Concerns around the virus and oil prices have worked in conjunction to destabilize the global economy in profound and multifaceted ways. But much of the media attention has thus far been devoted to the COVID-19 pandemic. This is warranted because the pandemic is proving fatal to thousands upon thousands of people, but an unintended consequence is that the oil war is now raging in the margins without receiving nearly any media attention, despite the fact that its shockwaves will be felt for years to come.
The intertwining consequences of the pandemic and the ongoing oil war is crucial to understanding why the global economy is edging towards the brink of a major recession.
To focus on the geopolitics that underlies the current oil price war, Al Bawaba spoke with Laleh Khalili, a professor of International Relations at Queen Mary University of London.
Laleh Khalili (Verso Books)
She argues that the kind of economic turmoil the global markets currently face from the oil war has its roots in decades of ever-shifting political and military relations. Her upcoming book exploring this theme is called Sinews of War and Trade and will be released later this year. In it, she provides a timely historical account of the ways in which current trade relations are built on the back of, and still exist in the context of imperial prerogatives.
Khalili highlights the career of Aristotle Onassis as an illustrative example of how trade and military interests collide in the Middle East. Onassis’ economic ambitions to dominate the international shipping industry ran afoul with U.S. interests in the region.
“Looking at his trajectory is actually a really fascinating window into global trade,” Khalili says.
A businessman with a keen eye to the growing role of oil in 20th century trade, Onassis began rapidly investing in decommissioned tankers and mobilized a massive fleet of ships capable of carrying large amounts of oil.
Once global demand for oil spiked, Onassis gained the attention of Saudi Arabia. He worked out a deal with the new country’s monarchy to establish a tanker shipping firm in return for rights to export Saudi’s massive oil reserves.
“Both in the 20th century and today, these kinds of fears that are generated about who the holders and owners of oil are going to sell their oil to is a form of imperial anxiety.
According to Khalili, this deal alarmed U.S. officials and Aramco, the country’s oil producer which was then owned by a consortium of U.S.-based oil companies including Exxon and Mobil. At this time in the early 1950s, Khalili notes, U.S. officials were desperately looking for ways to ensure its hold over oil production in the region.
Iran was working on nationalizing its own oil production, prompting a joint CIA-U.K. backed coup of Iran’s leadership. Now, Saudi looked like it may be going down a similar path.
Under the Saudi-Onassis agreement, Saudi authorities would be able to exercise control over where they sent their oil to, and could begin efforts to nationalize Aramco entirely, effectively expelling U.S. officials and businessmen from having a direct say in the country’s oil production.
U.S. officials in particular were fearful Saudi could begin shipping Aramco oil to political adversaries including the Soviet Union (USSR).
Artistotle Onassis with Jackie Kennedy (AFP/FILE)
“What you ended up with was a large-scale conspiracy to try to stop Onassis from getting this deal. And this included the CIA sending an envoy to Saudi Arabia a $2 million check just written out to," the king of Saudi at the time.
The matter eventually was taken to an international arbitration court, which ruled that Saudi had effectively relinquished its sovereignty to the then-privately owned Aramco, giving them no authority to deploy Onassis’ shipping fleet.
For Khalili, this story foreshadows elements of the current oil price crisis, especially with the looming prospect that as oil production surges, there will be vast amounts of cheap extracted oil needing to be stored on tanker ships and on land.
As it stands, the 21st century oil price crisis
“The geopolitical element is always there,” she says, adding that the U.S. currently stands to lose much of its own oil extractions’ profitability since much of it is based on the expensive extractive methods of shale oil.
“Where is the money going to come from for Saudi Arabia’s continued war in Yemen? And how does all of this tie into the seemingly ramped-up supposed anti-corruption efforts in Saudi Arabia, which are just ways of consolidating power for Mohammed bin Salman?"
“Both in the 20th century and today, these kinds of fears that are generated about who the holders and owners of oil are going to sell their oil to is a form of imperial anxiety. It’s a form of imperial anxiety that says, ‘We need the oil,’ ‘we’ being the U.S., and nobody else should get it because then they can compete with us.”
As of press time, the U.S. is leading international efforts to halt the oil war, lest its own massive oil industry begins to suffer catastrophic losses.
In addition to the financial concerns stemming from the oil price war, Khalili points out that much of the fallout may be felt in Saudi’s own security agenda.
“Where is the money going to come from for Saudi Arabia’s continued war in Yemen? And how does all of this tie into the seemingly ramped-up supposed anti-corruption efforts in Saudi Arabia, which are just ways of consolidating power for Mohammed bin Salman? She asks.
To listen to the full conversation, which includes a discussion on the role of economic ‘free zones,’ and labor exploitation, click here:
