Six Questions, Washington Babylon — September 21, 2009, 10:21 am

Six Questions for Peter Maass on the Violent Twilight of Oil

Luke Mogelson contributed reporting for this interview.

Peter Maass, a contributing writer at the New York Times Magazine, is the author of Crude World: The Violent Twilight of Oil, which is being published this week by Alfred A. Knopf, Inc. He is also the author of Love Thy Neighbor: A Story of War, which chronicled the conflict in Bosnia and won literary prizes in 1997 from the Overseas Press Club and the Los Angeles Times. The countries Maass reported from for his new book on the troubled world of oil include Saudi Arabia, Iraq, Russia, Venezuela and Nigeria. Maass has also written for the New Yorker, Atlantic Monthly, Slate and the Washington Post. He recently responded by email to six questions about his new book.

1. The discovery of oil in poor countries seems very seldom to result in general prosperity. What accounts for this so-called “resource curse”?

It’s an odd thing–you’d think every country with a lot of oil would be lucky. And many are. The United Arab Emirates, Kuwait and Brunei have so much oil and such small populations that it would be impossible for them to not prosper. Canada certainly benefits, thanks to a diversified economy that saves it from the downsides of depending on a sole resource. Norway is in great shape because its institutions were solid when its North Sea tap was opened, enabling it to withstand the pressures and temptations of oil dependency (hence the lesson that it’s best to find democracy before finding oil).

But in poor countries, dependence on exports of a single resource or just a few resources can lead to destabilizing booms and busts. Without good oversight and management, resource revenues can be siphoned off through corruption and waste. When oil dominates an economy, the farming and manufacturing sectors can suffer from neglect as well as exchange-rate imbalances. That’s a bigger problem than you’d think, because the oil industry is capital intensive, creating few jobs. Even Saudi Arabia, which has more oil than any other country, has high unemployment. And research from Paul Collier and other scholars shows that a dependence on resource revenues can lead to less democracy and higher risks of violence, due to struggles for access to state-owned resources. Resources are central elements in the violence that afflicts countries like Nigeria, Congo and Iraq.

I think “curse” might be too strong a word, because it implies a fate that is inescapable or that operates like an economic law. Better to think of it as a peril. And it’s good to remember the advice of J. Paul Getty, the legendary oilman who did a good job of summing up the underlying problem. As he is credited with saying, “The meek shall inherit the Earth, but not the mineral rights.”

2. Do oil companies tend to employ corrupt practices, such as fraud and bribery, more consistently than companies from other industries do?

Without getting too Clintonian, it depends on how you define “more.” Oil and gas companies have certainly been involved in widespread corruption across the globe for the past century. During World War II, when oilmen were overcharging the military for gasoline, Interior Secretary Harold Ickes wrote in his diary that “an honest and scrupulous man in the oil business is so rare as to rank as a museum piece.” More recently, an interesting proportion of cases filed under the Foreign Corrupt Practices Act were aimed at the oil industry. So yes, the oil industry has a proven record of employing fraud and bribery on massive scales.

But I don’t think the principles of oil companies are much different from other companies. For the sake of access to a lucrative market, Microsoft and Yahoo, for instance, made terrible compromises in China, bowing to political censorship. Because of their bottom-line concerns, corporations tend to privilege profits to ethics. Microsoft and Yahoo have the luxury of not fighting for business (indeed, fighting for their financial survival) in countries like Kazakhstan and Nigeria. Oil firms must go where the oil is, and most of it happens to be located in countries where the bribery situation is, shall we say, permissive. The problem isn’t that oil firms have lower principles than other companies. The problem is that due to the location of their operations and the scales on which they operate, they need to have higher principles. And they don’t.

3. You point out that after three decades of nationalization, western oil companies now control less than fifteen percent of world reserves. Have state-owned oil companies been better for the people of oil-producing countries than American and British corporations were?

It’s a mixed picture. Say what you want about the Saudi government, but Saudi Aramco, the national oil company, is regarded in the global industry as very well-run, with budget outlays that allow for safe operations and good treatment of employees. Brazil’s Petrobas is well regarded, too. But many state-owned companies cut corners because a lot of their revenues are taken by the state. Some of the worst facilities I have seen were run by state-owned PetroEcuador. Petroleos de Venezuela, run by Hugo Chavez’s leftist government, could have a much better safety and environmental record. This doesn’t mean their fields should return to the control of foreign companies; it just means they need to do a much better job.

