industrial production and for war, have been a constant weakness even for
great powers, a fact that they had to overcome or lose their status. “The absolute and relative
importance natural resources in the form of raw materials have for the power of a nation depends
necessarily upon the technology of the warfare practice in a particular period of history (p.124)”.
Today, just as it did before, or maybe more, the influence that raw materials can have upon national
power is enough to change the hierarchy of international relations. “One drop of oil is worth one
drop of blood of our soldiers” said Clemenceau during the First World War2. Oil, as an
indispensable raw material, has brought about a shift in the relative power of the politically-leading
nations. Russia has become more powerful, since it is not only self-sufficient in this respect, but
also an exporter of oil and gas; while Japan suffers from a complete lack of oil deposits.
In this respect the Middle East is strategically important, because of its oil deposits in the Arabian
Peninsula. Control over them traditionally has been an important factor in the distribution of power,
in the sense that whoever has control over them is able to add to his own resources and deprive his
competitors of that same amount of raw materials.
Yet nation power is no longer quantified by the amount of oil as a raw material. Objectively, oil
became an asset, a key factor whose very possession threatens to overturn centuries-old patterns of
international politics. Certain basic aspects of world politics suddenly became clear in the winter of
1973-74, due to the embargo on oil, together with the drastic rise in the price of oil.
Traditionally, a functional relationship existed between political, military and economic power.
That is to say, political power has been throughout history a function of military power, but recently
2
Quoted in Hans Morgenthau “Politics among nations”.
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it is linked with the economic one. For example, the European colonial conquests were possible,
thanks to the higher technology owned by the Old Continent’s states.
“This relationship of a functional nature between technology and economic power, on one hand,
and political and military, on the other, have been disturbed by the recent use of oil as a political
weapon. Many of this oil producing states are states only by way of what might be called semantic
courtesy. Measured in terms of natural resources, they have nothing but sand and oil. But it is the
oil that seemingly overnight has made those small plots on the map that we call states important and
even powerful factors in world politics. In other words, a state that has nothing to go on by way of
power, that is lacking in all elements that traditionally have gone into the making of national power,
suddenly becomes a powerful factor in world politics because it has an important asset – oil; a state
that is powerless in all other respects, that is not a major force in terms of traditional power, can
exert enormous – and under certain conditions even decisive – power over nations that have all
implements of power at their disposal except one – deposit of oil” (Morgenthau, 2001: p.128).
Two basic factors have made possible this division of political power from the military and
industrial-technological one. The first is that free trade between private producers and consumers of
certain raw materials has dramatically changed because what was monopolised trade by the
consumer colonial government now is monopolised controlled by the producer governments acting
together. The second, in the past, producers and consumers had complementary interests, raw
materials were copious, so the balance of the relationship tilted in favour of the consumer. Today,
the situation has been reversed. The consumption of raw materials has increased enormously. Oil
has become the lifeblood of industrially-advanced nations, many of which are completely (Japan) or
considerably (nations of Europe, China, India) dependent upon imports from other nations.
In the long run, the main threat posed by the few producing nations, having the quasi-monopoly of
oil resources, is the control over the price of oil, which is the main factor of instability in the world
economy and one of the main sources of inflation, as shown by the recent raise of interest rate all
over the world.
Morgenthau (2001) saw the situation as potentially permanent. If the oil-producing nations
cooperate against the consuming nations, they will be able to impose virtually any conditions on the
oil consuming nations, just as they did on the brink of the 1973 war. In the case of a country like
Japan, it would be suicide to refuse such conditions. In the case of other nations, whose main
sources of energy are domestic, it would mean severe discomfort.
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Keohane and Nye (1989) developed the concept of interdependence. The traditional view was that
military power was the kingpin of the system; thus, powerful military states also had economic
control all over the world, military power is no longer sufficient to explain international relations.
The complexity of power capability challenged the assumption regarding the “pre-eminence of
states as world actors and the centrality of military force as international power (p.15)”.
Multinational enterprises (MNEs) and international economic organisation are new key players on
the world’s chessboard, significantly competing for power with states in many issue-areas, while
military power is no longer an universal lens to understand reality.
In the current situation of inter-dependence, “relationships are established, based upon mutual
asymmetrical dependencies (Keohane, Nye, 1989: 67)”. Power can be thought of as the ability of an
actor to get others to do something they otherwise would not do; and at acceptable cost to the actor.
Power can be explained also as the control over outcomes. Asymmetrical interdependence relates
power to control over resources, or the potential to affect outcomes. Usually, significant political
resources come from the weaker link in the relationship, because it means a higher flexibility so a
higher freedom in the relationship itself. Achieving the goal, however, is not contingent on being
the stronger of the two. Power in interdependence, has two dimensions: sensitivity and
vulnerability.
“Sensitivity involves degrees of responsiveness within a policy framework – how quickly do
changes in one country bring costly changes in another and how great are those cost effects. It is a
measured not merely by volume of flow across borders but also by costly effects of changes in
transactions on the societies or governments” (ibidemp.25)
The other aspect of inter-dependence to explore is change in the relationship. What happens when
different alternatives are available [meaning which is the cost of setting completely-different
choices?] For instance, what can happen if two coun4rties, importing the same relative amount of
oil, are suddenly under embargo. Apparently, they are experiencing the same problems, but if one
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of the two can shift its oil consumption to coal and the other cannot, they are experiencing two very
difficult situations. This means that one state is more vulnerable than the other.
“In terms of costs of dependence, sensitivity means liability to costly effects imposed from outside
before policies are altered to try to change the situation. Vulnerability can be defined as an actor’s
liability to suffer costs imposed by external events after policies have been altered” (ibidem: p.26).
Changing resource politics takes time; in the short term change generally concerns sensitivity
dependence. Vulnerability dependence can be measured only by all the costs related to the actual
change of policy over a period of time.
