American Oil Diplomacy in the Persian Gulf and the Caspian Sea Copyright 2003 by Gawdat Bahgat. This work is licensed under a modified Creative Commons Attribution-Noncommercial-No De- rivative Works 3.0 Unported License. To view a copy of this li- cense, visit http://creativecommons.org/licenses/by-nc-nd/3.0/. You are free to electronically copy, distribute, and transmit this work if you attribute authorship. However, all printing rights are reserved by the University Press of Florida (http://www.upf.com). Please contact UPF for information about how to obtain copies of the work for print distribution. You must attribute the work in the manner specified by the author or licensor (but not in any way that suggests that they endorse you or your use of the work). For any reuse or distri- bution, you must make clear to others the license terms of this work. Any of the above conditions can be waived if you get per- mission from the University Press of Florida. Nothing in this li- cense impairs or restricts the author’s moral rights. Florida A&M University, Tallahassee Florida Atlantic University, Boca Raton Florida Gulf Coast University, Ft. Myers Florida International University, Miami Florida State University, Tallahassee University of Central Florida, Orlando University of Florida, Gainesville University of North Florida, Jacksonville University of South Florida, Tampa University of West Florida, Pensacola American Oil Diplomacy in the Persian Gulf and the Caspian Sea Gawdat Bahgat University Press of Florida Gainesville/Tallahassee/Tampa/Boca Raton Pensacola/Orlando/Miami/Jacksonville/Ft. Myers Copyright 2003 by Gawdat Bahgat Printed in the United States of America on acid-free paper All rights reserved 08 07 06 05 04 03 6 5 4 3 2 1 Library of Congress Cataloging-in-Publication Data Bahgat, Gawdat. American oil diplomacy in the Persian Gulf and the Caspian Sea / Gawdat Bahgat. p. cm. Includes bibliographical references and index. ISBN 0-8130-2639-3 (cloth: alk. papaer) 1. Petroleum industry and trade—Political aspects—Persian Gulf Region. 2. Petroleum industry and trade—Political aspects—Caspian Sea Region. 3. United States—Foreign relations—Persian Gulf Region. 4. Persian Gulf Region—Foreign relations—United States. 5. United States—Foreign relations—Caspian Sea Region. 6. Caspian Sea Region— Foreign relations—United States. 7. Geopolitics—Persian Gulf Region. 8. Geopolitics—Caspian Sea Region. 9. World politics—21st century. I. Title. HD9576.P52B34 2003 333.8'23'0973—dc21 2003040238 The University Press of Florida is the scholarly publishing agency for the State University System of Florida, comprising Florida A&M University, Florida Atlantic University, Florida Gulf Coast University, Florida International University, Florida State University, University of Central Florida, University of Florida, University of North Florida, University of South Florida, and University of West Florida. University Press of Florida 15 Northwest 15th Street Gainesville, FL 32611–2079 http://www.upf.com Contents List of Tables vii List of Maps ix Preface xi List of Abbreviations xv 1. U.S. Energy Security 1 2. The Global Energy Scene 24 3. Managing Dependence: American-Saudi Oil Diplomacy 43 4. The United States and Iraq: Continuity and Change 72 5. The United States and Iran: Prospects for Rapprochement 103 6. The Geopolitics of the Caspian Sea 140 Glossary 175 Notes 179 Bibliography 193 Index 207 Tables 1.1. U.S. fossil fuel consumption, 1990–2020 5 1.2. U.S. oil production and consumption, 1970–2000 7 1.3. Imports from the Persian Gulf region as a percentage of net oil imports, 1983–2000 21 2.1. Fossil fuels in the United States and the European Union, 2000 27 2.2. Fossil fuels in Pacific Asia in 2000 35 3.1. Crude prices in $U.S. per barrel, 1972–2000 48 3.2. Saudi oil production and share of total OPEC, 1970–2000 52 4.1. Iraq’s oil production, 1970–2000 77 5.1. Iran’s oil production, 1970–2000 110 6.1. British Petroleum/Amoco’s estimate of the Caspian’s resources, 2000 144 6.2. Oil and Gas Journal’s estimate of the Caspian’s resources, 2000 144 6.3. U.S. Energy Department’s estimate of the Caspian’s resources, 2000 144 Maps 1. The Arctic National Wildlife Refuge, Alaska 3 2. The North Sea and northwestern Europe 25 3. Saudi Arabia 44 4. Iraq 73 5. Iran 104 6. The Caspian Sea 141 Preface In this book, I do not claim to analyze American foreign policy in the Middle East. Similarly, I make no attempt to examine U.S. energy strategy comprehensively. Rather, I focus on Washington’s efforts to create and maintain a state of “energy security.” Specifically, I provide a thorough analysis of U.S. relations with two energy-rich regions, the Persian Gulf and the Caspian Sea. The first chapter outlines the main themes of the study. It argues that a long-term American energy strategy should include a broad combination of measures that would stimulate domestic production, provide incentives for conservation, promote clean technologies, and