The other side of things is that state-owned companies are venturing outside their national borders. Exxon and Chevron are not paragons of virtue when they operate in foreign countries (or even in the United States), but Chinese and Russian firms, which are becoming key international players, are not known for their ethical purity. Sometimes the requirements of national security are crueler factors than considerations of profit and loss. The upshot is that if you thought the last century of oil, dominated by the likes of Exxon and Shell, was cut-throat and exploitative, the final decades of oil’s dominion could be worse.

4. You say, “The question is not whether war is about oil but how it is about oil.” How was the Iraq War about oil, and was that all it was about?

Wow, I wrote a chapter on that and felt as though I was skimming the surface. I’ll do my best to sum it up in a few words.

In the Middle East, oil can be the only reason for a war, and it can be one of many; we need to be flexible when debating these things. The 1990-1991 Persian Gulf War was pretty much about oil and nothing else. Iraq invaded Kuwait for its oil and the power it would give Saddam Hussein. The United States and its allies then went to war against Iraq because a world in which Saddam controlled that much oil–and threatened the next-door motherlode in Saudi Arabia–was a frightening prospect. National Security Directive 54, which President George H.W. Bush issued just before the war, stated in its first line that “access to Persian Gulf oil and the security of key friendly states in the area are vital to U.S. national security.” No mushiness there (though of course NSD 54 was classified at the time).

Donald Rumsfeld said the 2003 invasion of Iraq had “literally nothing” to do with oil. As a line for a standup comedian, that would be quite good. As an honest assessment by a defense secretary, it was laughable for the wrong reasons. But it would be a stretch to respond to Rumsfeld’s bad joke by saying the invasion was only about oil. We now know that Iraq had no weapons of mass destruction, and we know the “evidence” was falsified or hyped by the U.S. government. But I think key officials, including Vice President Dick Cheney and President George H. Bush, were genuinely concerned about WMD; that the weapons did not exist does not mean the White House’s fear was entirely concocted. WMD and oil were volatile issues that inflamed each other. And I think for some people in the administration, a political reshaping of the Middle East–the democratization argument–was a goal, too. I wrote in my book that WMD, democracy, religion and oil were like a set of keys that an inebriated America was fumbling with at night.

5. Is the American lifestyle, based on cheap fossil fuels, coupled with the political power of corporations like Chevron and ExxonMobil, enough to prevent the U.S. from significantly reducing its dependency on petroleum?

This lifestyle is going to change, whether we want it to or not, whether Chevron and Exxon want it to or not (and for what it’s worth, I think Big Oil’s power is on the wane). The question is whether this lifestyle will change with extreme disruption when the price of oil returns to triple digits and goes beyond the $147-a-barrel record set in 2008, or when global warming means a portion of Manhattan is under water, or–and this is what I hope happens–our society truly recognizes these threats and begins the painful and costly adjustments necessary for radical shifts toward renewable energy as well as conservation and efficiency.

6. Official positions aside, to what extent has the industry accepted the imminence of peak oil and recalibrated its approach to extraction accordingly?

The oil industry is filled with a lot of smart people whose companies possess amazing technology. There is a debate within this industry about peak oil. Chevron and BP, though denying the imminence of a peak, have been ahead of others in admitting that the era of “easy oil,” as they sometimes call it, is over. The rest of the oil that’s to be found, they say, will be in hard-to-reach reservoirs that won’t be as large as the huge ones in Saudi Arabia or Iran. Oil executives are inherent optimists, because they are accustomed to drilling nine dry holes before finding a good one. So I think their dismissal of peak oil–the idea that the world has reached or will soon reach its peak of oil output–is genuinely felt to an extent. I also think there’s some willful distortion, because admitting to peak oil–which I define as a combination of geological and political limits on production–means their business model, which consists of extracting the stuff, has a dismal future. The major companies are of course investing in alternative energy projects, but I think these are optional bets they can afford to make and that they don’t regard as crucial to their future. Just as the railroad companies did not lead the way into automotive production, I wouldn’t expect and wouldn’t want oil companies to control the next generation of energy technologies.

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