Rising oil cost finances turmoil

Iran, Russia, Sudan and Venezuela getting wealthier and bolder

June 16, 2008|By David Wood | David Wood,Sun reporter

WASHINGTON - Filling up at the gas pump isn't just financially painful. Paying $4 a gallon also is creating headaches for the United States that are likely to spark new fighting overseas and to aggravate old conflicts.

Iran, which trains, arms and finances terrorists across the Middle East, is raking in an extra $4 billion a month thanks to the increased price of oil.

That money may show up as sophisticated new roadside bombs in Iraq or as rockets raining down on Israel, experts say.

The cascade of cash also gives Iranian President Mahmoud Ahmadinejad extra protection against the economic sanctions the U.S. is hoping will force Iran to give up its pursuit of nuclear weapons.

"The Iranian nation will not allow superpowers and satans to interfere in the national economy," Ahmadinejad declared last week. President Bush, he said, "does not have the courage" to confront Iran.

Russia is taking in an extra $11.4 billion a month above its normal oil revenues, according to data from the U.S. Energy Information Administration.

Russia's state-controlled oil firm, Rosneft, just reported that its revenues have tripled over those a year ago.

That can only strengthen the confidence of Prime Minister Vladimir V. Putin, analysts said. Putin has resisted the Iran sanctions, is rolling back democratic reforms at home and has threatened his neighbors with nuclear attacks and cut-offs of energy supplies.

Venezuela's Hugo Chavez, who has thumbed his nose at the United States by publicly supporting Iran's nuclear program and accusing Bush of planning to assassinate him, is putting away an extra $4 billion a month.

He has threatened to withhold oil from the United States, and the extra cash might give him the confidence to do it.

"The windfall of oil profits and our dependence on oil is a major and serious problem," said David Victor, director of the energy program at Stanford University's Spogli Institute for International Studies.

With oil bringing in unexpected cash, "there's more on the table, more at stake, and therefore there's a stronger incentive for people to try to tilt the rules in their favor," said Victor. "Heightened oil prices probably intensify the odds of conflict."

The sudden infusion of oil money in places like Myanmar, Sudan and Azerbaijan can drive those governments to become more authoritarian.

The revenue also tends to insulate them from pressures to tolerate dissidents and political opposition, and can foster corruption.

The cash earned by Sudan from its oil sales to a petroleum-hungry China, for example, makes it more resistant to Western economic sanctions intended to pressure Sudan to stop its murderous violence in the Darfur region.

And it makes China less willing to jeopardize that oil source by joining in the sanctions, according to UCLA political scientist Michael L. Ross.

In a new study of oil and conflict, Ross found that suddenly rising oil wealth tends to trigger or sustain conflict.

About one-third of today's conflicts take place in oil-producing countries, up from one-fifth in 1992, he found.

Most of newly warring oil countries were already poor, undemocratic and badly governed.

Oil just made it worse, creating festering instability that the United States will have to deal with, directly or indirectly.

"Oil revenues tend to increase corruption, strengthen the hands of dictators and weaken new democracies," Ross wrote in the journal Foreign Affairs last month.

In oil-producing countries like Nigeria, Algeria and Colombia, Ross found, insurgent groups can fund their rebellions through the black market.

Oil producers are twice as likely to suffer from internal insurgencies, he reported.

More established countries such as Russia, Iran and Venezuela have already become less accountable to their citizens, with new-found cash enabling them to buy off their opponents, he said.

Oil cash can also intensify rebellion and crime.

In the Gulf of Guinea, the waters below West Africa that are experiencing a boom in new oil discoveries, oil has already ignited rebellion, corruption, crime and piracy in Nigeria's Niger River delta.

In the delta's network of swamps and canals from which oil is pumped and transported, an oil tanker was attacked last week by pirates who were repelled in a firefight, the government reported.

Already, Nigeria is losing as much as 1 million barrels of oil a day in stolen or lost production due to piracy and attacks by militants, Nigerian government officials said.

And with oil 10 times more valuable than it was three years ago, the unprotected oil pumping, storage and transport facilities being built in the Gulf of Guinea are suddenly more lucrative targets for pirates and terrorists

That threat may require a U.S. Navy presence in the Gulf of Guinea - just as there has been in the Persian Gulf for decades.

"Any time you have a sudden change in the distribution of wealth, things become rocky," said Rachel Bronson, an international petroleum expert at the Chicago Council on Global Affairs.

"The Persian Gulf states, Russia and Venezuela all of a sudden have huge cash surpluses. ... It's destabilizing.

"You see a bolder Putin, and an emboldened Chavez, who really didn't need to be emboldened," she said.

No solutions appear imminent.

The United States can't stop buying oil from tyrants or insurgents, and it already has its hands full with existing conflicts in oil countries - in Iraq, for example.

Ross suggests requiring the oil companies to make public the source of their oil.

Drivers at the pump might chose between oil from Iran, say, or Burma or Venezuela.

Helping countries escape "the oil curse will not be easy," Ross concludes, and the number of oil-based conflicts "is likely to grow in the future."

david.wood@baltsun.com

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