eliminate political bar- riers to world markets. Furthermore, despite the increasing supplies of oil and natural gas from the North Sea, Latin America, and southern and western Africa, and the projected contribution of the Caspian Basin to global oil security, the Persian Gulf remains the main reservoir that can meet either a substantive increase in demand or an emergency caused by a major disruption of supplies. Chapter 2 argues that U.S. energy policy cannot be understood in iso- lation from that of other countries. The focus is on the global energy scene. Specifically, the energy strategies of the European Union, Russia, and Pa- cific Asia are examined. In addition, the controversy regarding global warming and the Kyoto Protocol is analyzed. The conclusion is that, given the globalization of energy markets, there is a need to adopt a collective approach to energy security. A narrow national approach by an individual state will not succeed. Chapter 3 highlights the mutual understanding and close cooperation between the United States, the world’s largest oil consumer and importer, and Saudi Arabia, the world’s biggest producer and exporter. The analysis focuses on two dimensions of American-Saudi energy relations: the stabil- ity of oil prices and the gradual reopening of the Saudi hydrocarbon sector to foreign investment. Also discussed are some of the main challenges to this long-term partnership between Washington and Riyadh. These chal- xii | Preface lenges include security, economic and political reforms, the Arab-Israeli conflict and peace process, and militant Islam. Since the demise of the monarchy and the establishment of a republican system in Baghdad in 1958, tension, suspicion, and outright hostility have characterized American-Iraqi relations. Iraq, which holds approximately 10 percent of world oil proven reserves, has been dissatisfied with its geo- graphical makeup. Territorial disputes are common in the Persian Gulf, but more than the other regional states, Iraq has sought to realize its claims aggressively and militarily. With substantial strategic and economic interests in the Gulf region, the United States has taken the lead in contain- ing the perceived Iraqi threat and promoting stability in both the Gulf states and the global oil markets. Developments since the September 11 terrorist attacks have intensified the debate in Washington regarding the next step with Baghdad. Chapter 4 suggests that the Iraqi dossier is far from being closed. Washington has yet to find a way to reconcile the need to keep Iraqi oil flowing into the global markets with its desire to deter Baghdad from committing any aggression against its neighbors or acquir- ing the means to pursue such a policy. The troubled American-Iranian relations since 1979 are the subject of chapter 5. Iran can be seen as an energy giant with one foot in the Persian Gulf and the other in the Caspian Sea. Still, the Islamic Republic’s oil and gas potentials have been restrained by its tense relations with the United States and by Washington’s efforts to deny Tehran access to badly needed foreign investment to update and modernize its energy infrastructure. The chapter discusses the American sanctions against Iran and the main ob- stacles toward a rapprochement between the two countries. These include sponsoring terrorism, acquiring and developing weapons of mass destruc- tion, and opposing the Arab-Israeli peace process. Despite the huge gap between Washington and Tehran on these three issues, the two sides share mutual interests and concerns in several other areas such as Afghanistan, Iraq, and global energy markets. Since the early 1990s, many energy experts and policymakers have per- ceived the Caspian Sea as one of the most promising oil and gas reservoirs in the world. Experience suggests that this euphoria has been exaggerated. Several logistical, economic, and political obstacles need to be addressed and overcome before the region can realize its projected potentials. The final chapter examines six of these challenges: an accurate assessment of the Caspian Sea’s hydrocarbon resources; rivalries between regional and international powers; domestic ethnic divisions; disputes over the legal status of the Caspian; disagreements over the most cost-effective transpor- Preface | xiii tation routes; and the potential geopolitical changes in the region in the aftermath of the war on terrorism. In short, this volume examines the growing dependence of the United States on fossil fuels, particularly oil, and the main challenges it faces in securing supplies from the Persian Gulf and the Caspian Sea. The study will be useful to students, scholars, and individuals interested in interna- tional relations, international economy, Middle Eastern policy, and energy studies. Many people helped me in writing this book. I would like to thank Sandra and Pat Dickson, Beth and Steven Sims, Gene and Helen Hooker, Anthony McDermott, and Michele Reynolds-Jackson.