Krasner (1978), in his book “Defending National Interest”, makes a few reflections and suggests
some methods to deal with the raw material dependence. His fundamental assumption is that the
first goal of the state should be to protect its independence from the external anarchical environment
where it exists. Thus, when this is not possible, because of the lack of raw materials, deficient
technical knowledge or prohibitive costs, the state should diminish its energy dependence with a
back-up plan such as the differentiation of capabilities supply. In order so to do, the state should
build a network of good relations with the other countries, with which it is supposed to deal to
fulfill its needs. A way to secure supply is to share asymmetrically the border of the agreement,
making the other suffer more for an eventual end of the contract. Furthermore, any kind of concrete
activity has to be enforced in the area by national economic groups, such as promoting the flow of
investment there. Even if policymakers are far from having dictatorial power in our society, they
still have crucial levers to push their firms into a narrow efficient set of options that can merge
private capabilities with the public one, as is possible through taxation or anti-trust policy.
Nevertheless, having a firm’s control is a valuable source of foreign deposits, through ownership or
concession agreements, and gives important advantages, like EDF for the French government, or
ENI for the Italian.
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Security supply is important, not just for military reasons, but for more general economic and
political ones as well. For a peace-time economy, price stability is also a matter of concern.
Unstable supplies and prices can upset the general functioning of the economy and strain the
political system. Besides, when prices escalate sharply, inflation boosts and it is difficult for
policymakers to deal with such inflationary pressure without depressing the economy. Moreover,
fluctuating prices may also discourage private investment, since they increase uncertainty.
Finally, turning from the economy to the political system, it is evident how important having stable
and reliable channels of energy supply can be. An oscillatory and unstable raw-material market is
perceived as a political mistake, due to inefficiency and weakness both of the government and of
the state.
This theoretical framework will help us to interpret the projections of the near future, which tell us
that the major growth in supplies will come from fewer countries than it comes from today. No need
to mention that those countries form the most instable areas in the world, namely the Persian Gulf,
Africa and a few others, where national oil companies often have the monopoly of both the
extraction and the supply of raw materials, firstly of oil and natural gas. If possible, this accentuates
security concerns. “The major obstacle to the development of new supplies is not geology but
international affairs, politics, decision-making by governments, and energy investment and new
technological development” (Yergin, 2006: 1).
Critiques; Oil, myths and realities
“Not every action that a nation performs with respect to another nation is of a political nature. Many
such activities are normally undertaken without any consideration of power of the nation
undertaking them. Many legal, economic, humanitarian and cultural activities are of this kind”
(Morgenthau year: 30).
As Cerny (1993) pointed out, firms often have a higher knowledge about their products and
procedures than governments.
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Leonardo Maugeri, director of corporate strategies and international relations of ENI, wrote: “Over
the past year a perceived connection between the control of oil resources, economic security and
power politics seems to have come back to life from the dusty pages of books of the 1970s (Two
Cheers for Expensive Oil: 1)”. He suggeststhat not caring about the followers of pro-active Western
oil diplomacy and new strategies for the control over oil are through conspiracy against consumers
and people who believe in a world ruled by arcane imperii of oil interest, which are a mix of the US
government and oil multi-nationals, linked by unmentionable targets. The mistake lies in the
mythical perception of oil as the reason at the root of conflicts around the world.
“Oil matters have always been prone of mythmaking. The prominence of the energy question makes
it a highly sensitive and emotionally charged issue for politicians and media (Maugeri, time to
deburk mythical link between oil and politics, 2003: 18)”.
What makes the price of crude oil is not limited geologically, but a complex economic process. “No
mineral, including oil, will ever be exhausted (Adelman 1984: 12)”, because the available quantity
depends on time, technology, cost and price. Time favours greater results; thanks to better
knowledge of the existing oil fields and to the increased upgrade of technology reserves. An
example from Adelman’s (1984) book is illuminating: “In California, the Kern river field was
discovered in 1899. In 1942, after 43 years of depletion, “remaining” reserves were 54 million
barrels (bbl). But in the next 44 years, it produced not 54 but 736 million bbl, and in 1986 it had
another 970 million bbl “remaining”. The field had not changed, but knowledge had (ibidem: 7)”.
In other words, technological improvements can have three basic functions: (1) they reduce the cost
of the extraction of oil, either extracting more crude or the same quantity with smaller expenses; (2)
they can help find new underground resources, thus transforming generic resources into proven
ones, and (3) improve exploration techniques; or increase the recovery rate of extracting oil fields.
From the beginning of the ‘80s the recovery rate of an oilfield jumped from about 22% to 35% and
every extra percentage unit adds two years of life to the current reserves; so if the recovery rate will
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grow from 35% to 45% we will have twenty more years of oil reserves avaiable without any new
oilfield discovery.
Cost and price of oil are the input variables for increasing reserves. Cheap oil (i.e., an oil price that
does not bring important gains, compared to the cost of producing and marketing oil in the long
term) reduce investment in both new exploration and technology, thus following the rules of
economy about demand and supply.
All these factors may explain why the life-index of world reserves has constantly improved, even as
major new oil discoveries have been decreasing since the 1960s. In 1948, the ratio between proven
oil reserves and current production indicated a remaining life of 20 years for existing reserves; in
1972, the life index rose to 35 years; today stands about 43 years.
“The prophets of “oil exhaustion”, however, don’t want to deal with these realities, which are
basically moved by economics and technology, not by geology. Thus it is comprehensible why a
school of geological thought – drawing on the observation made by geologist M. King Hubber in
the 1950s - periodically “cries wolf”. The problem with this school is that for 40 years it’s been
predicting that the oil reserves will be exhausted within few years and than has to stay the final
curtain once its predictions appear to be wrong. But no one remembers the past mistakes, so its
credibility has not been tarnished” (Maugeri, 2004, Oil: Never Cry Wolf).
Oil scarcity is a phantom problem. Oil abundance has always been the problem of the oil industry,
since John D. Rockefeller’s time, a reality that has not changed yet. In the 1990s, the average
growth rate of world oil demand was less than 2% a year. It rose between 1979 and 2002 by a
modest 30%. And this rate is not supposed to grow much faster in the close future. Even if there are
oil-thirsty countries like India and China, crude oil is neither gasoline nor diesel; in other words, the
infra-structures to use petroleum are as essential as the raw material itself. For example, the high
demand for middle distillates cannot be immediately supplied, mainly because of the globa- refining
system, which does not have the capacity to transform in it heavier crudes. This deficit produced a
supplementary demand for the lighter grades of crude, such as WTI (West Texas Intermediate) or
Brent, with an additional boost of prices.
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Consumers can enjoy an incredible amount of oil barrels every day. Persian Gulf countries,
particularly Saudi Arabia, are the needle of the balance: from one side they flood the market with
the crude requested and from the other they try not to flood the market in order to avoid prices
falling. This is a crucial point to understand the oil world: the seller states limit their production for
precise reasons. Generally, those countries substantially diminished their investment in infrastructure, maintaining the amount of production more or less stable in order to keep the price high,
trying to avoid the error of the past, but their potents are significant. According to the Saudi oil
minister Ali Al-Naimi, Amraco, its country’s nocs??, is pumping oil from 12% of the country’s oil
field, and the majority of those few fields were discovered little after World War II.
To keep their production under control, the largest-producing nations seldom allow international
companies o invest in their territory. Thus,, oil majors cannot be fully efficient, because they have
to invest where it is more expensive and they have to face the
“dictates of the financial markets, which measure the return capital of companies’ plan according to
the long term oil price and require a substantial premium with respect to the weighted cost on
capital for the oil sector (which is generally considered 8%). Hence, oil companies are obliged to
dismiss many investment opportunities worldwide because they do not fit these very tight
requirements” (Mugeri, Time to deburk mythikal links between oil and politics, 2003:22).
Financial discipline defines a narrow framework, within which international oil companies have to
make their decisions. Replacing reserves is not out of this strict discipline, so alternatives are
limited. Basically, “the financial market’s prudent approach depends on the assumption of oil
depreciation in the long term (ibidem)”. According to Maugeri (2006) oil is considered a semimature commodity, new technological innovation in the medium term will be able to change the
current situation of high dependence, as happened to coal before and to many other raw materials.
“Just as the Stone Age did not end for the lack of stone, the Oil Age will not end because of the
scarcity of oil (ibidem)”. Oil will not always be as convenient as today and there will be another
energy resource in the future, hopefully, more environmentally compatible.
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Oil quantity, however, does not solve the issue. Yergin (2006) underlines how important is the
refining capacitys. There is a significant mismatch between the product requirements of the world's
consumers and refineries' capabilities. Although often presented solely as an U.S. problem,
inadequate refining capacity is in fact a global phenomenon, strictly linked to the quality of the oil
available. There are many different kinds of crude, which need different kinds of treatment;
therefore not all refineries are able to process all kinds of oil. The “Brent Blend” known as “Brent”
is the European benchmark and basically the main world index, the Western Texas Intermediate, the
one for the US etc. They have different qualities and different prices, depending on their
characteristic, like diamonds. The biggest growth in demand worldwide has been for what are called
“middle distillates”: diesel, jet fuel, and heating oil. Diesel is getting larger and larger shares of the
European market, new gasoline cars are only one half of the total sale; besides, diesel is heavily
used and it is applied not only for transport but also for electricity production.
Even Maugeri (2006), however, recognises how geopolitics is important when the issue shifts from
the production to the supply side of oil. In his view, pipelines are the geopolitics of oil; they are the
fundamental articulation to transport oil from countries that do not have any sea border and to
transport the crude from the well to the sea. The current Iraqi situation shows how delicate can be
the oil supply. At the same time pipelines are a key feature of international relations. Nowadays,
Russia and Iran have much power, thanks to the pipelines running in their countries. Recently
Turkey, Georgia and Azerbaijan inaugurated their pipeline, which will be fully functional in 2008;
“Ankara wants to become an essential articulation in the world’s energetic field, breaking the
duopoly Russia-Iran (Capezzuoli, 2006)”. Moreover, pipelines have to be defended, but the
government of the country where the tube run has three very good reasons to care about the safety
of the tubes: first, it is a way of commerce; second, having tubes is an important capability that can
be spent on the world power game; third, if it does not care about the pipelines other countries will,
meaning it is possible, if something happens to relevant supply corridors, that the countries which
are enjoying them will send their armies to protect the pipelines.
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Sea transport moves an even greater amount of petroleum, but the enterprises are still mostly
private. Nonetheless, this does not stand for a lack of problem. Indirectly, sea transport is the origin
of a new military challenge between great powers, because the delicate way in the open sea has to
be protected. In orderso to do, countries like China are investing in their navy, thus, causing
concern, not only among their neighbours, from India to Japan, but also all over the world. The
militarisation of the Asian oceans could be interpreted as the threat to change the delicate
equilibrium of the area, rather than the research of supply stability.
A double curse
“Cheap oil has always been and remains a course for industrialized countries and is the most elusive
enemy of oil security. It constricts the development of expensive energy alternatives and new oil
regions. It discourages conservation and perpetuates lax Western consumption habits. Finally, it
increases dependence on the Persian Gulf countries with the lowest production costs. Cheap oil is
harmful to the producing countries as well” (Maugeri, two cheers for expensive oil, 2006).
Less than 30% of global production, but 65% of the world’s proven oil reserves, are concentrated in
five countries: Saudi Arabia, Iraq, the United Arab Emirates, Kuwait and Iran. All these countries,
as well as other OPEC members, need honest oil prices. Since 1999, they have finally managed a
certain degree of international discipline in order to limit output and regulate prices (the
skyrocketing of oil prices is much more linked to geo-strategic reason than to the oil production).
This policy leaves few alternatives for the Persian Gulf producers, because their economies remain
heavily based on oil, while their demography has changed dramatically.
