Underpinning any conflict between the major imperialist power blocs lies a struggle to maintain or seize control of raw materials on which the imperialist economies depend. Critical is the control of the world’s supply of oil, and ‘under imperialism, the control of the world’s oil supplies has always reflected the relative strength of the contending imperialist powers’.* ROBERT CLOUGH and GEORGE O’CONNELL report.
For US imperialism, maintaining and extending its global control of oil resources is critical to staving off any challenge to its position as the hegemonic imperialist power, and the wars it has waged over the last 40 years demonstrate its absolute ruthlessness in achieving this end. Its surrogate war in Ukraine is part of this strategy: at stake is not just its domination of Ukraine, but the prize of Russia’s vast oil and gas reserves. But the depth of the world economic crisis means that there are economic consequences, and the current instability of oil prices is an expression of the relative decline of US imperialism.
The US’s position as the hegemonic imperialist power at the end of the Second World War was reinforced by the establishment of its control over the oil resources of the Middle East. Wars and military interventions were necessary to this process: Iran (1953), Jordan and Lebanon (1958), Oman (1957-59 and 1965 onwards), Kuwait (1961), Bahrain (1956 and 1965), North Yemen (1962 and 1970), Saudi Arabia (1963). Ever more destructive wars or surrogate wars became necessary as rival imperialist powers began to contest the US’s dominance following the end of the post-war boom and the re-appearance of conditions of capitalist crisis. 1984 saw US imperialism back Saddam Hussein’s Iraq against an Iran which had fallen out of the US’s sphere of influence. In 1990, Saddam had to be slapped down following Iraq’s invasion of Kuwait. In 2001, it was the turn of Afghanistan – not a major source of oil, but crucial for the strategic control of the Middle East. In 2003, it was Iraq again; in 2011, Libya and Syria. Elsewhere it became Venezuela’s turn with the imposition of increasingly brutal sanctions from 2015; Iran has remained under sanctions now for decades.
However, despite the appalling human cost of these wars and sanctions, the US has not achieved any lasting success in shoring up its position. It has been ejected from Afghanistan and stalemated in Syria. It has reduced Iraq and Libya to ruins, but has failed to change either the regime in Iran or the democratic government in Venezuela. Now it is moving into a more direct confrontation with its imperialist rivals – waging a surrogate war against Russia, and issuing bellicose threats to China. And whereas the earlier conflicts did not disturb the world markets for oil to a significant degree, this time oil price instability is threatening global recession and is itself an expression of the relative decline in US imperialist power: it no longer has the same degree of control of the world’s oil resources as it had during the post-war boom.
The immediate expression of this was the sharp increase in crude oil prices following the Russian invasion of Ukraine, with Brent crude, the international benchmark, hitting a 14-year high of $139 a barrel. Far from the negative prices of early 2020, oil futures are now consistently trading at well over $100 a barrel, levels not sustained since before the oil price crash of 2014. With oil prices likely to increase further as the consequences of sanctions against Russia set in, US imperialism along with its European allies is scrambling for ways to ensure a continual flow of oil.
Oil and the pandemic
Restrictions imposed during the Covid-19 pandemic in 2020 saw global oil consumption cut by 9% below its 2019 level. The scramble to cut production in line with this hit was chaotic, with oil prices falling temporarily below $0. With the global emergence from lockdowns and the lifting of public health measures, oil demand is set to recover to pre-pandemic levels of 100 million barrels per day (bpd) this year. Oil production, however, is not as easily making this recovery.
During the height of the pandemic, major oil producers were unable to maintain their oilfields and the subsequent hit to global infrastructure has proven difficult to repair. Despite its fall, worldwide oil consumption outstripped production by 2.1 million bpd in 2020, and speculative bets that this would continue prompted a steady rise in oil prices through late 2021 and into 2022. By mid-January 2022, Brent reached a seven-year high of $88.13 a barrel with Goldman Sachs predicting that the oil inventories of the highly-developed OECD countries would reach their lowest levels since 2000 by the middle of 2022 as they sought to meet the gap between demand and supply. Calculations that there was enough spare capacity to ensure price stability during the year were undone with the start of the Ukraine war and the imposition of sanctions on Russia by US and European imperialism.
Sanctions on Russia
Russia is the largest oil exporter in the world, the second largest crude oil exporter and the third largest oil producer. About 60% of Russia’s oil exports go to OECD Europe, and 20% to China. In November of last year, 34% of OECD Europe’s oil imports came from Russia. The International Energy Agency predicts that as much as three million bpd could be cut from global production due to sanctions on Russia, 3% of global consumption. It was inevitable that this would encourage speculative activity, forcing oil prices ever higher. Ahead of a NATO Extraordinary Summit on 24 March, Brent rose to $122 a barrel as EU and NATO leaders discussed fresh sanctions. The Dallas Federal Reserve Bank described this as ‘one of the largest supply shortfalls since the 1970s’. Investors are warning that $150 a barrel would be merely a soft cap for the near future; Russian Deputy Prime Minister Alexander Novak predicts $300 a barrel or more.
