Oil hit a record $103.95 on 3 March, then $104.56 on 5 March. Some calculations would have these prices higher in real terms than their April 1980 peak, the height of the second ‘great oil shock’.

Increased OPEC Stubborness

There is little new in the biases of the main OPEC players – Iran and Venezuela continue to push for cuts to support the price, others fear the political and global economic effects of cutting production at $100 plus per barrel. What is new is the growing consensus, even amongst traditional allies of the West, to do the West no favours.

President Bush, perhaps over-relying on an appreciation of the political effects on the sovereign wealth funds of those OPEC countries most integrated into the Western economic system, intervened politically by attacking OPEC for worsening the US economic slowdown.

His appeal seemed to have no effect, perhaps discounted as something that a President has to do in an election year when his people are worried and perhaps resented as arrogant. 

OPEC’s reaction was a disdainful reference to US mismanagement of its own economy which it sees as having been built on encouraging speculation as the default mode of doing business. They may well have a point - nationalists and islamists culturally dislike speculation as a point of principle.

The battle appears to be over acceptable inventories. Western inventories appear severely depleted. ‘Moderates’ and ‘radicals’ within OPEC seem defined by their willingness to allow inventories to be replenished or not in preparation for a raising of demand before the summer.

But there is no political momentum within OPEC for an increase in production to moderate their own accumulation of capital (quite the contrary). Even if it does not announce formal cuts, OPEC could allow covert cutting through increasing export prices to refiners – a strategy that seems to be based precisely on reducing any chance of a build-up in inventories.

A formal production cut certainly seems unlikely before mid-April so $100 plus oil prices will be working through the system to cause some pain in the West just as the credit crunch is weeding out the weaker prospects within the economy.

The Defence of National Sovereignty

From a political perspective, it is interesting to note that OPEC backed Venezuela in its dispute with ExxonMobil, citing support for Caracas “in the exercise of its sovereign rights over its natural resources in accordance with international law”.

Given that Venezuela has been mobilizing troops on the Colombian border, apparently (if you believe American web sites) in defence of FARC (an organization rapidly entering into an increasingly global insurgent, though not Al-Qaeda, alliance), this (in effect) positions OPEC on the ‘wrong side’ from a US point of view. Algeria, a new OPEC member, also added its weight to the ‘hawk’ position.

American tolerance for a Colombian border incursion into Ecuador and the arrest of alleged global arms trader Viktor Bout in Thailand, allegedly cutting an arms deal with FARC representatives, (and a longstanding web-based propaganda war linking FARC to other insurgencies in the Middle East) all suggest that the gloves are off in American attempts to contain the Bolivaran revolution in Latin America.

We now have limited mirror image interventions by states backed by the US operating, albeit briefly, inside the borders of other countries – Colombia in Ecuador and Turkey in Iraq (not forgetting Ethiopia in Somalia and the disastrous Israeli incursion into Lebanon, even the EU in Serbian Kosovo). 

This list does not include alleged past or current covert operations in the Sahel or inside Iranian territory which are designed to match blow-for-blow alleged similar operations by Iran inside Iraq or Sudanese operations against its own minorities and incursions into Chad.

Borders are becoming militarily more porous by the day. It is in this context that we have to look at OPEC's message to the West - do not think that counter-terrorist operations can be allowed to elide into operations to secure sovereign resources ...

A Western intervention into the Nigerian Delta against militant 'terrorists' might elide steadily into an intervention in Venezuela to restore ExxonMobil's rights and so on.  It seems unlikely that the West would go so far, even in relation to the Delta, but OPEC members have different historical memories and the ousting of Mossadeq in a coup is very recent history to some of its members.

Venezuelan preparedness to counteract a significant neighbouring US' ally through military action may be seen as a marker of the limits of acceptability to sovereign states of ‘Western’ actions of this nature. The catch-all justifications of operations as necessary against ‘terrorist’ organizations or to deal with 'failed states' are beginning to wear a little thin as the proxies begin to use operations to assert domestic authority.

Western actions have now gone far beyond humanitarian police actions in cases of genocide or state collapse. They have gone beyond, as in the Afghan and Kosovo cases, boundary settling between cultural empires. 

This is now becoming a matter of a new global order enforced through the toleration of cross-border operations in sovereign state territories that would have been unthinkable under the original UN Charter.

This shift towards US tolerance for admittedly limited police actions by allied states is a new phenomenon that is slowly sliding up a scale from attacks on ‘failed’ states towards incursions into ‘integral’ states (like Ecuador).

Iraq represents a type of troubled half-way state that is no position to resist to an incursion from a Turkey that has been guided in and guided out by the State Department as the 'lesser evil'.

OPEC’s own assertion of ‘sovereign rights’ is not related to anything other than energy resources but it may also reasonably be taken to refer implicitly to a core value within OPEC (shared by many other non-Western states and by Russia above all).

This core value is that there is, in fact and in international law, such a thing as inalienable sovereign rights. Whether this stands up in philosophical terms is a moot point but it is what most developing states believe.

The corollary is that impatient Western liberals who have not yet captured complete control of the UN should not be permitted to interfere with them too readily. Lines are being drawn.

The 'Petrodollar Tsunami'

Meanwhile, analysts are referring to a ‘petrodollar tsunami’ with oil exporters earning $2,100bn pa in oil export receipts.

A cynical view might be taken that worsening US economic prospects in the short term creates many more opportunities for distress purchases but we doubt whether GCC interests in particular operate in quite this sinister Blofeld-like way.

Nevertheless, a high oil price and oil producer acquisition of US assets at distress prices provides a volatile brew for populist conspiracy theorists and xenophobes that may spread to Europe.

The Financial Times’ Stephen Jen has estimated that total proven reserves can be valued at a colossal $104,000bn at $100 per barrel – this is equivalent to the combined total value of all publicly-traded equities and bonds in the world. $48,000bn of this belongs to GCC countries.

The logic is that while 5-10% of revenues can be absorbed domestically, the rest will be saved and deployed globally. Half of petrodollar receipts are thus likely to be invested through SWF’s (sovereign wealth funds) and (according to this analyst) funds are going to move heavily away from bonds into equities.

Another implication is that emerging country currencies will strengthen considerably in comparison to the dollar and the euro – a falling dollar and a falling euro may now, it seems, be embedded in the system.

Everything Is Connected

Whatever the effects on the West, OPEC seems determined not to let oil prices fall too far too fast and yet demand in the emerging world continues to increase.  So, long term energy security is becoming a major concern of all those states without self-sustaining long term natural energy resources (and even of those that do).

The global recovery of the prospects for nuclear energy is a corollary of this. The UK Government, this week, made it clear that reliance on nuclear energy will grow ‘significantly’ over the next two decades – existing but ageing nuclear power stations already supply 19% of British energy requirements. Nuclearisation is becoming a political non-negotiable.

Everything is connected - OPEC's determination to accumulate capital, economic competition from the East, growing sovereign resistance to any further Western attempts to use superior force or its proxy allies for political objectives and the resurgence of interest in nuclear power. It will take great skill for Western leaders to steer the West back to stable economic growth and ensure its social and political cohesion.

www.tppr.co.uk