The population in the Persian Gulf states has doubled in twelve years, with 60% today under 21
years of age. This demographic explosion has created expectations and frustration, to which
stagnant, single-industry economies cannot give a credible answer. Only sustained oil revenues
allow the elites of these countries to tamper?counter social unrest, by preserving huge social
assistance programmes. For the last few years, Gulf countries’ oil revenues have been much lower
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than they were 20 years ago. This led to a dramatic decrease in per capita oil income. Thus,
frustration and violent revolt may erupt whenever the minimum living standard is endangered by
decreasing oil prices. Today’s Islamic fundamentalism, like yesterday’s pan-Arab socialism, finds
fertile ground among those hopeless people.
Moreover, Arab countries has not yet achieved a stable and peaceful equilibrium internally; they are
still struggling to transform political rivalries into competitive policies, especially in the oil field. If
one of them, a major producer, such as Saudi Arabia, were to open its oil fields to foreign
investment again, its neighbours would be challenged into a race from the bottom that no one is
ready to fight. In short, they would be forced to ove-rproduce and accept the fall of oil prices, with
all the social consequences already explained. OPEC's ability and drive to protect and increase
revenue gained energy after the 1998 oil price collapse. Thanks to globalisation, OPEC became
more concerned about its own economic performance, which stagnated during the ‘90s relatively to
other nations, and about their new economic chances. By the end of the last decade, OPEC
countries rejected the notion that oil prices between $18 and $22 per barrel were good for everyone.
For key OPEC nations, where oil revenues were critical to government budgets, the impact of
falling oil prices on themselves was perceived as far greater than the impact of higher prices upon
most oil-importing countries, whose oil-import bills were only a fraction of their total trade.
According to Goldstein and Kozyrev (2006), some oil-importing countries, like Switzerland, gained
an advantage, partly because of policies taken in the 1970s and 1980s to diversify to other fuels or
to tax oil use to hold down demand growth for oil, while a shift from manufacturing to services also
lowered energy requirements in the industrialised West. Important OPEC producer perceived low
oil prices as a subsidy for importers. In addition, the transformation of some key players, like China
and India, from producers to high consumers, changed the international market with a shock of
request (Trichet, 10/07/2006), which modified the asymmetry of the relationship buyer-seller,
shifting the burden on the buyer side of the trade. Using Keohane and Nye’s (1989) words, the
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buyers became much more sensitive than before. OPEC could shift again the burden of price
adjustment back to the oil-importing community.
States would become increasingly compelled to liberalise, because of competitive de-regulation
pressures resulting from the mobility of capital. The threat of loosing market shares from one
country to another would cause countries to compete against each other. The resulting phenomenon
of competitive deregulation, in an attempt to maintain their attractiveness, would lead to a situation
in which wages, working conditions, and environmental standards would be even more depressed,
with severe consequences on living standards and human rights. Nevertheless, a policy towards
more liberal paths, which would partly reorganise the regional economy against inefficiencies and
corruptions, is as necessary as decent prices.
A great paradox of the oil market is that only through an OPEC countries’ agreement can oilproduction prices stay high enough to make new investments flow into non-OPEC areas, but
fundamental support is needed from many countries whose output would be deeply displaced, like
Canada, many African states or Russia.
In short, the world is not running out of oil, but “the problem is that many Western observers speak
about “oil security”, when what they have in mind is “stable and cheap supplies”, thus confusing
two very different things (Maugeri, two cheers for expensive oil, 2006)”, a confusion that usually
leads to public hysteria, fuelled by media, when oil prices rise; then, when prices drop, oil and
energetic matters are completely forgotten. Few remember that, in 1998-99, when the oil price fell
dramatically, the general comment was: “bad for oil companies and producing countries, good for
everyone else”. No one spoke about problems, such oil security, energy alternatives to oil, until the
oil price sk-yrocketed again.
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Chapter 2, Case studies
National Oil Companies (NOCS), the Venezuelan case
In a recent article, The Economist states that Exxon Mobil, with its $412 billions market
capitalisation is the world’s most valuable listed company, but comparing oil companies by how
much they have left in the ground, the American giant ranks a lowly fourteenth. All thirteen of the
oil firms that exceed it are NOCS, partially or wholly state-owned firms through which
governments retain profits from oil production. Because these national champions control as much
as 90% of the world’s oil and gas, they can do far more than the likes of Exxon to assuage the
current worries about supply and to influence the accompanying record price, but, like most stateowned firms, they are prone to over-staffing, under-investment, political interference and
corruption.
Petròleos de Venezuela (PDVSA), one of the largest oil firms, provides an instructive example of
how inefficient MNEs can be. Venezuela has exported oil since the 16th century, and there is still a
huge potential to expand production. PDVSA developed a reputation for professionalism and
competence, and the company was thought to be relatively free from the corruption and cronyism
that had spread through Venezuela. In 1998, shortly before the government’s election, PVDSA was
looking for consent for a huge investment to increase its production at the same time when royalties
were declining along with oil price. Unfortunately, the government transferred those resourced into
other activities, in order to win votes in the upcoming election. Output promptly started to fall and
has never recovered. Moreover, since President Hugo Chavez came to power in 1999, he cut even
more the funds to the firm. He appointed a number of trusted people to key positions within the
PVDSA to impose his authority and, after the general strike in December 2002, he fired two-thirds
of the managers and technical staff, almost all of PDVSA best-qualified employees. Apart from
19
politicising the staff, President Chavez appointed his brother Adan, to assist in coordinating the
company’s subsidised oil sales around the Caribbean. Politics has begun the leading feature of
PVDSA strategy, as the new Latin-American business is taking priority over business with the
United States. For this task, he is pushing for a natural-gas pipeline from Venezuela to Brazil,
which, in Mr. Giusti’s view (PDVSA president from 1994 to 1999), would “bring gas that does not
exist to markets that do not exist (the Economist, oil’s dark secret, 2006: 67) ”. Moreover, Mr.
Chavez forced the firm to spend one tenth of its investment budget on social programmes, and has
pledged its help, in the form both of cheap oil and technological assistance, to allies from Argentina
to the Bahamas.
