Oil and the economic crisis

Caspian oil not so long ago was being touted as 'a second Persian Gulf'. Azerbaijan was feted as the new Saudi Arabia. The Wall Street Journal gushed like a wildcat about the prospects, reporting reserves of up to 190bn barrels of oil. The U.S. Department of Energy said a few years ago that the potential recoverable oil reserves in the region are some 200 billion barrels. World annual consumption is currently around 70bn bbls. So a discovery that big, with inevitable later upward revisions in reserves, would fundamentally alter and improve the world's energy balance, and would temporarily save world capitalism from the fate of the Soviet Union, which used up its fabulous Samotlor and Urengoi fields in Siberia in just 20 years, and promptly collapsed (Russian oil production is now one-third of Soviet levels; Russia is expected to be a net oil importer this year or next).

The Caspian euphoria is already a thing of the past. Last summer the shine began to go off the Caspian oil boom. It wasn't just the slump in world oil prices nor the continuing wrangles about export routes, amid fears of regional instability (the Caspian is a sea ringed by Kurds, Turks, Iranians, Chechens and others who are constantly in a state of war). Just when British Foreign Secretary Robin Cook announced the Caspian region will supply a tenth of the world's oil within a decade, a remark that promised a huge petrodollar boom for this impoverished region, a more sober report by the International Institute for Strategic Studies in London said the Caspian region holds perhaps only 3 percent of world oil reserves, much lower than Cook's claim suggests.

Since then (July 1998) the Azeri boom has gone bust big time. Looks like even the IISS was being too optimistic. This week several big oil consortia said thet'd abandoned their offshore stakes after spending billions of dollars pumping salty water out of the Caspian seabed. The latest authoritative estimates are in line with those I posted last year on this list and LBO: Caspian reserves may total only 19bn bbls. That's about 4 months of world supply. Tha Caspian looks to be smaller than the N Sea and compares to Saudi like a pond to an ocean. Tricky fellows, those Soviet-trained Azeri bureacrats. They wined, dined and got bribed by the West and global oil majors for almost a decade, but now the jig is up.

So where will China get its oil from, now? The big plans for $100bn pipelines across the world's most inhospitable deserts and mountains, to send oil to China's energy-hungry cities, are already gathering dust. The bankers have stopped the junketting.

And what will happen when Persian Gulf production begins its inexorable, geologically-determined decline next decade, while N Sea dries up completely?

In this and later postings I will explore both the global impact of growing energy shortages, and the regional effects on the neighbouring mid-East/Caspian states most involved: Iran, Iraq, Turkey, Russia, Azerbaijan and Kazakstan.

Mark Jones