Alan Greenspan: “Iraq War is Largely About Oil”
Former Fed Chairman Explains U.S. Oil Addiction
Famed economist Alan Greenspan was the Chairman of the Federal Reserve from 1987-2006, serving under four U.S. Presidents beginning with his appointment by fellow Republican Ronald Reagan. In his new book, The Age of Turbulence: Adventures in a New World, Greenspan addresses the crucial role Middle East energy resources has on the global economy in a 'post 9/11 world'. The portion from the book that has made headlines and aroused controversy is his assertion that America's invasion of Iraq was mostly connected to its dependence on oil — not weapons of mass destruction.
America's reliance on foreign sources of oil, he explains, leaves its economy susceptible to crises half a world away. Greenspan gives some past examples, including two references to the nationalization of Iran's oil in 1951 by its democratically elected Prime Minister, Dr. Mohammad Mossadegh. Here now is an excerpt from that portion of his book with the wider context intact.
Indeed, as late as 1952, crude oil production in the United States (44 percent
of it in Texas) still accounted for more than half of the world total. In
1951, excess Texas crude was supplied to the market to contain the
impact on oil prices of the aborted oil nationalization by Mohammad
Mossadeq of Iranian oil. Excess American oil was again
released to the market to counter the price pressures induced by the
Suez crisis of 1956 and the Six-Day War of 1967.
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It should be obvious that as long as the United States is beholden to
potentially unfriendly sources of oil and gas, we are vulnerable to economic
crises over which we have little control. Petroleum is so embedded in
today's economic world that an abrupt severance of supply could
disrupt our economy and those of other countries. U.S national
security will eventually require that we see petroleum as an energy
source of choice, not necessity.
The burgeoning global economy devours vast amounts of energy. Despite
the dramatic fall in the amount of oil, and more generally energy,
consumed per dollar of world output, all credible longer-term
forecasts conclude that to continue on the path of world growth over
the next quarter century at rates commensurate with those of the past
quarter century will require between one-fourth and two-fifths more
oil than we use today. Most of this oil will have to come from
politically volatile regions because, as we have seen, this is where
most of the readily extractable oil resides.
What do governments whose economics and citizens have become heavily dependent
on imports of oil do when the flow becomes unreliable? The intense
attention of the developed world to Middle Eastern political
affairs has always been critically tied to oil security. The
reaction to, and reversal of,
Mossadeq's nationalization of Anglo-Iranian Oil in 1951 and the aborted effort of
Britain and France to reverse Nasser's takeover of the key Suez Canal
link for oil flows to Europe in 1956 are but two prominent historical
examples. And whatever their publicized angst over Saddam Hussein's
"weapons of mass destruction", American and British
authorities were also concerned about violence in an area that harbors
a resource indispensable for the functioning of the world economy.
I am saddened
that it is politically inconvenient to acknowledge what everyone
knows: the Iraq war is largely about oil. Thus, projections
of world oil supply and demand that do not note the highly precarious
environment of the Middle East are avoiding the eight-hundred-pound
gorilla that would bring world economic growth to a halt. I do not
pretend to know how or whether the turmoil in the Middle East will be
resolved. I do know that the future of the Middle East is a most
important consideration in any long-term energy forecast. Even though
oil-use intensity has been significantly reduced, the role of
oil is still such that an oil crisis can wreak heavy damage on the
world economy. Until industrial economies disengage themselves from,
as President George W. Bush puts it, "our addiction to oil"
the stability of the industrial economies and hence the
global economy will remain at risk.
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