Not all NOCS are as badly run as PDVSA, but their problems are similar, but many of them
experience government interference, such as legal requirements to recruit a certain number of local
citizens that has led to overstaffed oil firms in several Persian Gulf emirates. The Chinese and
Indian governments , for example, required their state firms to sell petrol below the international
price at the pump, even though they have to buy it at a much higher price. Nevertheless, underinvestment is the commonest problem of all. The inefficiencies of Pertamina, the Indonesian state
owned company, made its country become a net importer of oil, in spite of the large size of its
underground resources. The fact that NOCS could exploit much more than what they are doing,
considering that they are selling pumping only about half of the global output, suggests a systematic
failure to invest. Government relying mainly on oil, and state-run oil firms in particular, “is likely to
skip on investment when the oil price falls, because it is more politically palatable to slash drilling
programmes and seismic surveys than civil servants’ salaries and hospital budget”.
Saad Rahim, of the pcfEnergy, further suggests that weak institutions are the cause of the misuse of
the national companies. The Economist (12/8/2006) states that “most countries with national firms
used their oil wealth to develop the authority of the state, rather than the other way around”. Thus,
20
national oil companies are usually so much more powerful than their governments, so that they can
dictate their own rules instead of the state ones, thus, becoming centres of corruption.
The rebirth of Russia
“Whatever the ultimate aims of the international politics, power is always the immediate aim”
(Morgenthau, 2001: 29).
“Russia will decide if it will be another American century or if it will be a Chinese one; the most
important successor of the Soviet Union guard enough raw material to change the future world
history (L’importanza di essere Russia)”.
“Russia uses its national energetic companies, Gazprom and Rosneft, as instruments of foreign
policy (the Economist, Oil’s dark secret, 12/8/2006)”. Fabrizio Saccomanni (2006), Bers vicepresident, in a recent interview, reads the recent Russian payback to the Paris club in this way: “it
would have been better to use such an amount of resource in infrastructure; but this decision left the
Russian government totally free from external pressure”.
In 1998, the Russian federation was on the verge of a financial collapse, partially because of the
plummeting energy price. Russian oil production, which had been falling since 1990, dropped to 5
million b/d. Since then oil (and natural gas) price recovery has completely reversed the situation,
boosting oil output and revenues. This sudden change has led many observers to envisage a new
role for Russia in the future as main supplier of Western oil needs, as an alternative to Saudi Arabia.
“But this is a misleading impression. Over the last 3 years, Russian oil companies have plumped all
the oil they could, exploiting high oil prices and the possibility of exploring more than that allowed
by law” (Maugeri, The age of oil, 2006: 153).
With a flat domestic demand for oil, the quest for high-revenue exports has propelled Russian
companies to boost production without replacing reserves. According to Russian energy minister
Igor Yusufov, during 2000-2002 Russia produced more than 7.3 billion bbl but replaced only a little
21
more than 6.1 billion bbl with new discoveries. Considering that the Russian Federation has only
one fifth of the oil reserves owned by the Saudis and that old Soviet techniques have damaged many
oil fields, it is reasonable to assume that current Russian oil production is inflated by specific
circumstances that cannot last forever. In addition, Russian consumption is recovering, thus
absorbing a growing part of domestic production; besides, the infrastructure has to be upgraded and
developed.
In times of geopolitical instability, however, the Russian resources will make the difference in
international power relations and Putin wants Russia to play an active role in this game, not a
neutral one.
This is one of the reasons why Moscow is trying to enhance mult-ipolarity in Asia, rather than
having a single partner, as China would be willing to become. Still, Putin appears at that time to
have had little appetite to pursue a Sino-Russian alliance against the United States, even though this
was the trajectory of these relations before 11 September. More concretely, Russia is extremely
uncomfortable with being relegated to the status of junior partner in the Sino-Russian relationship.
Beijing's indelicate attempts to use other issues (including the arms trade, Russia's WTO bid, steel
trade and nuclear power cooperation) to gain leverage over the Kremlin during 2003–04 only
exaggerated such sentiments. In addition, there is a potent fear on the ground in Siberia (there are
seven million Russians from one side of the border against one hundred million Chinese on the
other) and the Russian Far East that the region could become a satellite of China, if not the victim of
flagrant territorial aggression (Blagov, 2006).
This transformation of Russia from a military power to an energetic one is visible both through
internal policy and foreign policy. In the national policy the energetic sector is considered now the
kingpin of power, superior even to the military one (Nicolazzi, 2006). Before being prime minister,
Cernomyrdin was the president of Gazprom, the ministry of gas in the former Soviet Union Time;
many Russian analysts think Putin will be the next, when his presidential mandate ends, while the
22
current president of Gazprom board director, Dmitry Medvedev, appointed by Putin in 2002, will
probably be the next Russian President (Bongiorni; Maisano and Oddo, 2006).
Putin stopped the anarchy of the Yeltsin’s era, when the oligarchs were working for themselves,
sometimes in joint ventures with foreign companies, like TNK or BP. He renationalised some oil
companies with legal or authoritarian method (as against Khodorkovskj and Abramovich). Besides,
the government has always had control of the pipelines through Trasneft, which holds the monopoly
of the Russian tubes, even if the net has only one tube where all kind of oil are mixed together,
thereby making Russian oil of low quality. To implement this ambitious programme, however,
Moscow requires massive investment. Specialists at the Russian Energy Research Institute reject
the Kremlin's estimate of $40–50bn, suggesting that $100bn is required for the five largest projects
to be completed by 2020. These projects include oil- and gas-field development, as well as various
rail, pipeline and port infra-structure development projects. Thus, the participation of foreign
investors in these developments is virtually beyond dispute, even if the Kremlin remains anxious to
control these processes (Goldstein, Kozyrev, 2006).
China
China’s resource politics, driven by its energetic thirst, is one the most important new phenomena
of recent years. Following its fast economic development, China became a great oil importer, and
its needs are still far for being satisfied. For this reason, through its NOCS, China is investing all
over the world - Asia, America, Africa and Oceania.
