DISADVANTAGE/OIL

LOWER OIL PRICES RISK WAR OUTBREAK

LOWERING OIL PRICES CAUSES MANY WAR SCENARIOS

Amy Myers Jaffe and Robert A. Manning January, 2000 / February, 2000 [ AMY MYERS JAFFE, former Senior Economist for Petroleum Intelligence Weekly, directs the Energy Research Program at the James A. Baker III Institute for Public Policy at Rice University. ROBERT A. MANNING is Senior Fellow and Director of Asian Studies at the Council on Foreign Relations and author of the forthcoming The Asian Energy Factor Revisited. I HEADLINE: The Shocks of a World of Cheap Oil. Foreign Affairs. // LXNX ARF

As OPEC squirms, big and small oil producers around the globe continue to announce new finds and new plans to expand capacity. The latent supply potential in Iraq, Russia, Africa, and elsewhere -- combined with more modest economic expansion in Asia -- belies the Cassandra-like predictions that the world will soon deplete its oil assets. In turn, the prophecies of dried-up wells obscure the far more likely prospect: a sustained oil glut and long-term low oil prices, which will have very different -- and largely unconsidered -- political and strategic consequences. The 1998 dalliance with $ 8 barrels hinted at the possibilities, with the economic meltdown in Russia and a forced succession in wealthy Brunei. The Arab states of the oil-rich Persian Gulf, non-OPEC producers, and consumers are simply not prepared for a new geopolitics of energy.

Neither, frankly, is Washington. The political reverberations of a sustained oil glut should not be underestimated. Several important regimes -- in the Gulf states, Russia, the former Soviet republics, and such key Latin American countries as Venezuela, Mexico, and Colombia -- count on healthy oil revenues for calming restive populations, assuaging social tensions, and in some cases, nation-building writ large. Without the salve of rising oil revenues, many of these nations can expect to see heightened political instability, social unrest, or even civil wars, which could be grimly reminiscent of recent Balkan slaughters. In the Gulf, such instability could trigger the next oil shocks in the form of short-term disruptions. The 1991 Gulf War demonstrated the West's capacity to defend important oil regions from traditional external threats like the Iraqi invasion of Kuwait. But America's painful experiences with revolutionary Iran in the late 1970s and the Balkans in the 1990s are grim reminders of how hard it can be to cope with internal instability. The new dynamics of the global oil market have profound implications for U.S. national security policy. Washington had better gird itself.

LOW OIL PRICES CAUSE INSTABILITY IN EURASIA

Amy Myers Jaffe and Robert A. Manning January, 2000 / February, 2000 1 AMY MYERS JAFFE, former Senior Economist for Petroleum Intelligence Weekly, directs the Energy Research Program at the James A. Baker III Institute for Public Policy at Rice University. ROBERT A. MANNING is Senior Fellow and Director of Asian Studies at the Council on Foreign Relations and author of the forthcoming The Asian Energy Factor Revisited. I HEADLINE: The Shocks of a World of Cheap Oil. Foreign Affairs. //LXNX ARF

THE HIGH PROBABILITY of oil prices in the $ 12 -- $ 20 range over most of the next two decades will condemn to a perilous future the arc of instability along the southern rim of Eurasia -- from the Balkans to the Caucasus and Central Asia and maybe the Persian Gulf as well. Some oil regimes, such as Kuwait and (to a lesser extent) Iran, are trying to prepare by reforming their social, economic, and political institutions. But others -- as the rhetoric of the leaders of the newly independent states of Kazakhstan, Azerbaijan, and Turkmenistan demonstrates so well -- cling to the notion that oil earnings will miraculously grease the wheels of the current system of handouts from the top. This delusion prevents these countries from implementing difficult but necessary political and economic reforms.

LOW OIL PRICES CAUSE REPRESSION, TERRORISM, AND HURT THE PEACE PROCESS

Distributing economic spoils has been a major vehicle for the Gulf regimes to sustain their power base and legitimacy. In some Gulf countries, as many as 90 percent of the labor force work in government jobs. Political critics and potential opposition leaders are frequently bought off through subsidies, high offices, or other tokens of wealth and status. The regimes also build religious centers, medical facilities, and other services to placate the disgruntled. But economic stagnation has already strengthened local resentment over official corruption and greed and has widened disparities between rich and poor. Without healthy oil revenues to buy off restive populations, the Gulf leaders will be left with only repression to silence foes and quell public discontent, which could fuek even more violent opposition. Radicalized local populations could also threaten the Middle East peace process; disgruntled Gulf states might be tempted to placate Islamist movements by funding the terrorists of Hamas, for instance.

THE NEXT WAR FOR OIL WILL INVOLVE WEAPONS OF MASS DESTRUCTION USED AGAINST AMERICANS

Alan Tonelson and Beth Lizut, U.S. Business and Industrial Council Educational Foundation, The Washington Post, September 15, 1996, Pg. C02, TITLE: If We Kicked the Oil Habit, Saddam Wouldn't Menace Us // VT98-acs

The recent U.S. missile strikes in Iraq, which our oil supplier Saudi Arabia refused to support, reveal once again the flaws in our energy policy. The pro-Western states in the Gulf are too militarily weak and internally divided to be reliable allies. The region's political, ethnic and religious conflicts are too Byzantine for balance of power schemes concocted by Washington policymakers, no matter how farsighted and wise they may be. Our European and Japanese allies are growing ever more fickle and eager to pursue their own economic interests. And the region's next war could see weapons of mass destruction used -- against Americans.