US and OPEC+ cartel
Over the last decade, the US has been able to capture a much larger share of the global oil market, increasing its share from 8% to 14% between 2011 and 2020, with output rising from 5.5 million to 13 million bpd. This was the result of the US ‘shale revolution’ which saw the US become the largest oil producer in the world. The US has pressured OPEC and OPEC+ nations (which also include Russia) to restrict production and so keep prices high enough to ensure the profitability of the less efficient US shale production.
Now, however, rocketing oil prices threaten the stability of the entire capitalist system, and US imperialism is pushing OPEC+ to increase production to lessen the pressure. Boris Johnson’s March visit to Saudi Arabia, the third largest global oil exporter, highlights the imperialists’ concerns. The prospect of securing an increase in oil production apparently outweighed the potential political backlash of visiting Riyadh immediately after the Saudi regime had beheaded 81 men. But so far, negotiations have had limited results, and on 5 May the OPEC+ countries announced that they remained committed to a modest production increase of 432,000 bpd in June. This was in line with targets agreed in July 2021. In a further blow to the imperialist powers, April saw OPEC+ fall short of its quotas by 2.6 million bpd.
On 5 May a US Senate commission proposed to revoke the sovereign immunity that protects OPEC nations and their national oil companies from lawsuits. The so-called ‘NOPEC’ bill would ‘hold cartels responsible for price fixing/market manipulation’, according to its sponsor, Senator Chuck Grassley. In 2019 Saudi Arabia threatened to sell oil in alternative currencies to the dollar if a NOPEC bill were passed. Even if unlikely to become law, this is a striking example of the current standoff between US imperialism and OPEC.
Scramble for oil
Increasing US domestic production cannot plug the gap that will be left by sanctioned Russian oil. This is in the hands of private operators and they are being pressured by investors to funnel windfall profits back to shareholders. There is little incentive to increase oil production and therefore reduce its price. On 31 March the Biden administration had to announce the release of 180 million barrels of oil over six months from US oil reserves. This is the largest release since the reserve was created after the 1973 oil crisis, but any reprieve on Brent prices was temporary.
In desperation to find extra sources, and without any regard for the environmental consequences, the US is turning to countries it would otherwise regard as its enemies. Hence Venezuela and Iran are being eyed up as potential suitors for plugging the gap, so far in vain. On 5 March, senior US officials met with Venezuela’s governing PSUV party, despite the refusal of the US since 2018 to recognise Nicolas Maduro’s presidency, and despite Biden two days earlier extending the executive order that declares Venezuela a threat to US security. The Biden administration left empty -handed, unable to accept Venezuelan terms under pressure from US right-wing politicians and lobbyists ahead of November’s midterm elections. It is clear however that the Venezuela option has not been shelved completely, with 17 May seeing the US Treasury Department issuing a licence for Chevron to negotiate potential future activities in Venezuela (see p10).
The Iranian option is equally forlorn. Talks between US and Iran, mediated by the EU, to salvage the Iran nuclear deal have stalled, reducing the likelihood of the lifting of US sanctions which would allow the freer export of Iranian oil. Prior to the extra US sanctions imposed in 2018 following President Trump’s withdrawal from the nuclear deal, Iran produced 2-2.5 million bpd of crude oil. On 7 May EU foreign policy chief Josep Borrel told the Financial Times that he was seeking a ‘middle way’ in rescuing the talks, but made it clear that this attempt was the ‘last bullet’. As it stands, Iran’s demand that the Islamic Revolutionary Guard Corps has its designation as a terrorist organisation lifted appears unacceptable to the US, and despite European efforts this stalemate drags on.
Oil and China
Currently, the only respite comes from China’s continuing zero-Covid strategy which maintains a reduced oil consumption. China is by far the biggest oil importer in the world, with a quarter of total crude imports in 2020. Standard Chartered estimates recent public health measures in April lowered China’s demand by 1.1 million bpd. This appears to be softening the impact of sanctions on oil prices: EU proposals for a complete ban on Russian oil on 4 May yielded a relatively small rise on Brent, up just 3.8% to about $109. Such a complete ban however faces resistance: plans to ban shipping of Russian crude have been dropped in the face of lobbying from Malta and Greece, where half of the EU’s shipping tonnage is flagged. Furthermore, Hungary, Slovakia and the Czech Republic, which are heavily reliant on Russian crude from the Druzhba pipeline, are resisting attempts to ban Russian oil imports.
China’s vulnerability to the choking of oil imports is a major factor in US imperialism’s calculations and fuels its determination to support Ukraine in a lengthy war with Russia. Regime change in Moscow is now an open US war aim, with the view of replacing President Vladimir Putin with a more amenable Russian leadership in the mould of former President Boris Yeltsin. US imperialism’s writ no longer runs across the world: the wars of the past decades show that, as do the failure of all its sanctions regimes. Its gamble on the Ukraine war could result in yet another bloody nose.
* David Yaffe, ‘Oil imperialism and the class struggle’, Fight Racism! Fight Imperialism! No 97 September/15 November 1990.
Fight Racism! Fight Imperialism! No 288, June/July 2022