According to the political scientist Robert Ross (2005), China imports only 12% of the energy it
consumes, compared with 40% for the United States and 80% for Japan. Homi Kharas(2005), a
chief economist at the World Bank suggests that China's rising energy needs should be seen as an
opportunity, rather than a threat, because the Sino-hunt for resources is helping some developing
states that supply it: 45% of China's total annual imports come from developing countries, and these
23
sales help developing states offset the increased cost of crude oil and gas (Zweig, Janhai, 2006), but
Beijing’s; resource-based foreign policy has little room for Western morality. Natural resources are
often found in Washington’s rough states and Beijing has struck significant energy deals with their
governments. This does not mean a direct competition between the US and China, because by
putting them on the outsider states the Americans are logically renouncing those resources.
Nevertheless, it does undermine other U.S. foreign policy goals, such as isolating rogue
governments or punishing them for failing to promote democracy, comply with international law,
limit nuclear proliferation, or respect human rights. Beijing's resource politics is reinforcing Iran,
Myanmar, and Sudan [where China has 4000 non-uniformed forces there to protect its oil interests
(Rampini, 2005: 168)], in other words it is sabotaging important American targets.
In Africa, which already supplied 28.7% of China's total crude oil imports in 2004, Beijing has
recently expanded its relationships; in some countries, it has even begun to challenge the influence
of the United States (Zha, 2006). In 2000, Beijing established the China-Africa Cooperation Forum
(CACF) to promote trade and investment with 44 African countries. In 2003, Prime Minister Wen
Jiabao visited several oil-producing African states, such as Algeria, Egypt, Angola and Niger.
Furthermore, at the same time, China is hardly investing large quantities of money? in the territories
of US historical allies, such as Australia (gas) and Canada (oil, gas and uranium; Vice President
Dick Cheney's 2001 national energy policy report emphasised the importance of Canada's tar sands
to U.S. energy security) and in South America (the US “backyard”) Brazil and Venezuela,
Argentina and Ecuador, in Russia and it even tried to buy the Californian oil company Unocal.
Securing China's energy needs does not simply mean obtaining resources; it also requires getting
them home. The country has no cross-border pipeline. The China National Petroleum Corporation
struck a deal for a major pipeline with the Russian oil giant Yukos in 2003, but the plan fell apart
after the Russian government first dismantled Yukos and then accepted Japan's higher bid on the
project. Negotiations for a pipeline that would transport Caspian Sea oil to China through
Kazakhstan are slowly moving forward, but China remains heavily dependent on international sea24
lanes, especially through the Straits of Malacca and other navigational chokepoints, to bring oil
from Africa and the Middle East.
Inter-state competition is natural, of course, but it need not be elevated to the level of conflict. and
concerns over China's impressive rise, while understandable, should not detract from the vast room
for cooperation that the country's new energy needs allow. After all, the United States and China
share an interest in viable oil prices, secure sea-lanes, and a stable international environment, all of
which can help sustain their economic prosperity and that of the rest of the world (Zha, 2006).
A big test of the U.S.-Chinese relationship may come, if China's current economic growth and need
for resources push it to expand its military influence. Few analysts expect China to become
belligerent, but its growing dependence on oil, especially from the Middle East, will make it more
actively concerned with sea-lanes, in particular the Strait of Malacca and the Taiwan Strait, both of
which its oil tankers use. Zhang Yuncheng (2004), an expert at the Chinese Institute of
Contemporary International Relations, in Beijing, believes that China would face an energy crisis if
its oil supply lines were disrupted and that whoever controls the Malacca Straits and the Indian
Ocean could block China's oil transport route.
China's ocean-going navy is still small, and with a U.S. naval base at Diego Garcia, in the Indian
Ocean, and India's navy dominating the mouth of the Straits of Malacca, Beijing seems to feel
vulnerable about its limited capacity to patrol on its own. President Hu Jintao has reportedly
commented on the problem, which he calls "the Malacca dilemma," and considers it key to China's
energy security. He is concerned that "certain powers (“the United States”) have all along
encroached on and tried to control the navigation through the straits."
For now, Washington's views about China's possible militarisation remain divided and in flux. In
February, Defence Secretary Donald Rumsfeld said that, although the Pentagon was watching
China's growing naval power, he could not confirm reports that in a decade the size of the Chinese
fleet would surpass that of the U.S. Nav,.but in May, Rumsfeld challenged Beijing to explain why it
is increasing its military investments when China faces no major threat. Others claim that China
25
will need to expand more than its military capacity to remain secure, but such conflicts are by no
means.a certaintyr. In assessing the dangers of China's growing energy needs, certain important
mitigating factors tend to be ignored. For example, Beijing has set out to replace some of the oil it
consumes with alternative forms of energy, such as coal, of which it holds the world's third-largest
reserves. China is projected to become the world's largest producer of nuclear energy by 2050.
Yet China has a right to pursue energy sources through market strategies, and, unlike the Soviet
Union, it is not orchestrating regime changes to advance its interests. Washington must recognise
that it would be irresponsible for China's leaders not to increase the country's energy supply. It
would be wise if Washington would learn to cooperate with this rising China and continue to work
to integrate it into the global economy. Beijing, for its part, must develop ties that do not flout
international standards of good governance and human dignity or threaten U.S. security interests.
Fears of a rivalry between the United States and China over the Middle East oil are probably
misplaced, as neither Washington nor Beijing may be able to attain secure oil supplies from the
Persian Gulf in the coming years, but such competition could become a self-fulfilling prophecy, if
both countries fail to cooperate to try to ensure regional stability. A situation of competing bilateral
oil deals could quickly become one where both the United States and China get unexpectedly cut
off by a major disruption based on internal difficulties and aggravated by the rivalry.
