Across the Globe, Oil and Gas at Risk

Friday May 5, 1:01 pm ET
By George Jahn, Associated Press Writer

Not Just Iran: Across the Globe, Steady Oil and Gas Supply at Risk

VIENNA, Austria (AP) -- Unrest in Africa. Mideast insurgency and terrorism. Iran's nuclear brinkmanship. Russian pressure politics. South American resource nationalism.

Piece by piece, the global energy puzzle reveals a bleak horizon for a world frantically searching for secure oil and gas supplies.

Concerns over Iran -- the world's fourth-largest oil producer -- have been the prime factor recently in driving crude prices to record levels and, combined with tight global refining capacity, for pushing U.S. gasoline pump prices above $3 a gallon in many places.

With the U.N. Security Council deadlocked and Tehran refusing to cease uranium enrichment, there is no end in sight to the struggle or the upward price spiral.

A barrel of crude was trading around $70 a barrel Friday. But Iranian officials this week predicted prices as high as $120 -- a forecast some experts share.

"I don't think that's far-fetched, assuming that the crisis with Iran will escalate," said Michael Klare, author of "Blood and Oil: The Dangers and Consequences of America's Growing Petroleum Dependency."

And there is also plenty of gloom elsewhere on the energy map.

In Africa, violence roils Nigeria, Chad and Sudan. In the Middle East, there's insurrection and terrorism in Iraq. Ethnic and geopolitical tensions persist in the Caspian Sea region. Russia's government is using its energy clout for political ends. In Asia, conflicting claims to the energy-rich South China Sea are sharpening Sino-Japanese tensions. And energy nationalism by South American nations is spooking markets.

Unusually tough rhetoric reflects the rising frustrations. U.S. Vice President Dick Cheney accused Russia on Thursday of using its energy reserves as "tools of intimidation or blackmail" -- some of the American administration's harshest criticism of Moscow to date.

By even the most conservative estimate, more than a quarter of the 80 million barrels of oil pumped a day worldwide comes from regions or countries where security of supply is in some way at risk. The situation is even more dire for natural gas, with close to half of global supplies potentially affected.

With daily crude supply already barely keeping pace with demand -- and producers stretched -- any major disruption would send a shock ripple across the world. A decision by Iran alone to withhold its 2.5 million barrels a day earmarked for export would soon force consuming nations to dip into emergency stockpiles.

Daniel Yergin, head of Cambridge Energy Research Associates, told the U.S. House of Representatives Committee on Energy & Commerce on Thursday that the present oil market is "fueled by the threat of terrorism, instability in some exporting nations, a nationalist backlash, fears of a scramble for supplies, geopolitical rivalries, and countries' fundamental need for energy to power their economic growth."

It's no wonder the race for secure energy has moved to the top of government agendas.

European leaders are pushing to reduce their gas dependency on Russia, while through their state-controlled companies, China and India are outbidding big commercial oil companies for drilling and exploration rights and cozying up to Iran. President Bush, meanwhile, made lessened reliance on foreign energy a cornerstone of his State of the Union speech in February.

Klare says success in securing energy supplies could be key to the survival of many regimes.

"I do think it could lead to the fall of governments and the rise of new governments," he says. "It's already shaking the foundation of the Bush administration."

Concern over energy security appears here to stay.

"While most supply threats in the past had never lasted more than a few months, the security of supply has become more of a ... (permanent) issue" since the al-Qaida attacks nearly five years ago, says Ehsan Ul-Haq, chief analyst at PVM Oil Associates in Vienna.

Violence in key oil-producing nations accounts for much of the world's energy instability.

In Iraq, insurgent attacks on the country's main pipelines north into Turkey have slashed hundreds of thousands of barrels a day from prewar exports of around 2 million barrels a day.

Oil ministry officials said recently they hoped to reach those pre-invasion levels soon. But that requires a protracted pause in insurgent attacks -- and the assumption that Iran will not fan major unrest among the country's Shiites in retaliation for U.S. pressure on its nuclear program.

It also does not take into account corruption and smuggling valued in the billions of dollars that a recent Iraqi government report described as the biggest threat to the country's economy.

Political strife in the Niger Delta has hurt the oil industry in Nigeria, the world's 10th-largest oil provider, with militant bombings and kidnappings slicing 20 percent off average production of 2.5 million barrels per day. Ethnic or political conflicts in Chad and Sudan, Nigeria's regional neighbors, interfere with the development of promising oil reserves.

Disheartening? Worse may lie ahead, as the world's hunger for energy grows, the tussle for oil and gas intensifies -- and the turmoil perpetuates itself.

"Instability is contributing to higher prices and that makes the seizure of oil and gas assets even more attractive," says Klare.

"We have to brace for more conflict."