Sunday, June 8, 2008

The Myth of Inadequate Investment (?)

On 31 May 2008, in the “Drum Beat” section of the Oil Drum website, a Newsweek story on escalating oil prices was featured. The story was titled, “The Coming Energy Wars.” I only read the first few paragraphs; yet I was intrigued by its tone, and by the picture at the top: a fire-lit nighttime shot of people in France protesting high fuel prices. The story spoke of the shock that rising oil prices has already caused throughout the world, and warned of the turmoil to come if oil prices rise rapidly to $200 a barrel. It seems that the reporters at Newsweek even grasped the threat such prices would pose to globalism, and to retailers such as Wal-Mart and the people who depend on such retailers for cheap imported goods.

But the thing that stood out to me was the frightened tone of the article. It's as if the Newsweek staff had actually been talking to me and I could hear the nervous quiver in their voices. For so long, the mainstream media has served up stories of sports, sex and celebrity in its bid to prevent Americans (and Canadians and Brits as well) from seriously considering the trends and events that really matter in the world. But now those events are crashing in upon us with a force and an urgency that cannot be ignored. Yet the Newsweek staff was not so frightened that it forgot its primary mission in reporting such stories: to tell enough of the truth to sell magazines and advertising, while packaging that truth in a wrapping of propaganda in order to promote the agenda of its corporate masters.

For example, after citing “...the stranglehold OPEC imposed on the world in the 1970s,” the article lists reasons for the oil shock of 2008. While the article gives passing acknowledgment to shrinkage of estimates of reserves in oil producing countries, it also cites the usual suspects: increased demand from China and India, increasing global conflict, industry bottlenecks and falling investment. Falling investment or inadequate investment in oil field extraction are commonly cited by the mainstream media as reasons why oil extraction cannot keep up with demand. Major American and British papers and other journalistic outlets are especially quick to blame nonwhite, Third World nations for “lack of investment” when the supply of oil from those nations begins to diminish. The same “journalists” often criticize nations which nationalize their oilfields, saying as the Newsweek article does, that this “...often leads to lower output, due to the inefficiency of most state oil companies...”

This reminds me of Dmitri Orlov's analysis of the American practice of “economic development” as a means of promoting globalism. In that analysis, found in his newly published book, Reinventing Collapse, he states that the aim of US economic development policy in the Third World has historically been the extraction of a country's economic resources under terms most favorable to Western corporations and banks. The way it worked was as follows: The US and its allies, by means of the World Bank and International Monetary Fund (IMF), would extend economic assistance to the government of a “poor” Third World country in order to bring “prosperity” to that country. The government of the nation in question would usually consist of corrupt pro-Western stooges who had been placed into power through Western behind-the-scenes intervention. The economic assistance offered to the country consisted of a generous loan in order to finance the systems and machinery necessary to extract the country's resources. However, those systems and machinery were owned by American and other Western corporations, who were allowed them to reap almost all the profits of those resources, while paying a small percentage to the country's rulers as a bribe. The majority of the citizens of the country never saw a penny of those profits; however, they were saddled with paying down the debt of the original “loan.”

This is but one of many schemes which have been used by the United States and its allies to secure the natural resources of the rest of the world for Western consumption. However, over the last several years, these schemes have run into trouble, as far-flung countries with natural resources have refused to play the game of the West. Therefore, there is now a big public relations campaign in Western media, including such magazines as Newsweek, to portray the rightful owners of these resources as incompetent, unintelligent children who need Western expertise in order to properly “manage” their resources. This campaign is also being carried out by means of the mouths of pro-Western stooges in the governments of such nations as Mexico, whose president, Felipe Calderon, has been warning for months of dire consequences to the Mexican economy if the nation refuses to allow foreign investment in its national oil company, PEMEX. (Source: “Mexico's Calderon Seeks to Overhaul PEMEX,” Los Angeles Times, 9 April 2008,,1,1405382.story)

In the Times story, the Mexican government states that Pemex's petroleum reserves had fallen 27% between 2002 and 2007, but seems to say that the answer is allowing international oil companies to have a stake in developing Mexico's oil wealth. No mention is made of geology or of the fact of depletion of existing fields, nor is it mentioned that when the oil production of the United States began to decline in the 1970's, the big private American oil companies were unable to stop the decline. I assert that the big private international oil companies are not saviors; rather, the aim of their PR campaign is simply to fool Third World nations into letting the internationals have the lion's share of a dwindling resource.

But such an assertion needs facts and proof to back it up. Very well. I think now of a podcast I heard a few months ago in which investment banker Matt Simmons was speaking. One thing he said was that all the talk of production shortfalls being caused by lack of investment or expertise in exporting countries with nationalized oil industries was false. He stated further that many of the nationalized oil companies have technical staff, finances and equipment that is equal if not superior to anything owned by the private internationals. Also, many of these countries depend on third-party oil service companies to undertake any technically demanding tasks that are beyond the skill of the national oil companies. These countries like the third-party service providers because they only charge a fee for their expertise and their work, and are not trying to take over ownership of any country's oil resources. According to Simmons, there is no lack of investment or expertise in the nationalized oil industries of many countries.

I base my opinion, therefore, largely on Matt Simmons, whom I regard as an expert. But his statements should be independently verifiable. So I am throwing out a challenge to anyone who reads this: do some research on the third-party oil service companies (those who provide oil extraction services but who do not own oilfields). See their expertise, who their clients are, and what their annual revenues are. Then present an analysis of the true extent of investment by the national oil companies in their own oil extraction, including money spent on securing the services of these third-party companies. Such an analysis could be published on a website such as the Oil Drum (, where it would be subjected to an instant “peer review.” Such an analysis, if truthful and accurate, would provide a ready answer to journalists who write about a lack of expertise or investment by national oil companies. Some of the third-party companies are as follows: Schlumberger, Dresser Industries, and Fluor. A more complete Wikipedia list can be found at (If no one takes up my challenge within a month, I suppose I'll have to do it myself : ))

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