A good starting point would be a merging of the United States, China and other major powers to
create a multi-national convention to guarantee freedom of the sea in the Straits of Hormuz. Such a
convention might include a ban on sea mines in the waterway; a prevention of incidents
management agreement (focused on freedom of navigation and avoidance of provocation) that more
specifically defines maritime rules and regulations in the region; or creation of a multi-lateral
organisation to deal with the straist. Such an initiative would have the advantage of convincing Iran
that unilateral action would be counter-productive, while at the same time demonstrating that the
United States does not intend to be a threat to Iran. The process of negotiating such a convention
would also create a coalition of countries that could respond in case Iran did pose a threat to
26
freedom of navigation in the channel. In the end, even if Iran were to reject an international
convention, at a minimum, the process of trying to negotiate such a convention would force Iran to
tip its hand about hostile intentions, broadening the coalition of countries that might support the
United States in efforts to counter Tehran's freedom to arm itself (Barnes, Myers, 2006).
The world needs far-sighted leaders on both sides of the Pacific to adapt to rapid changes in the
global distribution of economic and political power, not leaders who let such shifts push them into
an increasingly-acrimonious confrontation.
Iran
The Iranian insolence regarding talk about UN sanctions against its nuclear programme scared oil
trades so much, that, by mid-January the oil price skyrocketed to an extra $6 a barrel from year-end
levels, threatening to cause a further destabilising factos in oil markets. Iran has always endorsed
higher oil prices at OPEC meetings, frequently requesting a reduction in oil production,
disregarding current and future global oil demand and international economic conditions. Since the
regime changed, Tehran pushed for an higher oil price through different kinds of actions, a
combination of public statements, diplomatic initiatives and outright threats. ‘Any possible
sanctions from theWest could possibly, by disturbing Iran's political and economic situation, raise
oil prices beyond levels the West expects’, Iran's economy minister warned mid-January in a
striking example of this pattern (Tait, 2006)”.
Iran has not only strategic importance, because of its underground resources, but also its
geographical position, which allows Teheran to control and, therefore threaten, a large amount of
the production of its neighbouring countries, such as Iraq, Kuwait, Saud Arabia, Quatar and the
United Arab Emirates thought the Straits of Hormuz. Their threat would carry even greater weight
if their nuclear programme succeeded.
27
Also Iran makes frequent use of the Strait of Hormuz for its own commerce; so it is improbable that
Teheran would be willing to close the Strait indefinitely. Instead, Iran could use or threaten to use it
as a weapon, preventing the passage of ships from specific countries. This action would selectively
punish countries which challenge the Iranian aims. Moreover, Iran's position must also be
considered in the context of its increasing regional influence, as in internal Iraqi politics and its
long-standing position as an oil price hawk inside OPEC. “In short, a nuclear Iran could pose a
substantial threat to the free flow of oil from the Persian Gulf by raising the stakes of any serious
conflict with Iran on any matter, even unrelated to oil (Barnes, Myers, 2006)”.
In order to diminish the Iranian influence upon the Middle East sea export, analysts suggest keeping
alternatives open to that passage, investing in pipelines and creating bypasses. Besides, as a backup
plan, they suggest keeping stocks of unsold oil near the receiving markets, thereby reducing the
power of threatening the straits. Those ‘floating’ stocks can be used also against other kinds of
crises: terrorist attacks or internal political unrest that might threaten exports from a particular
country in the region, to stabilise oil markets, as they did in 1990 when Iraq invaded Kuwait.
United States of America
The United States is more dependent on foreign oil than ever before. America imported 12.9 million
barrels/day (b/d) in 2004, about 63% of the total consumption and it is projected to rise to close to
70% by 2020. US imports from the Persian Gulf are expected to rise from 2.5m b/d (22% of total
US oil imports) in 2003 to 4.2m b/d (62%) by 2020, according to forecasts by the US Department
of Energy (DOE).
US oil consumption is centred in the transportation sector, which represents more than two-thirds of
total petroleum use. No political will to make a dramatic change in US consumption habits is
apparent. Some commentators note that the American lifestyle, based on ‘petroleum profligacy’,
leaves the United States a ‘permanent hostage to events in the Gulf’. The increasing direct
28
dependence is not the only issue; but indirect dependence will also increase: this means that if the
Middle East oil-price rises, all prices of oil will rise accordingly.
According to Barnes and Jaffe (2006), in their article, “The Persian Gulf and the Geopolitics of
Oil”, “Today's oil markets are truly global; even if the United States did not import a single ounce
of oil from the Organization of Oil Exporting Countries (OPEC), production by those countries
would still affect, perhaps dramatically, the price of petroleum paid by US consumers”.
US foreign policies towards the Middle East can have either positive or negative implications for
major oil-consuming countries, depending on the ability of US diplomacy. If they are perceived as a
magnanimous Hegemon, they will enjoy help and better relations with their allies, as well as other
key countries, like China; while if they are perceived as a predatory hegemon, they will experience
the reverse.
29
Chapter 3
Conclusion
“Since Churchill's day, the key to energy security has been diversification. This remains true, but a
wider approach is now required that takes into account the rapid evolution of the global energy
trade, supply-chain vulnerabilities, terrorism, and the integration of major new economies into the
world market” (Yergin, 2006: 1).
Technological improvement and human population growth need an immense amount of energy, but
resource scarcity, in particular oil, is not a problem yet. In Maugeri’s (2006) words:
“What little is known about the world’s underground oil resources justifies a positive view of the
future, not the alarmist vision of the catastrophist […] their pseudoscientific fatalism, camouflaged
with quasi-sophisticated models, has turned out to be wrong repeatedly in the past, and it is unlikely
to be right in the future” (Two cheers for expensive oil, 2006: 15).
The real problem is the lack of efficient resource politics. As far as the realistic framework will be
the leading one to understand the energetic international politics, resource problems will grow
instead of decreasing. Energetic development needs a persistent huge amount of investment and
high efficiency in their use. Synergies, especially in research, would avoid useless repetitions and
the lack of funds.
Furthermore and most importantly, political stability and cooperation is fundamental both for better
performances in the energetic production and a peaceful international environment. In this
perspective, Bernabè, European Rothschild vice-president has proposed a new ECSC for gas, but it
is difficult to imagine, since European countries are fighting against the fear of other EU members
having key assets within their boundaries; as happened between ENI and Suez gas de France or
between Germany and Spain, where protectionism and nationalism were key players in the issues.
The in full (IEA) recently estimated that $17 trillion will be required for new energy development
over the next 25 years. These capital flows will not materialise without reasonable and stable
investment frameworks, appropriate decision-making by governments, and open markets, but how
will it be possible to merge forces as far as an important actor like China is seriously damaging the
US foreign policy with its resource politics? Some scholars, like Zha, suggest a pragmatic approach
based on single-issue agreements; but it is hard to imagine Sino-US cooperation for the Straits of
30
Hormuz or the Straits of Malacca, while they are fighting at the Security Council for a resolution
against the Iranian nuclear policy.
Nevertheless, solutions have to be found. There are good reasons to be optimistic about the future,
especially because economic giants, possessing both a system of alliances and several trading
partners, whose economic well-being is critical for their exports, have a vital interest in ensuring the
unimpeded supply of petroleum, not just for themselves, but for world markets as well.
31
Annex:
Interview with Mr. Giorgio Geddes da Filicaia, chairman assistant of Cities Service Oil Company,
60 Wall street, New York.
Dr. Maugeri, vice president of ENI, said clearly that the quantity of oil is not a problem because of
both a development in the extraction technology and of new oil discoveries in the underground. Do
you agree?
It true but it’s a guess. It is true because we have oil enough; however, it’s a wishful thinking
because we do not have complete information about.
So, why the oil prices skyrocketed?
The price of oil is the result of political events. There is a tremendous increase in the use of
petroleum products in countries like India and China, for example. An annual GDP growth of 810% is fuelling the demand of oil and oil related products. Those countries are activity searching for
petroleum all over the world, thus, the increased demands makes the price grow up.
In 1974, after the first oil crisis I bought tons of “bonny light”, the famous oil from Nigeria, which
is free of solve completely. I paid it $9-10/barrel. Everybody though I was crazy because I was
paying $2-3/bl more then a Saudi barrel. Little after bonny light became so famous that everybody
looked at the Nigerian oil and I was able to make good businesses.
I believe that the oil price will go up again because of the political instability worldwide. Just think
about the power of a country like the former Persia. Iran is playing its cards internationally to scare
everyone and it can do it because its politicians know that they have the choice to sell oil wherever
to whoever they want.
32
Sinopec, the company I am working with, is trying to find oil in and outside China, everywhere.
Does China have any problem about buying oil from countries like Iran?
Chinese do not have any problem about and nobody can say them to whom they should buy the oil
from. Oil has no passport.
However, in my opinion, it is not a problem for the international relations. We are trying to
convince China not to copy international trademarks and the negotiations had been successfully
since now (on the paper at least) because they need investment from the West and for whoever has
many. Therefore, they cannot scare us, their investors, because if they behave properly, they could
loose their funds.
Once there were “made in Naples”, “made in Korea or Taiwan”, now everything is “made in
China”. I think 50 billion fakes were sold in China last year! Can you imagine loosing such a
business for contrast in foreign politics?
I work for Sinopec the powerful arm of the main Chinese oil company. They have now 35,000
stations in China (considering that there are not many cars yet). They will upgrade part of their
station to make them like the European one, they are moving towards a Western kind of life, like
many former communist states.
My work is about base oil activities and supply from countries like Italy, Canada, USA etc. The
mother of the production is always the crude, than you need the blending plan. Base oil is a
fundamental asset, because without it no transport can function. I personally built 11 blending plan
around the world.
Every company in the world is willing to supply us. Now we are trying to make a contract with
ENI. Base oil high quality comes from European countries and few more places in other continents.
However, the request (still growing in booming economies, like India) is higher than the supply
because of the famous the hurricane of the recent past which damaged many important refineries.
33
Those industries stopped working for 3-4 months, the price jumped in few months from $300 to
$1000/ton and it did not decrease yet.
According to Dr. Maugeri, oil will be not over, it will be replaced by some other way of making
energy. Do you agree with this statement?
Well, humans have to go on, so the statement is true. However, that day is far from us. When I was
a child, my father told me: “you’ll see the man on the moon”. I asked him how could an airplane
arrive there without supply, he answered: “They’ll find a way”.
Governments appear to be more interested in resource politics since the oil price went up. Do you
think they will loose that interest when and if it will go down?
I am one of the first who tried with fiat, ENI and the Italian government to search for fuel cell
(cellula). I worked on the project for 4-5 years, after I got tired. These are 40-50 years project which
needs billions; we were only at the first steps, so I had to give up. The camera film business is a big
business which is going to collapse, there are a lot of people working for it all over the world and
interest related, but film cameras will be quickly almost completely replaced by digital cameras.
Nonetheless, the camera business does not exist compared with oil. Even if everyone is looking for
a substitute, the interests and the incredible amount of many involved in the oil business will make
the shift very slow; it will be a fight until the very last drop.
Besides, the price will not drop. It will collapse only if there is a worldwide recession. Even a small
increase will make the oil price stay high. So, government will go on investing in energy.
34
Do you think that the gas will be able to substitute oil, or do you think it is a bubble?
Gas is not only less expensive but is also less polluting than oil. It will be a very good business, it
will not be a bubble, you can bid any kind of many on it. Mattei’s idea about decreasing the Italian
dependence on oil thanks to gas was good.
Did you know Mattei?
I never met Mattei, I worked with one of his closest collaborator, from Sabornian di Braza, in the
north of Italy. I worked with Mattei for 6 months. In my next book “launch with Truman”, I will
describe a meeting that I was supposed to have with Mattei and the American ambassador in Italy
about oil royalties. Unfortunately, the Cuba crisis exploded, so the ambassador could not move
from Rome and Mattei died little after in an airplane accident.
35
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